Moving Back-Office Operations Abroad
Among U.S. corporations, a trend toward moving back-office operations to other nations has emerged. If this trend continues, it could have major implications in critical areas such as cost containment, service quality, and customer relations. It may also cause an outcry against sending U.S. jobs to developing nations, some of which have looser labor laws.
Overseas back-office operations are sometimes known as cross-border business-process outsourcing (BPO). About 5% of large U.S. corporations – those with revenues ranging from $100 million to $4 billion – either outsource or intend to globally outsource part of their back-office operations to BPO facilities abroad, according to consulting and market research firm Gartner. Gartner reports that the cross-border BPO industry was worth $123.6 billion in 2001 and is expected to grow to $178.5 billion in 2005.
India has become a heavyweight in this business because of its huge, well-educated, English-speaking population. But it has plenty of global competition. There are, for example, BPO facilities in the Philippines, Czechoslovakia, Hungary, Jamaica, Sri Lanka and various other nations.
The operations being transferred to other countries range from data entry to call centers to the processing of insurance policy applications. The primary impetus behind the strategy tends to be cost reduction, with companies potentially saving 30% to 40% of their U.S. costs. Of course, wages tend to be lower in these nations, reports Knowledge@Wharton magazine. One call center in New Delhi, for example, offers clients a billable rate of $18 per worker hour, compared with $30 to $35 per worker hour in U.S. operations. But cultural differences also play a part, lowering turnover and absenteeism rates. In the U.S., call center workers don't garner a lot of cultural respect, but in India they have about the same status as accountants or computer programmers, making them less likely to leave such jobs.
A lot of these workers have college degrees, and this helps explain why the quality of such work can be improved once it's outsourced abroad. Such educated workers often have good suggestions for how to improve work processes. "Companies start out for cost, stay on for quality, and then realize that they get a lot of managerial initiative," says Prof. Ravi Aron of the Wharton School of the University of Pennsylvania.
But there are possible drawbacks to this strategy as well. Critics point to the social implications of cutting jobs in the U.S. and transferring them to nations with lower wages and less-stringent laws protecting worker rights. They argue that this potentially undercuts living standards in the U.S. while enabling exploitation of workers in other nations. Some Indian facilities, for example, are cramped and lack air conditioning, creating an "electronic sweatshop" environment. Advocates of cross-border BPOs point out, however, that there are also some world-class facilities in India and that it makes sense to provide more good jobs abroad.
There are other issues of concern as well. First, the infrastructure in developing nations may be less dependable than in the U.S., causing service to go down more frequently. Second, the security of information may be a concern for companies sending highly confidential information to the other side of the world. Third, language and cultural differences can make it hard for workers to understand U.S. clients, causing customer-service troubles.
Fourth, there's the problem of companies outsourcing a critical part of their business to a global BPO firm and then finding out they can no longer live without that business partner. Not only may a company lose its business process knowledge, it may find out that employees and customers have become so accustomed to the BPO's services that it is "locked in" to the outsourcing arrangement. And even though the partnership becomes virtually cemented, businesses no longer have much direct control of some of their operations. They must settle for trying to monitor and influence the performance of BPO firms. How can this be done well? Exactly how, for example, does a company align the incentives of BPO workers with its own needs? These are some of the questions that experts are still trying to answer.
Much of this information comes from a series of articles on "The Rush to Send Back-Office Business Overseas." Please see
http://knowledge.wharton.upenn.edu/100902_ss.html
For an article on the challenges that HR professionals face in India, please see
http://www.personneltoday.com/pt_news/news_feat_det.asp?liArticleID=15737
For an article about some of the cultural incongruities related to cross-border BPOs, please see
http://www.wired.com/news/business/0,1367,55799,00.html
For much more on the subject of outsourcing, see HRI's comprehensive report Outsourcing Human Resources.
Overseas back-office operations are sometimes known as cross-border business-process outsourcing (BPO). About 5% of large U.S. corporations – those with revenues ranging from $100 million to $4 billion – either outsource or intend to globally outsource part of their back-office operations to BPO facilities abroad, according to consulting and market research firm Gartner. Gartner reports that the cross-border BPO industry was worth $123.6 billion in 2001 and is expected to grow to $178.5 billion in 2005.
India has become a heavyweight in this business because of its huge, well-educated, English-speaking population. But it has plenty of global competition. There are, for example, BPO facilities in the Philippines, Czechoslovakia, Hungary, Jamaica, Sri Lanka and various other nations.
The operations being transferred to other countries range from data entry to call centers to the processing of insurance policy applications. The primary impetus behind the strategy tends to be cost reduction, with companies potentially saving 30% to 40% of their U.S. costs. Of course, wages tend to be lower in these nations, reports Knowledge@Wharton magazine. One call center in New Delhi, for example, offers clients a billable rate of $18 per worker hour, compared with $30 to $35 per worker hour in U.S. operations. But cultural differences also play a part, lowering turnover and absenteeism rates. In the U.S., call center workers don't garner a lot of cultural respect, but in India they have about the same status as accountants or computer programmers, making them less likely to leave such jobs.
A lot of these workers have college degrees, and this helps explain why the quality of such work can be improved once it's outsourced abroad. Such educated workers often have good suggestions for how to improve work processes. "Companies start out for cost, stay on for quality, and then realize that they get a lot of managerial initiative," says Prof. Ravi Aron of the Wharton School of the University of Pennsylvania.
But there are possible drawbacks to this strategy as well. Critics point to the social implications of cutting jobs in the U.S. and transferring them to nations with lower wages and less-stringent laws protecting worker rights. They argue that this potentially undercuts living standards in the U.S. while enabling exploitation of workers in other nations. Some Indian facilities, for example, are cramped and lack air conditioning, creating an "electronic sweatshop" environment. Advocates of cross-border BPOs point out, however, that there are also some world-class facilities in India and that it makes sense to provide more good jobs abroad.
There are other issues of concern as well. First, the infrastructure in developing nations may be less dependable than in the U.S., causing service to go down more frequently. Second, the security of information may be a concern for companies sending highly confidential information to the other side of the world. Third, language and cultural differences can make it hard for workers to understand U.S. clients, causing customer-service troubles.
Fourth, there's the problem of companies outsourcing a critical part of their business to a global BPO firm and then finding out they can no longer live without that business partner. Not only may a company lose its business process knowledge, it may find out that employees and customers have become so accustomed to the BPO's services that it is "locked in" to the outsourcing arrangement. And even though the partnership becomes virtually cemented, businesses no longer have much direct control of some of their operations. They must settle for trying to monitor and influence the performance of BPO firms. How can this be done well? Exactly how, for example, does a company align the incentives of BPO workers with its own needs? These are some of the questions that experts are still trying to answer.
Much of this information comes from a series of articles on "The Rush to Send Back-Office Business Overseas." Please see
http://knowledge.wharton.upenn.edu/100902_ss.html
For an article on the challenges that HR professionals face in India, please see
http://www.personneltoday.com/pt_news/news_feat_det.asp?liArticleID=15737
For an article about some of the cultural incongruities related to cross-border BPOs, please see
http://www.wired.com/news/business/0,1367,55799,00.html
For much more on the subject of outsourcing, see HRI's comprehensive report Outsourcing Human Resources.