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Important Findings on Business Process Outsourcing

bpoOnce you decide to offshore work, the next important decision that you have to take is about choosing the right location. In today’s article we will focus on the area of business process outsourcing. London School of Economics has recently conducted a research that has shown way to the buildout of an organized structure for evaluating the attractiveness of countries as BPO locations. This research has revealed some important factors that have been discussed below.

Ten countries have been identified by analysts that are directly competing for similar UK work. These countries are: Philippines, India, Poland, South Africa, Morocco, Malaysia, Kenya, Sri Lanka, Northern Ireland and Egypt.

Overall Cost (inclusive of infrastructure, labor, incentives and taxes)

Cost is the most important reason that drives companies to outsource or set up wholly owned centres abroad. However, it is an overwhelming task to implement. The most commonly followed measure is direct operating cost per full-time worker. When calculated this way, Philippines, India, Egypt and Malaysia have the most lucrative operating costs while South Africa, Poland and Northern Ireland are known to be the priciest across the chosen skills base. Nevertheless, all the above mentioned locations are funded to some extent via tax allowances and governmental incentives for internal investment.

The next factor is infrastructural cost, particularly power and internet. Bandwidth cost in Philippines has been reduced by 40%.  South Africa is also planning to lessen its telecom costs by 20% in the next three years. Egypt’s infrastructural costs are already less and Northern Ireland’s costs are too competitive. Other aspects, such as client’s location, are also relevant for calculating total cost. As far as captive offshoring is concerned, client companies prefer comparing destinations with their own local costs. Consequently, all the locations offer savings from 25 % to 75% by this comparison. As for overall cost, India continues to be the most preferred country as of now.  The cost considered here is a combination of infrastructure, labor costs and startup. India is followed by Kenya, Philippines, South Africa and Egypt.

Skills:

It is a bit difficult to assess the availability of skills in a different country. Since Northern Ireland and Poland have advanced education system, majority of the population has access to their well-developed education structure that is quite strong in technology, business, sciences, and engineering. Thus, countries with less access to education could be under tremendous pressure as a result of ever growing demand. India continues to remain the offshore powerhouse.

In 2012, Indian universities produced almost 4.4 million graduates with 16% specialized in technology and science. Similarly, Egypt produces almost 330,000 graduates every year. Almost 10% of these graduates are specialized in engineering, technology and science. More than 25,000 graduates from Cairo can speak English fluently along with other European languages. Nevertheless, Egypt has worked really hard to develop the required BPO middle management skills. Egypt also has the advantage of its location that makes it the hot favorite of clients residing in the United Kingdom and Europe. South Africa excels in business, accounting and legal skills whereas Philippines stands out in medical transcription, accounting, HR, IT, finance and accounting. Sri Lanka’s BPO resources are very affordable and they are known for their expertise in accounting, legal back office work and IT development. As an offshore location, Kenya is at an early stage in development but has good skills in knowledge process, English and IT. Morocco is another good choice for European based businesses for availing nearshore support.

Environment:

The Government of almost every country focuses on FDI; however, since the legal system of each country varies greatly and does not always support the idea of FDI. As for environment, the following countries are the best:

1.    South Africa
2.    Northern Ireland
3.    Malaysia
4.    India
5.    Philippines
6.    Kenya

In terms of other factors such as Business, Government and Quality of Life, Northern Ireland scores the highest. Poland is next in the queue followed by South Africa, Malaysia, India and Philippines.

Market Potential:

In the survey, the respondents were asked to rate the local markets in terms of attractiveness and their access to markets situated nearby. Apparently, India and South Africa have the greatest market potential though they got lower ratings for access to nearby markets. India and South Africa are followed by Philippines, Malaysia and Poland. The countries that ranked lowest are Kenya followed by Egypt.

Infrastructure Quality:

It is impossible to run a BPO centre without fast and reliable technology and proper infrastructure. Poland and Northern Ireland have the best infrastructure. The next in queue are Malaysia, South Africa, India and Philippines. Kenya got the lowest rating followed by Egypt and Sri Lanka.

Human Rights:

Human Rights and issues pertaining to equality are a serious matter of concern. Failures to consider the HR issues are mostly interpreted as implicit support. The methodology for selecting an offshore location also includes the impact on the host nation along with its workers. The issues take into account safety measures of workers, labor laws, HR records, censorship and prejudice on the basis of gender, politics, sexuality, ethnicity, faith and politics.

Risks

While making decisions to offshore, companies are generally driven by service considerations, skills and cost. With political disturbances and economic issues across several parts of the world, risks have been rising by leaps and bounds.

Terrorism in Sri Lanka, India, Kenya, Egypt and Northern Ireland is another grave problem. Such risks can either be on a national scale or confined only to disputed areas. Risks to personal security also arise from rackets and crimes which vary from place to place. Egypt, Kenya and Sri Lanka have been rated as the highest political risk countries and Malaysia, Northern Ireland and Poland have been rated as countries with the lowest political risk.

Regulatory risk is equally important to consider. Northern Ireland, Poland, and Malaysia tops the list whereas Kenya, Egypt, and Sri Lanka have been rated as the worst. India too have been criticized for its legal inefficiency, while Philippines, South Africa, and Morocco have been rated as meeting business necessities.

Intellectual property risk is the most prominent in Sri Lanka, Kenya, and Egypt, and Morocco. However, there is divided view about IP security in Philippines and India due to their huge market size that gives different experience to different clients. Northern Ireland and Poland are providing outstanding IP security, whereas South Africa and Malaysia have been rated as good.

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