Outsourcing to perfection
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The theory that if you do not own you cannot manage is history. There cannot be a better example than the Indian outsourcing industry to rubbish this theory. In fact, thanks to the phenomenon called outsourcing, the Indian IT industry alone is worth around $30 billion today. Plus there's a huge amount of work being outsourced in other areas such as manufacturing, textiles, consultancy, management and design areas. Not to mention the growing domestic outsourcing business.
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In fact, the Indian market is approaching a near perfect market situation in the outsourcing business, says Sourav Mukherji, Assistant Professor, Organisation Behaviour, Indian Institute of Management, Bangalore (IIM-B).
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At a conference titled `Global Competitiveness through Outsourcing: Implications for Services and Manufacturing' at IIM-B last week, Mukherji presented a paper on `Outsourcing: Practice in Search of a Theory'. The paper studies the growth path of the outsourcing trend in the country, particularly in the non-IT and domestic sectors.
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He says that for a long time, Indian companies have been intuitively striking outsourcing deals. But it's also true that they have been giving better value to customers which means that have moved up the value chain.
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Mukherji, who has studied the growth of the non-IT outsourcing industry in the country, says the trend is no longer a step towards cost cutting or a company getting into a core competency game. "It is plain make versus buy decision," he states .
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| Having studied the domestic industry's outsourcing deals, Mukherji says there are roughly three predominant areas where transactions are happening: |
| Some companies are outsourcing work to gain access to specific competencies. He quotes the instance of Reliance Industries hiring a major consulting firm for work in the strategy management area. "Here cost is obviously not relevant, but specialised knowledge is important," he explains. |
The second is instances where corporates have had to outsource because only certain service providers have access to privileged assets. He quotes the instance of a private airline using the ground handling facilities of Indian or Air India. Then there is the case of a large Indian pharmaceutical company using the distribution network of a US-based company for marketing its products there. "The company cannot obviously build a distribution network across the US and has to outsource this service from a local company because here the time to market is critical."
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| The third reason a company could be outsourcing is to get superior resource leverage, like in outsourced payroll, recruitment or accounting projects. |
| But the larger issue here is this: Have Indian companies got over the fear of confidentiality and IP issues involved in outsourced projects? "Yes, they have," argues Mukherji. "Can you imagine a Rs 90,000-crore Indian giant outsourcing its entire strategic management process to a McKinsey or a BCG ten years ago?" In fact, employees of such large management consultancy firms are trained to accord the highest priority to confidentiality issues. "Otherwise, globally, they wouldn't be working with competing clients, would they?" he asks. He argues that in case of a confidentiality lapse, the service provider would be carrying a bigger risk. "With one mistake the consultancy company is out of business and is dumped in the market," he says. |
| On education in the outsourcing area, he says post-1993 there is a lot of demand from the students for a course on the subject. "In fact there are several modules on the subject in each of the electives at IIM-B," he adds. |
