Offshore Outsourcing

Thursday, November 1, 2007 - 11:07

For Australian companies, there are advantages and opportunities to be had in outsourcing business components overseas. By Louise White

Outsourcing is becoming a vital component of many business practices around the world. As companies strive to increase their bottom line profits without adding to the burden on expenditure, they have to find more efficient ways of conducting business.

In recent times, some Australian companies have looked to expand certain components of their business, especially the back-end, to overseas markets in China and India. But while outsourcing here has been common for some time, Australian companies are behind North America and Europe in venturing into foreign territory to outsource their operations overseas.

"Australian companies entered into outsourcing by necessity," says Phil Hadcroft, General Manager of strategy for HPA.

"While outsourcing has been around for probably 20 years, with the UK and US leading the way in running services in foreign countries, Australia initially outsourced within its own shores and even looked for other Australian companies offshore to deal with.

"From a management point of view, if an important component of business only takes up a small portion of your time each month and you don't need front room operators, it is generally going to be cheaper to send that offshore where labour costs are lower."

It will come as no surprise to many people that activities such as telco and credit card billing, government fines and many call centres have and are being relocated to India.

HPA, which specialises in streamlining business processes for the public and private sector, believes Australian managers are becoming savvy in developing partnerships and even offices around the globe.

"Really it comes down to economies of scale," says Hadcroft. "It makes sense to ship holistic business processing such as outbound calls, customer service, technology support, helpdesk, accounts payable and receivable and other back office processing to places like the Philippines, India and China.

"Naturally, there was a reluctance [to it] from Australian companies as there are trust and cultural issues. Plus, everything has to be in accordance with Australian law, particularly concerning privacy; but it is growing and will continue to grow in the future."

"If you can outsource a part of your business and get the work done cheaper then why wouldn't you? If you break down to a consumer level, well people will always look around trying to get the best deal they can on anything from grocery shopping to buying a new car so why wouldn't businesses do the same?'

Catching up

One company that has embraced outsourcing and gone to great lengths to set up offices in the countries it wishes to do business with is M&Y Data Solutions.

"There is no doubt that the Australian market is a few years behind Europe and the US, but we are quickly catching up when it comes to outsourcing outside of our own borders," says Bill Oakley, General Manager, Australia and New Zealand.

"Matthew Cule and Yan Xu started the company in 2001," says Oakley. "After setting up a Sydney office, they quickly realised that it made business and management sense to be in the regions where they saw the most potential, and we quickly established a presence in China. It helped enormously that Yan could speak the language. We now have two offices in Daqing, north China, and Zhuhai, south China."

M&Y Data Solutions also has a global sales office in Cardiff in Wales. The company has over 1000 employees in China delivering data capture, document processing, document scanning, image storage and retrieval services to industries including finance, insurance, manufacturing, retail and transportation industries.

"Domestic China has taken off very strongly and our business is now split evenly between China, Australia and the UK," Oakley says. "Outsourcing was always going to grow quickly outside of Australia; it was a simple management [belief] that if we based ourselves in what we thought was going to be the fastest growing region in China, it would open up business opportunities; it has. There are also added benefits of cheaper labour costs.

"We specialise in data capture and there are still a lot of businesses nervous about outsourcing. What better way to calm someone's fear in a foreign country than by turning up on their doorstep and having people from the region working there.

New trends

IDC is a leading global provider of market intelligence for the information technology, telecommunications and consumer technology markets. It states that outsourcing trends are changing for Australian companies.

"Outsourcing of the IT market is growing at only 2 per cent compared with desktop management at 6 per cent, network management at 8 per cent and applications management at 9 per cent," says Aprajita Sharma, IDC Research Manager, Outsourcing and BPO.

"What we are seeing is that more and more Australian companies with 500-plus employees are making management decisions to outsource offshore. A typical example is a bank that has a lot of back-end data to process, which is a high cost to maintain in Australia, but it is cheaper to send offshore.

"Typically, companies' reluctance to outsource offshore is a control issue. You don't see a lot of companies with 100 to 499 employees readily embarking upon this method as they tend to keep most processes in-house."

Sharma sees Australia quickly catching up to the Europeans and Americans.

"The Asia-Pacific market is probably the third biggest market, and as Australian companies come to grips with trust issues and realise the risks/rewards and savings potentially involved, they will embrace outsourcing offshore."

Asia-Pacific opportunities

Due to the ongoing labour shortages in Australia, opportunities for European and North American companies to outsource their operations here aren't as great as in the past. However, some multinational businesses are using Australia as a pool for cheaper resources.

"IBM runs a BPO (business process outsourcing) centre on the Gold Coast where it uses Chinese and Japanese skilled speakers as a cheaper source of labour for their Asian arms," says Sheryle Moon, CEO of the Australian Information Industry Association.

"But our skills shortage crisis makes it hard for us to meet the demand. Add to this our rising dollar, and Australia is not the first port of call," Moon adds. "What we will see in the future is that Australian companies not only want cheaper labour but also expertise in the foreign markets they are dealing with; they will also be looking for co-opportunities."

One Australian company that launched straight into the Asian market is Foobooonline.com.

Two years ago its founders Martin Conboy and James Haensly identified a need for a company that can match the needs of Australian businesses with outsourcing service providers offering services within Australia or the region.

"Typically most people think about offshoring as a way to reduce operating costs for their Australian business," says Conboy. "The savvy companies are now using Chinese outsourcers to establish a presence in China to service the rapidly growing Chinese in-country market. It is not an easy nut to crack, but done correctly the Chinese opportunity has enormous potential.

"We set up office in Singapore as it was a natural location for an Asia-Pacific headquarters to complement the Australia office. It serves as a natural business hub to a variety of countries in Asia including the Philippines, India, Malaysia, and China.

"There are so many incredible business opportunities in Asia, and given the proximity of the markets, it is a shame not to see more Australian companies wading in and getting their share."

There is no doubt outsourcing offshore will continue to offer great opportunities for Australian companies. How many take up that opportunity for both cost savings and business expansion remains to be seen.