Economic and competitive pressures have made it imperative for organizations of all sizes to focus on business transformation. The objective of this change is to minimize risk and achieve greater agility, efficiency and profitability. To this end, outsourcing has proved to be a tried-and-tested model and is recognized as a long term competitive strategy for success.

1. 5 Questions to ask
when making the
Outsourcing decision
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2. Economic and competitive pressures have
made it imperative for organizations of all
sizes to focus on business transformation.
The objective of this change is to minimize
risk and achieve greater agility, efficiency and
profitability. To this end, outsourcing has
proved to be a tried-and-tested model and is
recognized as a long term competitive
strategy for success.
A survey on ‘Global Sourcing of Business
Services’ by Duke University’s Fuqua School
of Business concluded that 80% of large
companies (over 20,000 employees) use
outsourcing in some form, while 58% of
mid-sized companies (500-20,000
employees) and 43% of small companies
(under 500 employees) use outsourcing
services. As companies grow, it becomes
increasingly vital that their focus be
redirected to their core activities while the
non-core functions can be outsourced to
vendors specialized in that particular
function.
Outsourcing is a long term strategy that
requires serious commitment, clear
communication and unflinching support by
all the stakeholders for it to deliver consistent
results. That makes it even more important
that the decision to outsource is well thought
out and has full support of the top
management.
As you evaluate your choices and decisions
in outsourcing different business functions,
you will need to consider the following five
questions. These questions will help you
make an informed decision on your way
towards first-time-outsourcing.
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3. The Duke study (mentioned earlier) also pointed out that, “Companies that moved processes
offshore say they have gained in flexibility and agility, and the ability to compete in challenging
economic environments.” While cost savings are clearly the leading driver for outsourcing, there
are numerous other factors that influence the decision to move functions offshore
(refer to figure 1).
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1 Is Outsourcing the right choice for you?
Figure 1: Duke University-s Fuqua school of business offshoring Research Network study
TOP THREE REASONS TO CONSIDER OUTSOURCING
0
10
20
30
40
50
60
70
80
Accesstonewmarkets
Domesticshortageof
qualifiedpersonnel
Enhancecapacityforinnovation
Increasespeedtomarket
Explorelocationspecific
advantages
Acceptedindustrypractice
Improvedservicelevels
Othercostsavings
Competitivepressure
Growthstrategy
Partoflargerglobalstrategy
Businessprocessredesign
Accesstoqualifiedpersonnel
Increaseorganisationalflexibility
Labercostsaving
It depends hugely on the nature of your business and you need to understand your company and
its capabilities. You could consider the following:
• How specialized is the required skill-set
• How the function fits culturally with the organization
• What are the potential cost savings
• How complex is the function
• Whether it’s a core or a non-core function
• Historical performance after outsourcing the function.
For the above considerations, if your answers respectively lean towards
• not highly specialized • culturally a loose fit
• medium to high cost savings • not so complex
• non-core and • successfully outsourced historically
then, in all likelihood, that function is a potentially good prospect for outsourcing.

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2 Where to Outsource?
We live in a global and connected world so
when you decide to expand the operation by
outsourcing to an external partner, where to
outsource is one of the most important
considerations. Depending on factors like
geography, scope and mandate of the
arrangement, outsourcing takes the form of
offshoring or nearshoring.
Common practice these days is that back
office functions that are considered
‘transactional’ are provided by third party
outsourcers. It is called ‘nearshoring’ when
the vendor is in the same domestic location,
and ‘Offshoring’ when the service provider
locations range from Asia to Latin America.
In shared services, the services are being
provided to business unit(s) by a separate
entity, which is an in-house department of
the overall organization. Generally, shared
services center consolidates and
standardizes operations, which include
business processes, systems and controls
across business units.
Each of these models have their own pros
and cons and hence they should be
evaluated objectively. For example,
nearshoring may provide a greater cultural
similarity and control for the buyer due to
geographical proximity with the vendor. It
may, however, provide considerably less cost
reduction.
Tholons, a consulting advisory firm, ranks the
top 100 outsourcing destinations in the world
every year. Their report rates cities across
the continents. The table below is an extract
from Tholon’s report highlighting some of the
prime outsourcing target countries per
continent.
Asia India, Philippines,
China and Vietnam
Europe Ireland, Poland, Czech
Republic and Hungary
Africa South Africa, Ghana,
Morocco and Egypt
Latin America Costa Rica, Brazil,
Chile and Argentina

5. The Political, Economic, Social and Technological (PEST) Analysis is a strategic evaluation
framework that helps identify the ideal target country for Outsourcing. A higher PEST score
would mean stability of external factors that may otherwise hamper the performance of the
outsourced unit.
If the primary driver for your outsourcing is cost savings, Asia will present the strongest business
case. If you are willing to trade some savings for the proximity, cultural alignment and time zone
benefits, then for US based companies, Latin America presents a better option. Economics and
geography are always going to be the top factors in answering the location question.
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Rank 2016 Region Country City
1 Asia Pacific India Bangalore
2 Asia Pacific Philippines Manila (NCR)
3 Asia Pacific India Mumbai
4 Asia Pacific India Delhi (NCR)
5 Asia Pacific India Chennai
6 Asia Pacific India Hyderabad
7 Asia Pacific Philippines Cebu City
8 Asia Pacific India Pune
9 Europe Poland Kraków
10 Europe Ireland Dublin
11 Americas Costa Rica San José
12 Asia Pacific China Shanghai
13 Asia Pacific China Beijing
14 Europe Czech Republic Prague
15 Asia Pacific China Dalian
16 Asia Pacific Sri Lanka Colombo
17 Asia Pacific Malaysia Kuala Lumpur
18 Asia Pacific Vietnam Ho Chi Minh City
19 Asia Pacific Vietnam Hanoi
20 Middle East and Africa South Africa Johannesburg
21 Asia Pacific China Shenzhen
22 Asia Pacific India Chandigarh
23 Asia Pacific India Kolkata
24 Europe Hungary Budapest
25 Europe Poland Warsaw

6. Before you choose an offshore partner; think about your company needs, expectations and
resources and try to match those with what the vendor can offer you. Because a good offshore
partner is a company which meets your needs.
Before choosing an offshore partner, ask the following questions:
Does the selected offshore partner have experience in the service that you want to outsource?
Has your selected outsourcing service provider been able to provide quality services to other
companies like yours?
Does your chosen business partner use the best in technology, software and infrastructure?
Does your outsourcing provider have experienced, trained and qualified professionals that can
efficiently handle your projects?
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3 Which offshoring partner to choose?

7. Outsourcing allows you to focus on your core
business and can create a competitive
advantage by reducing operational costs.
You can outsource an entire function or only
a part of it.
If a function within your business has
performance issues, it is probably a likely
target for outsourcing. Do you really
understand why it is under-performing? Have
you put effort into analyzing and
understanding the challenges that function is
facing currently? It is critical to closely
understand the current problems of the
function in order to help the vendor tackle
them effectively.
The outsourcing partner needs to be made
accountable through stringent service level
agreements and performance requirements.
If a client’s processes are inefficient, an ideal
outsourcing partner will be able to bring in
their experience to strategically advise and
make an effort to introduce efficiencies. The
vendor should also be willing to commit to
continual process improvement. In the
absence of a vision to improve the
processes, outsourcing these functions
would only mean shifting inefficiencies
somewhere else. This may still give you
initial cost savings due to labour arbitrage,
but it will fail to provide further incremental
benefits.
The other aspect to ascertain is the
performance model. Understanding which
pricing and operating model is best suited for
you is important as there are various options
such as fixed fee, time and materials, per
transaction, per device (for ITO agreements).
Fixed Fee is the simplest model to go for but
provides little flexibility. Transactional
agreement is complex and requires detailed
understanding of the function being
outsourced but provides significant flexibility.
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4 Which function to outsource and what performance model to choose?

8. 5 What would be the ideal target state?
Direct benefits of outsourcing are reduction of costs, increase in organizational flexibility,
improvement of business and performance, and a reinforcement of competitive difference. But
before commencing your journey to outsourcing, it is important to clearly identify your ideal
target (To-Be) state. Some questions that can help you define that state are:
• what is the cost reduction we aim to achieve,
• what is the productivity improvement we seek to achieve,
• what is the customer satisfaction level we want to achieve, and so on.
The real advantage in outsourcing is not just the initial cost savings but the savings achieved
over time, through continual improvements.
Outsourcing is a strategic initiative. You may be outsourcing a non-core function, but a focus on
continuous improvement that is driven down by the top management helps the company overall
in terms of cascading productivity improvements and cost savings. Outsourcing is also a long
term exercise and not a one-off tactical project, so companies need to put in increased effort
initially until the new entity starts delivering results.
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25%-50%
Labor Arbitrage
15%-30%
Operating
Efficiency
5%-10%
Cross Company
Leverage
Savings Over Time

9. For more information, Contact : info@globalstep.com
About Global Step
GlobalStep is a full service technology firm with rich industry expertise in Internet, Media & Entertainment. For more than 9 years,
we’ve provided customized product support solutions for the Interactive Entertainment Industry including Games QA and Customer
Support. Our lines of service include, Test & Validation, IT Infrastructure, QA Engineering, Video Analytics and Application
Development. As a brand, we are passionate about the success of our customers and committed to creating an environment that
enables our people to fulfil their inherent potential. GlobalStep provides services to over 100 clients worldwide ranging from small
companies to Fortune 100 companies.
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