Is not telling customers you outsource decieving them?

I had an interesting conversation with an accountant the other day. I found out that they have a small outsourcing branch in India processing some of the more standard accounting functions. They had a team of 4 trained by New Zealanders in New Zealand accounting practices.

The interesting thing is that because it is non customer facing work, all their customers don’t know that they send some of their work off shore. The question becomes then “Is this practice deceiving your customers? “. Personally I don’t think so. Though I am sure others will disagree.

Ultimately as a company you are contracted to deliver a service. Surely the way you deliver that service should be up to you. The issue is not so much whether you do off shore resourcing rather it is about what level of transparency you will provide your customers.

It is a choice each company that send work offshore needs to make. Some will be transparent and offer lower rates for work done offshore, others will keep that portion of their service very quiet. The concern you may have if you do keep things quiet is what will happen when (if ever) your customers find out you have been sending their work off shore?

Outsourcing to developed nations?

There were many articles over the last year that were talking about New Zealand losing jobs to Asian countries. Yet at the end of the year there was an interesting article about a list released by Gartner that lists 30 countries that have high outsourcing potential this year. Among them some interesting countries including: New Zealand, Canada, Australia & Ireland.

The other countries on the list make very clear sense. They have much lower labour costs, close to markets, and high investment incentives. They are also developing countries that are keen to fall over backwards to get some of the outsourcing cash.

So why would a company outsource to developed countries such as New Zealand & Australia. There are a few reasons.

1) Firstly even though the labour cost savings aren’t as huge as with developing countries, they are still there.

2) The language, English as a first language no matter how well you practice is better. It will be about giving the customers better piece of mind that your company can communicate well with them.

3) The skill set. There are some downright talented people in these countries. Many of them having spent years in their industry of choice. You can get highly skilled labour at a good rate.

4) Time zone differences. Getting work done while you are sleeping. 24 x 7 call centres can be a reality. Set the tasks and leave them to it. In the morning it is done.

5) Cultural similarities. Very similar to the language, because your culture matches their culture better there is a greater peace of mind that they will understand your customers better.

2008 will be a great year for outsourcing growth. This very new industry will sky rocket this year. Both in developing countries, but also it is my bet in these developed countries too.

Vietnamese strike at Nike plant

This is an interesting story and one that will pop up more and more as the world continues to throw money at poorer countries. Have a look at the BBC article here. The Nike plant while it pays really well comparatively is still having staff going on strike.

The article puts it down to inflation. And inflation is definitely a major factor for it. However the inflation itself is because of the influx of outsourced opportunities into the country. Along side this is the desire for the common worker in these developing countries to get some of the bling that they are making for the 1st world.

Outsourcing is great for 1st world countries to reduce substantially the cost of delivering service and products. It is great for the developing countries as it brings lots of cash into their economies. Soon it is my belief that the employees of these developing countries will keep upping the price of doing business.

It has already started happening in India, the income growth there has been amazing. It will be interesting to see how soon it will be before skilled labour in these developing countries start to write off the efficiencies gained by the cheap labour.

The biggest news last week – Yellow pages outsources call centre

Wow the last few weeks have been busy. Sorry for being so on and off over the last month. Busy is good so they say. Anyway the biggest news out there last week was Yellow pages plan to outsource the 018 directory services. One of many articles can be found here.

Apart from the loss of over 100 New Zealand jobs this is quite an interesting outsourcing decision to follow. Because most outsourcing decisions don’t affect as many New Zealander’s as this one potentially could. The company has assured that us that the decision was taken with all due care and that the outsourcing will not affect call quality.

Interestingly I also heard their ad on the radio this morning as I was driving. The voice sounded distinctly Kiwi. I wonder if they will provide NZ accent training? The ad promotes great local knowledge of the call centre person. I wonder how in depth the locational training will be?

Personally I think this move will be a disaster. There are many things that warrant being moved off shore. Even a lot of call centre work should move offshore. But with something so uniquely New Zealand, you really do have to wonder how much thought was put ahead of profitability.

This would be a great time for someone to put up a contender to the 018 service. Call it “777 respond” or something like that. Wrap it up with a bit of marketing and use the 100 odd staff now to be made redundant to man it.

The biggest outsourcing news of last week

Both the stuff & NZ Herald websites have articles on Vodafone’s call centre move to Cairo last week. A rather large announcement. You can find the articles here & here. This is big news for the industry. Not only because it is such a big call centre move, but also because of the suggested reasons behind the move.

It will obviously have some dollar saving attached to the move, however the main reason stated was the difficulty in finding call centre staff. This poses an interesting question. Was it that there wasn’t enough staff in Auckland, or New Zealand? Or was it that there wasn’t enough staff at the hourly rates that Vodafone was willing to pay?

I will be interested to see how the level of service goes. Will the change to Cairo improve quality or decrease quality. I thought it was interesting to see that Vodafone has chosen Egypt as the country of choice. There is a general ground swelling of dislike for the Indian call centres, because of the language differences.

My gut feeling is that Egypt would have a higher level of understandable English than the likes of the Indo-Asian countries. But I am not an expert in this of course.

The other nice thing to note is that Vodafone has announced that there won’t be any redundancies in New Zealand. This maybe a short term strategy or more likely long term. There will probably be a slow ramping down of the New Zealand operation over time I imagine. But I suppose that will depend on how well things turn out in Egypt.

More thoughts on call centres in New Zealand

Earlier this week I posted regarding the TUANZ question on the outsourcing of call centre work to India etc and whether it was a good idea long term. I suggested that this was the way of the world and New Zealand just wouldn’t be able to compete with pricing and value.

This isn’t completely true. New Zealand can have an outsourced call centre market, however it needs to focus on finding niche markets that it can fill. While New Zealand can’t compete on price for most outsourcing to the likes of India or Philippines, it can compete in two areas.

1) It can compete on language. While India and the likes will try to train staff with American accents, ultimately they will still sound Indian. One of New Zealand’s unique advantages is that it speaks a very individual style of English. This can be used to its advantage.

2) While it can’t beat outsource pricing from the likes of India, it can be extremely competitive against all other English speaking countries & their currencies.

Mix these advantages together, find a niche and fill it. That is how New Zealand can compete.

TUANZ question, is outsourcing good for NZ long term?

A post on the TUANZ blog recently asks a good question of outsourcing. Is it a short term saviour in a tight labour market? Or is outsourcing a long term threat?

My answer to this question is done right it can be a saviour short term & extremely beneficial long term. The threat that TUANZ suggests is that it can “rob New Zealand’s industry of its ability to develop a dynamic sector in this country”. I suppose technically this is true.

However I would liken all outsourcing to the trend in manufacturing. Eventually most manufacturing will be sent offshore simply because of costs & economies of scale. The call centre industry is already taken. New Zealand can’t compete with the likes of India. So even if New Zealand companies wanted to outsource their call centres to New Zealand they would lose out in cost.

The other thing is that the call centre environment is an area that has become commoditised. There are plenty of people that can do it and do it well. That is why India and the Philippines can be competitive in this market. There are definitely those that do it better than others, but the fact that it is relatively easy to do makes it a target for developing nation.

So where are the benefits to New Zealand’s industry long term. Outsourcing is exactly the same as inside a business. The CEO doesn’t have hands on to every aspect of their business. They delegate to other managers. Outsourcing needs to be seen as another manager.

When outsourcing becomes another branch of management, it naturally frees up head space. New Zealand companies can then focus on product research and development and sales.

We believe in Outsourcing not Sweatshopping

I have just read this article from Guardian Unlimited. Outsourcing labour to other countries has a moral and ethical responsibility attached.

One of the driving factors for a company to consider outsourcing is the amount of money that it can save them, or make them. This does not make it ok to exploit the workers of other countries. Rather it gives the western countries an opportunity to create a better life for many workers in these developing countries.

In this article it states that some workers are paid as little as 13p per hour. If they were paid 20p or 25p per hour what difference would it make. To the company maybe a couple of dollars off the bottom line. For the worker a chance to make better life for their family and the real opportunity to enjoy work and feel valued.

In the outsourcing industry the regulations are morals and ethics. Those outsource companies without these should be avoided like the plague.

surprise surprise more jobs going at Fisher & Paykel

Fisher & Paykel has again announced that more jobs will be heading offshore (read the article here). This shouldn’t really come as a surprise to anyone.

My guess is that within another 12 months and all manufacturing operations will be sent overseas. It just makes practical sense to do so. With labour in other countries so much cheaper, and being closer to some of their main markets the cost savings will become too much.

Even in the article it states “It could not give any guarantees to the rest of the company.” As margins shrink, reducing labour cost is one of the biggest factors that has the potential to make a difference to the numbers. It will be an interesting wait and see.

Outsourcing & Offshoring

I thought I should write a little about the difference between Outsourcing & Offshoring. Technically they are both pretty much the same. There is only one key difference, the offshore part. Most people in business are familiar with outsourcing. Many aspects of business are already outsourced as a matter of fact for many businesses.

Outsourcing of low technical or skilled work has been in place for some time. Outsourcing as a trendy thing to do as it is mentioned these days is talking about moving highly skilled portions of business out of the company to a 3rd party. This 3rd party could be another company or a contractor.

The main thing with outsourcing is that the work remains yours. If it is a widget being developed for a washing machine, you still own the customer, rights to distribute, & maybe even the Intellectual Property (IP).

Depending on how tight the contract needs to be, outsourcing can a formal or informal agreement between parties. The complexity lies when it goes int the area of IP or who owns what. In a services environment it is pretty easy to work out. One company owns the customer & the contract, the other customer delivers the service. If it is web technology, or a product then very clear contracts should be written.

Offshoring is exactly the same. The only difference is that the outsource company is based in another country. The same concerns apply added to them the challenge of distance and sometimes differences in culture & language.

An article in Networkworld has noted that in the US a drop in outsourcing (to the US) has dropped off significantly over the last year. While Offshoring (to foreign countries) has increased. The article provides some interesting insights between the two alternatives.