Outsourcing Looks Overseas

Study shows large companies sending more business processes offshore.

Large companies already smitten with offshore outsourcing of IT services are preparing to send even more of their work, including an increasing number of business processes, overseas, according to a new study.

That report, released this week by PricewaterhouseCoopers, indicates significant growth in outsourcing functions such as call centers, accounting and finance, transaction processing, and e-mail support to locations such as in India, Ireland and the Philippines.

"We were surprised that the survey told us that the next wave of knowledge worker activities is the [outsourcing] of back-office processes," said Suresh Gupta, a partner at PwC Consulting, a business unit of PricewaterhouseCoopers, in New York. "In IT services, the growth was in the range of 50 percent or more over the last few years. When it comes to business processes, it will be 60 to 70 percent."

The prime motivator behind the movement is cost savings, although other benefits result from successful initiatives. Access to skilled workers and improved quality was another motivator cited by study respondents representing 51 Fortune 1000 companies.

Those two drivers were behind a large financial services companys effort to move reconciliation work to India, according to an executive with the company, who asked to remain anonymous. What began as a small pilot has grown to encompass hundreds of funds managed in Asia, Europe and the United States, the executive said.

"In the beginning, it started out more as a staff augmentation," said the executive. "We couldnt scale up easily elsewhere. Also, the quality of the work was important. There were lots of errors in some parts of the world, and there was a tremendous backlog. That was the immediate motivation to try this out in India. Then it took off."

In fact, outsourcers in countries such as India, where outsourcing of IT services such as software maintenance and application development has taken hold, are gearing up to move into more high-end functions.

"There is a significant trend among vendors to move upstream by including higher-end processing like processing of health care claims," said Sandip Patel, a PwC Consulting partner in Boston.

Along with the promise of reduced costs and improved quality comes a lot of risk, however. Companies in the survey that reported initial missteps found that they failed to anticipate what they needed to do to minimize risks. "Successful firms had the right kind of education across the organization, and they had the right metrics to monitor cost and quality," said Patel.

Outsourcer Computer Sciences Corp. is just now ramping up its offshore business process outsourcing services, according to Kate Rouse, director of global offshore strategies at CSC, in Austin, Texas.

As part of its offshore consulting work, CSC has established an export compliance center to ensure that offshore activities comply with regulations.