ECONOMIC ANALYSIS

Economic Analysis Based on the Scenario

Economic Analysis Based on the Scenario

Introduction

With the economic climate rapidly changing and global competition intensifying, the governance of markets has cast their dynamic repercussions on the varying business paradoxes these days. Enterprise business corporations are faced with challenges for improving their operating efficiency and performance, profitability, to gain competitive advantage and build shareholder value. As a consequence, a new paradigm has played itself into the maturity business model of corporations; “Offshore outsourcing” to leverage low-cost labour, high quality services and specialist expertise from overseas service providers.

Economic Analysis Based on the Scenario

Offshore outsourcing of non-core business processes has rapidly evolved as a ubiquitous organizational phenomenon and involves the practice of hiring an external enterprise (service provider) to perform business functions in a country other than the country where the customer is located. This can be contrasted with “Offshoring,” in which the functions are typically performed by a foreign division or subsidiary of the parent company. Whereas, “Business Processing Outsouring” (BPO) is more of a strategic decision process which occurs when an organisation turns over the management and optimisation of a business process to a third party that conducts the activity based on a set of predetermined performance metrics. Typically BPO arrangements include call centre, HR administration, finance and accounting.

The previous wave of cost cutting occurred in the early 1990s under the disguise of business process re-engineering. The side effect of this wave was corporate downsizing. In the early 2000s, after a multiyear economic downturn, we first witnessed a similar trend of reshaping business processes with the goal of reducing costs (Robinson and Kalakota, 2004) to focus on core competencies. This widespread outsourcing of non-core business processes by companies in industrialized countries is likely to have profound implications.

It has been reported in Financial Times that the British insurance company Prudential, had planned to save $26.2m through the creation of 1,000 customer-service jobs in India (Financial Times, 2004). The pharmaceutical giant GlaxoSmithKline had decided to outsource a significant portion of their global IT operations offshore with expected budget savings of around 35 percent a year (Vnuet, 2002). General Electric saved about $350m per year through the 18,000 offshore employees in India (Business Standard, 2003). Studies suggest that the US banking industry alone saved as much as $8 billion in the last four years due to outsourcing and estimates on future gains (until 2009) for the overall US ...