Outspan is often asked “how big is big enough?” A lot of small businesses get put off outsourcing because they think they’re just not big enough to benefit financially or operationally from the services. This article focuses on why outsourcing has now become a viable strategy for businesses of all sizes, including SMEs.

Read more by clicking on the continue reading link below.

Look out for our next blog: Are you experienced?

For more information on outsourcing for SMEs, contact: Outspan. www.outspan.co.uk, 0845 838 1965

In previous years, outsourcing has been the privilege of large corporations who have the resource to seek out outsourcing providers, manage large scale outsourcing projects and benefit from the economies of scale to make them worthwhile. However, in more recent years the increased access to technology, improved international communication and increases in the number of smaller outsourcing providers have allowed SMEs to take the advantages of outsourcing previously reserved for big companies. As a result of increased competition in the outsourcing industry and a proliferation of providers supporting SMEs, set up costs are much lower and flexibility higher – it is possible now to outsource a role that requires less than 1 full time person.
The most obvious advantage of outsourcing is cost savings (up to 65% for accounting services), however for SMEs the advantages gained can be much wider than just saving money:

1. Focus on core competencies.
For SMEs, with smaller workforces than large corporates, the ability to streamline the business’s staff into the areas that are most focussed on delivering products and services to the customers is a major benefit. This is especially helpful for start-ups or very small businesses who’s management can be freed up from time spent on tasks such as accounting and payroll and spend more time on business development and other activities key to the company’s long term growth. Once you outsource your accounting, that’s one area of the business you no longer have to think about.

2. Resourcing levels
Many SMEs use outsourcing to access additional resource, rather than replace staff. Outsourcing can be an effective way to gain access to this resource, gain access to knowledge or skills that maybe expensive to acquire in house and have the services provided without the management headache. A good contract with the outsourcing provider should ensure that the service you receive is what you expect without further monitoring, this is especially true if you outsource to a provider with a UK office, such as Outspan, who can manage the liaison between you and the end worker.

3. Flexiblity
Jim Downey FCMA, Managing Director of Outspan says “the big draw for many of our clients is the ability to increase or decrease resources within a fairly short notice period. During a recession this is particularly helpful as clients are uncertain as to when they can commit to long term headcount but need the ability to cope with whatever the market throws at them, whenever it throws it at them.” Where a business has permanent staff on the payroll, there is less flexibility to turn up or down the resource.

4. Accommodating outsourcing within your business
When a large corporate outsources it normally entails a company restructure, often with redundancies, and certainly with expensive consultants brought in to make significant changes to processes. When an SME outsources, firstly there are rarely redundancies (either the staff were not there in the first place or they can be redeployed into value adding roles), secondly as a result of the volumes of work there is often more flexibility between the SME and the outsourcing provider, and the provider can often accommodate the existing processes of the business. Normally handover to the provider is minimal, however outsourcing providers such as Outspan also have an onshore consultancy service which can assist businesses with the transition where there transition is more complex.

5. Increased quality control and compliance
One of the concerns of outsourcing is that quality falls and compliance with regulatory bodies fail. However, the opposite is normally true. As outsourcing providers specialise in their field, for example accounting and bookkeeping, they are up to date with the latest compliance regulations and have strong quality control systems in place to ensure that they produce work to a high standard. For the accounting outsourcing provider, quality and compliance are core competencies.

So how can SMEs take advantage of the benefits of outsourcing?
Step 1: Determine what to outsource. Look at the core competencies of the business and aim to outsource those activities that are not core.
Step2 : Carry your existing staff with you in the decision. Often the word “outsourcing” can bring fear and resistance from staff where they feel that their jobs are under threat, this is not helpful particularly where no redundancies are intended. Open communication with all will ensure a smooth process.
Step 3: Choose your outsourcing provider. Assess what your requirements are. Do you want to offshore entirely? Do you want to keep the services onshore? Do you want to take advantage of the cost benefits of offshoring but have the comfort of contracting onshore, by choosing a provider with an onshore presence?
Step 4: Get quotes and negotiate the contract. Spending time on this stage, particularly the terms of the service level agreement within the contract will save time later.
Step 5: Handover the work and start your long term relationship with your outsourcing provider, maintaining good communication throughout.

Contact Outspan today to discover how you too can benefit from outsourcing now at www.outspan.co.uk, 0845 838 1965

Sources: ICT Standards.com, Reference for Business.com

Outsourcing can deliver significant cost savings for businesses of all sizes. As Britain experiences its worst recession in 80 years, small and medium size enterprises (SMEs) have been particularly badly hit as their narrow product ranges and geographical market exposure provide limited diversification of risk, additionally they have smaller cash reserves than the large corporates to see them through the bad times. Why then are SMEs not embracing outsourcing more?

Read more by clicking on the continue reading link below.

Look out for our next blog: Is outsourcing a viable strategy for SMEs?

For more information on outsourcing for SMEs, contact: Outspan. www.outspan.co.uk, 0845 838 1965

Outsourcing, and particularly offshoring, is still seen by some as a risky option. Many SMEs have already outsourced their accounting (for example) to local accounting firms, however the move to offshore is still seen as a step too far. Despite the cost benefits, there are a number of reasons why SMEs are hesitant to consider outsourcing as a viable option. If we look at these reasons, we explore whether they are myth or reality:

1. Reduction in the quality of service provided
If you have accounting staff in house then you can meet them, vet their qualifications, follow up references and see how hard they are working. You can also take management action if their work is not up to standard.

If you have outsourced to a local accounting firm, you may have worked with them for a number of years, you know them on a personal basis, can meet up regularly with them and you can also kick them when things aren’t working properly.

There is a perception that if the accountant isn’t nearby then quality of service will be compromised and worse, it will be hard to get hold of them if things go wrong.

Reality: Quality is a key success factor for outsourcing, often outsourcing providers have stronger financial control and quality systems than with other resource options. “Increase in controls and quality levels versus the client’s previous solution is often something that attracts a client to outsourcing in the first place” says Jim Downey from Outspan (a leading UK outsourcing provider). “Because outsource providers specialise in their field and are providing services for a number of other companies, their control frameworks and management supervision structures are often stronger than those of their clients.”

2. Accessibility
Businesses like to be able to have the people providing their services within easy reach. There is a certain amount of comfort in knowing that your accountant is in the same town as you, you can pop into their office or they can be got hold of easily by phone. Where the accountant is located in a different country a whole ream of anxieties are raised – can I phone them? Will they understand me if I do speak to them? How will I properly get my point across if I can’t meet them? How much will it cost me to call them?

Reality: In the new world that we live in, face to face meetings and close proximity of suppliers are becoming more redundant with technology allowing us to meet via teleconferencing and get hold of someone by phone just as quickly as if they were in the next office. The need to be able to speak directly to someone is very important in establishing relationships. Outspan for example, operates through an onshore/offshore model, with a UK head office providing account management to clients and a UK phone number for the client to speak directly with the Sri Lankan accountants delivering the work.

3. Loss of control
There can be a feeling of loss of control when you hand over your documents to an outsourcing provider particularly if they also manages a number of other clients. Relationships are important to SMEs, hence the preference for a local accounting firm discussed earlier. Where there is a feeling that a business will been seen as just another client, a small fish in a big pond, there may be a feeling that the client’s needs will not be given the attention they may get with their current providers. On the other hand, no one wants to be the biggest, or worse, only client, as this could result in the outsourcer not surviving and the client left high and dry.

Reality: Developing a good relationship with your outsourcing provider is important to ensuring that your needs are being met. If you are able to work with one who also has a UK presence then you will feel more comfortable with the issues relating to accessibility discussed earlier.

4. Data security, client confidentiality
The UK has strict data protection regulations and a strong UK service contract, or contract of employment, between you and your accountancy provider will give you the reassurance that your data will be treated confidentially. What happens when you offshore? Would the outsourcing provider have the same high levels of control?

Reality: Outsourcing providers, particularly those who have UK customers, will make security of data a priority, loss of confidentiality is a suicide pill for these companies. However, choose a provider who specifically complies with these regulations and spend time finalising the service contract to make sure that you have the necessary clauses included. As a UK company with services centres in Sri Lanka, all Outspan’s client contracts are governed by UK law which should give clients that extra comfort.

5. Dependancy on the outsourcing provider
Outsourcing should be seen as a strategic, long term move rather than a short term solution to overcome a particularly problematic period. However, once the internal processes are set up to direct all documents to the outsource provider there could be a concern that the company is now dependant on that provider and in effect be locked in to a long term contract with them.

Reality: Although it is important to see outsourcing with a provider as a long term solution, it doesn’t necessarily mean that you are stuck in a relationship that isn’t working. Most service agreements with providers have termination clauses (often with a 3 month notice period). Review your relationship and the quality of service you are receiving on a regular basis. Make sure that your contract termination clause includes provision for the smooth handover/hand back of services so that you can minimise the disruption if you do decide that it’s not working for you.

6. Interruptions to service
If you are outsourcing a critical (although non-core) function such as accounting you will want to ensure that you are given a smooth and consistent service each month. Delays in delivery, or worse non delivery, in any particular month can cause real problems particularly if the interruptions coincide with year end or quarterly tax submission dates.

Reality: As with any supply of service, including in house supply, you will need a business recovery plan. The outsource provider should have this in place as standard. When you chose your provider make sure that you understand the plans that they have in place, the backing up procedures they have for data and the staff absence cover they provide. As the outsourcing provider’s business is to provide services to you they should have solid plans in place and this is likely to be more than you would perhaps have internally.

7. Political and socio-economic risks
One of the reasons many people are more comfortable with keeping resource in the UK is that we are comfortable in the knowledge that we live in an environment of benign political and social risks. There is very little disruption to our daily business lives. Once we move out of the country however we add a level of uncertainty that we are not use to. So, it’s best to keep things nearby where we know what’s happening. Or is it?

Reality: Many of the countries now excelling at outsourcing have become more politically stable in recent years, often as a result of the economic benefits that industries such as outsourcing brings (see our blogs on the impact of outsourcing on the developing world). Governments know that stability is the key to attracting international investment and business and much effort is made to achieve this. It’s also important to note that instability can even happen on our own doorstep – who can forget the riots that broke out this summer, or trade unions that strike at the most inconvenient times, both cause disruption to our UK business community.

The fears of offshore outsourcing are many and varied, however having looked at some of the most common concerns we can see that outsourcing is not as risky as first seems. In fact, you could argue that it will become increasingly riskier not to outsource as more competitors get an advantage from doing it, and the amount of time management take running non-core areas distracts you from doing what really drives your business forward.

Contact Outspan today to discover how we can start reducing your costs now at www.outspan.co.uk, 0845 838 1965

Over the last decade, there has been a marked increase in UK businesses outsourcing their non-core functions to achieve greater cost efficiencies and access to additional resource and technology. The impact that outsourcing has had on countries like India has led other countries to start to look at how they can tap into the economic benefits this industry can bring.

Read more by clicking on the continue reading link below.

Look out for our next fortnightly blog: Outsourcing – the riskier option?

For more information on outsourcing for SMEs, contact: Outspan. www.outspan.co.uk, 0845 838 1965

Sri Lanka’s outsourcing industry has stepped onto the global stage in recent years, particularly in the finance and accounting sector. To support this, the Government has focussed on developing the outsourcing business through offering various incentives, including tax breaks, subsidized telecommunications and streamlined procedures for setting up new businesses.

There are a number of reasons why Sri Lanka is in a strong position to compete in the finance and accounting outsourcing sector:

1. Good language skills

Sri Lanka’s British colonial history leaves it in a good position both culturally and from a language point of view to understand and work with British businesses. English is the business language and widely spoken throughout the country.

2. Strong work ethic and quality

Sri Lankan’s have gained a reputation for good work ethics and delivering work to high standards. As a result of this reputation many European companies have move their research and development centres to Sri Lanka.

3. Sri Lanka has the highest proportion of qualified accountants in South Asia

The ratio of qualified accountants to the general population is much higher than any of the country’s neighbours. In addition, Sri Lanka has the largest pool of CIMA (Chartered Institute of Management Accountants) outside of the UK, and a growing pool of ACCA (Association of Chartered Certified Accountants).

4. Good standards of education and a growing skilled workforce

With a population of 21m, Sri Lanka has a literacy rate of over 90% with most children staying in the school system for 12-13 years. The government provides free education from primary school through to university, and a solid maths background within the education system lends the country well to accountancy and IT software development, etc.

Sri Lanka’s workforce is approx. 8m and is experiencing a growth rate of 1% a year. Combine this with the education levels and Sri Lanka is set to be a strong contender in the outsourcing industry for years to come.

5. Low cost base

On average salaries for professionals are more than 65% lower than in the UK. Businesses can employ on average 3 Sri Lankan accountants for every 1 UK accountant.

6. Solid experience within the outsourcing industry

With approx 50,000 people currently working in the outsourcing industry (IT, software development, accounting), Sri Lanka is already experienced in working with UK businesses. The outsourcing workforce is also set to grow by 20% each year.

7. Good technological infrastructure

Sri Lanka has one of the most liberal telecoms industries in South Asia. Stable communication, particularly internet broadband access along with access to other cutting edge technologies allows Sri Lankan businesses to easily interact and work with international businesses.

8. Government incentives

The Sri Lankan government is currently tapping into the skilled resource base it has to help develop their economy. They expect outsourcing revenue to reach USD$1bn (£650m) by 2015.

With increased political stability resulting from the end of the civil war, good infrastructure and accessibility, and the pursuit of economic liberalization policy by successive governments, the $1bn target could quite easily be exceeded in the coming years.

Outspan, a leading outsourcing provider in the UK, has been operating through service centres in Sri Lanka since 2007 (prior to that they were in India). Jim Downey FCMA, Outspan’s Managing Director says “owing to the strong work ethic, high standards and good productivity, we feel that Sri Lanka offers appeal to companies who want to take advantage of low cost skilled services while not compromising quality standards”.

Sri Lanka as a country can never compete with countries such as India and the Philipines when it comes to numbers, so Sri Lanka is mainly focusing on outsourcing activities based on high skills, such as accountancy. With plenty of people with UK accounting qualifications such as CIMA and ACCA financial accounting is an area where Sri Lanka can meet the demand of the global market.

Contact Outspan today to discover how we can start reducing your costs now at www.outspan.co.uk, 0845 838 1965

Sources:
*Sri Lankan demographics profile 2011
New York Times: Sri Lankan Accountants Lure Global Outsourcers
European Information Technology eXchange

Tags: outsourcing, accountancy outsourcing, back office outsourcing, BPO outsourcing, accountancy, Sri Lanka accountancy, recession, poverty, accounting and bookkeeping, competitiveness, cost accountancy, access to resources, access to technology, outsourcing growth in a recession, outsourcing benefits to UK economy, outsourcing and UK job losses. Why Sri Lanka for outsourcing, Sri Lanka accountancy outsourcing

Outsourcing, or more specifically offshoring, has been increasing in popularity within the business community in the last decade. What started in the manufacturing industries 20-30 years ago is now happening in the business services industries as a result of increased communication, technology and educational standards in offshore “host” countries.

There has been much debate in the media about whether outsourcing is good or bad for the UK economy, much of it has focused on the negative side such as the loss of UK unskilled jobs. However, it is important to note that there are many positive attributes of offshoring that can be a real benefit to our economy…. read more by clicking on the continue reading link below.

Look out for our next fortnightly blog: Outsourcing: a benefit to our economy or a threat – should we worry?

For more information on outsourcing for SMEs, contact: Outspan. www.outspan.co.uk, 0845 838 1965

The reasons companies outsource

The primary reasons why businesses look to outsource some of their activities are, among others:

a) To increase cost competitiveness through significant cost savings and switching costs from fixed to variable
b) To tap into a global pool of resources, particularly where certain skills are not available in the UK
c) To tap into additional or cutting edge technology that would be too expensive for a business, particularly an SME, to be on top off
d) To access operational best practice
e) To take advantage of flexibility in service provision where demand requires an increase or decrease in productivity, often at short notice

All of the points above will benefit the British business with lower costs both in the short term and long run. This in turn will lead to lower prices from the business and/or higher profits for shareholders. Where there are lower prices, the British consumer will benefit through being able to purchase more, which in turn leads to higher demand and job creation. Where there are higher company profits, this often lead to higher dividend payouts which benefit UK investors and in particular pension funds, allowing better pension incomes to be spent on local services (such as meals out, hairdressers, etc)

Real benefits to the economy

Where the work is sent offshore, the workers in those countries (such as Sri Lanka) will benefit from employment, increased wages and higher education. The increased wages will allow the workers to buy more imports from countries such as the UK, increasing the demand for UK made services or products further. So, the cycle continues. A study by the McKinsey Global Institute (2004) reported that every US $1 invested in activity offshore leads to a return of $1.12-$1.14 for the US economy and $0.33 for the host country’s economy (in their report this is India).

The majority of work offshored is the lower end, unskilled work. With companies moving this low end work out of their own business they are able to focus on the more value adding tasks, creating higher skilled jobs which bring with them higher wages for UK staff.

There is an argument, however, that at the lower end of the food chain the unskilled jobs being offshored are gone forever and this particularly affects those people in the UK with minimal qualifications. However, one could also argue that with higher company profits, the UK Government receives increased corporation tax revenues, which allows them to invest more in education, apprenticeships and other measures to help raise the skills of UK citizens.

What they say

In the US, whose economy has been most affected by offshoring (predominantly IT offshoring), there has been ferocious media debate primarily focussing on the loss of American jobs. The US Government has been lobbied by numerous trade unions and professional organisations to stop offshoring. As a result, the US Government passed a bill that forbids certain government departments to offshore work.

However, back in the UK the Institute of Directors (IoD) and the Confederation of British Industry (CBI) advise that offshore outsourcing should be beneficial to both the UK economy and the host country’s economy, and that offshoring is a “natural result of development in the global market”.

Jim Downey FCMA, Managing Director of Outspan (a leading UK outsource provider) says that “although outsourcing within large companies can result in job losses, the majority of our customers within the SME sector use outsourcing as a way to either redeploy their staff into higher skilled roles, outsourcing the low end work, increasing productivity and therefore company profitability, or to gain access to resource they do not currently have. Very few job losses are made by our customers as a result of outsourcing”.

An important point in this debate is that although there can be low skilled job losses, these affect relatively few people whereas the benefits of offshoring are dispersed across the whole population of the UK. The key for the UK Government is to raise the skills levels of UK citizens and promote effective mechanisms for switching displaced workers into new jobs to minimise the negative impact of the inevitable trend of offshoring outsourcing.

Contact Outspan today to discover how we can start reducing your costs now at www.outspan.co.uk, 0845 838 1965

Economic downturns have often been situations where companies fear disruption and change the most, particularly changing to what, in the past has been perceived as high risk strategies such as outsourcing. This is especially true of SMEs. However, with the current recession the worse we have experienced since the 1930s and as yet, no end in sight, companies are having to rethink their strategies to survive..….. read more by clicking on the continue reading link below.

Look out for our next fortnightly blog: Outsourcing: a benefit to our economy or a threat – should we worry?

For more information on outsourcing for SMEs, contact: Outspan. www.outspan.co.uk, 0845 838 1965

Outsourcing more mainstream

As outsourcing has become more mainstream in the last decade, it is no longer seen by many as a high risk strategy. Cost pressures, increased competition for resources and the opening up of a truly global market has allowed companies to take up the advantages that outsourcing offers. Further, as this recession has demonstrated, the global economy is so closely connected that giving serious consideration to the opportunities it provides is now critical to survival.

In previous years outsourcing has been the privilege of large corporates who have the resource to manage large scale outsourcing projects and the economies of scale to make them worthwhile. However, with increased access to technology and flexible global markets these opportunities are now being made available to SMEs.

Key advantages of outsourcing to SMEs

So what are the key advantages that outsourcing can provide to SMEs?

1. Cost Savings
The main reason why companies look at outsourcing initially is to achieve significant cost savings. In the accounting/bookkeeping field, for example, offshore outsourcing can provide up to 65% savings from a UK or in-house solution, and with some providers such as Outspan (a leading UK outsource provider) offering no set up costs, it’s hard for businesses to ignore this level of opportunity.

2. Access to resource and flexibility
SMEs tend to differ from larger corporations in that they look to outsourcing as a way of gaining access to additional resource more cheaply than they could get locally, as a result there are often very few redundancies, if any.

This access to resource can be particularly helpful in managing the flexibility needed to cope with upturns and downturns in requirements, after all there is only so much extra work existing staff can take on before the returns from productivity turn negative.

Jim Downey FCMA, Managing Director of Outspan says “the big draw for many of our clients is the ability to increase or decrease resources within a fairly short notice period. During a recession this is particularly helpful as clients are uncertain as to when they can commit to long term headcount but need the ability to cope with whatever the market throws at them, whenever it throws it at them.”

As outsourcing primarily focuses on the low end transactional work, this allows for the client’s staff to be employed in value adding, higher skilled work. Re-focussing and re-energising staff during difficult times could be the key to success.

A good recommendation is to look for providers who have the capacity for clients to tap into a shared pool of resources for short term peaks rather than only a dedicated resource.

3. Access to technology
Keeping business infrastructure and staff up to date with the latest technology in non -core areas can be expensive, and training is often seen as a luxury to be cut during a downturn. However, outsource providers need to be on top of new developments, to them these developments are very much at the centre of their own competitive advantage. So, SMEs wishing to have access to the latest technology or working practices in non-core functions can find outsourcing an effective, and cost efficient, way of doing so.

4. No management overheads
It goes without saying that if the outsourced staff are not your employees, you will have no need for your managers to spend time managing performance, covering sick days, recruiting new employees or managing petty conflicts. Of course, there will be some management of the outsource provider but within a clearly laid out SLA (service level agreement), which reduces the amount of management time needed. Some outsource providers, such as Outspan, have a UK onshore presence with an operations team who enhance the link between the client and the offshore team reducing the client’s need to manage the SLA further.

5. No long term staff costs
A big draw for many clients, in addition to the day to day cost savings, is not having any long term staff cost obligations as all costs are carried by the outsource provider. Most providers have minimum termination notices in their SLAs, however these are normally much shorter than the termination periods for in-house staff, and there are [usually] no exit fees.

The benefits to businesses of outsourcing their non-core activities during a recession are evident and as they say, the proof is in the pudding. Many outsource providers have seen strong growth during this recession; Logica reported a 10% growth in their outsourcing business in its 2010 results, Accenture a 21% growth (13% local currency growth) for the 4th quarter to August 2011, Wipro 15% growth to March 2011 (6% growth to March 2010), Cap Gemini reported a 7% growth for their outsourcing business in H1 2011. For essential functions such as Finance and Accounting, this growth is likely to continue throughout the recession and beyond.

Contact Outspan today to discover how we can start reducing your costs now at www.outspan.co.uk, 0845 838 1965

As a small island economy, Sri Lanka has no alternative but to develop its export markets. “Export or perish”, is a truism for the island, and what can be exported has changed in a twenty-first century economy. In the past, goods and capital could be exported relatively easily while services and labour could not. Successful economic strategies attempted to attract capital to an economy in order to produce more goods that could be exported and traded for other goods that could not be produced at home. However, the technological advances of the late twentieth and early twenty-first centuries mean that it is no longer true that goods are tradable and services are not. In fact more and more services are easily tradable. And countries that are realizing this are reaping great benefits from adapting their economies to be able to better compete in services trade.….. read more by clicking on the continue reading link below.

Look out for our next fortnightly blog: Outsourcing: an important tool for helping SMEs cope with the recession

For more information on outsourcing for SMEs, contact: Outspan. www.outspan.co.uk, 0845 838 1965

The advances that have made this possible include; cheap mobile connectivity, high speed internet access and digital convergence. These advances have created a truly global marketplace for services, especially those that are labour intensive and can be commoditized, and digitized: services such as legal advice, accounting and management consulting services, ICT services, software development, IT training and call centres. In the industrial era, such services were delivered domestically and often produced very close to the point of demand. Increasingly, such services are being produced in the locations that are able to deliver the lowest cost and the highest quality product. Like an incoming tide, this trend cannot be rolled back. It offers tremendous opportunities for developing countries as well as considerable risks.

In India, a global leader in outsourcing, IT exports account for close to US$20 billion and almost half of total export revenues. The total number of jobs created in the Indian IT industry is close to one million, many of them filled by women (2001 figures)

Not only does the development of this industry segment create job and export opportunities, it also creates positive spillovers such as: enhanced incentives for education, technology and knowledge transfer, environmental protection and an improvement in the quality of locally provided services.

Services that will be offshored in the future will go far beyond the traditional call-centres and back-office functions and it is estimated that this will result in 18 million jobs being offshored with a multiplier effect that could in turn create a further 60 million jobs in developing countries.

Firms move parts of their operations to offshore locations to reduce operating costs, reduce their capital requirements and to increase productivity, global competitiveness and operational efficiency. Countries wishing to attract offshored investments must therefore offer a politically and economically stable climate that also exhibits a low cost structure, educated workforce and sound infrastructure. Sri Lanka provides these conditions.

The impact of outsourcing on Sri Lanka’s economic development

Economic growth is a critical factor in poverty reduction and services provide a key engine for this type of growth. In countries that have grown quickly and have been able to sustain high growth rates over long periods, services have been responsible for much of that growth, generally growing much faster than other sectors of the economy. Even in countries that experienced a rapid growth of manufactured exports there was also a parallel and rapid growth in services. The service sectors, from finance and accounting to IT and advertising, also provide valuable inputs that the manufacturing sector needs to be able to compete effectively in global markets in terms of quality, flexibility and reliability.

Services trade enables developing countries to potentially leapfrog the industrial development stage. The economic models of the past assumed that countries grew by creating an agricultural surplus and borrowing to invest in manufacturing capital. Only when countries went through the industrial stage of development could they consider a focus on services, as domestic demand for such services was still nascent and services trade was non-existent. The communications revolution of the last decade now permits lower income countries to leapfrog that stage of development and directly focus on expanding the service sectors of their economies. The technology itself does not depend on first building a solid industrial base: mobile telephones don’t rely on an extensive network of landlines. And countries that have not yet invested heavily in old technologies can simply choose to by-pass it. Sri Lanka now has more mobile phone subscribers than those with landlines.

The contribution of services offshoring to the GDPs of provider countries has increased substantially over the last few years. As a pioneer and leader within the offshoring market, India has benefited tremendously from growth in this area while growth has exceeded all expectations.

Creating new opportunities

The percentage of the total workforce engaged in services is expanding at a rapid pace. Services offshoring expands employment opportunities in developing countries. In terms of job creation, the growth in offshoring to India has created a significant number of jobs. IT-enabled services are projected to employ up 3.3 million by 2015. There is also evidence that as many IT related jobs are relatively well paid, they generate a further 3 jobs in the rest of the economy a highly desirable impact that does not come from low-end manufacturing jobs.

Women are considerably advantaged by offshoring opportunities. The ability to complete more responsibilities from remote locations that might be located in or closer to their homes has allowed more women to enter the offshoring workforce. For instance, Outspan (a leading UK outsource provider with service centres in Sri Lanka) employs approx. 50% women. With female education and literacy at par with that of males in Sri Lanka, the country is well positioned to take advantage of this potential.

Offshoring’s Positive Spillover Effects

Offshoring, especially captive offshoring, provides a significant contribution to foreign direct investment (FDI). In turn, FDI is often directly linked to economic growth because of the increased income sources and jobs generated which subsequently reduces poverty. FDI also generates several indirect benefits that increase productivity of the recipient economy through the adoption of managerial and technical best practices from foreign countries.

While FDI stimulates productivity improvements in general, services outsourcing has several specific characteristics that create unique spillover benefits and positive externalities for developing economies. These defining features differentiate services outsourcing from the traditional fields of manufacturing and goods outsourcing.

Incentives are created for education. While outsourced manufacturing relies on a cheap, low-skilled workforce, services outsourcing relies on a well educated and highly skilled workforce. The employment of a relatively skilled labour force in the services trade increases the return to education and, thus the incentives to acquire skills that are marketable in the global economy. Thus services offshoring has the potential to mitigate Sri Lanka’s perennial problem of educated unemployed youth.

The quality of exported services improves which benefits domestic consumers, especially manufactured goods exporters, of the same services as well. For instance, call centres in developing countries that are established to cater for the UK market are also being operated round the clock to provide services to local customers. The same is happening in Sri Lanka with the recently established HSBC call-centre providing local services to the whole of Sri Lanka.

Technology and knowledge transfer results. Services exports and outsourcing requires technical sophistication. For example, it is necessary to have dependable and cheap communication links with the rest of the world. Repeated and frequent interactions with foreign firms and, especially, their direct presence, also increases knowledge transfers. This is not limited to technical knowledge but includes business standards and know-how which are critical for integration of national economies into the global economy and factor prominently in the long-run growth implications for any developing country.

Improvements in human capital. Export-oriented zones have been shown to improve the quality of human capital and the productivity of the local workforce in domestic economies, foreign investors engage in substantial training and the workplace encourages learning by doing, as in Singapore and the Philippines. Furthermore, learning can also occur at the managerial and supervisory level, thus potentially fostering local entrepreneurship. This is important since firms in developing countries often lack the production and marketing know-how required to enter world markets. Outsource providers such as Outspan have management training programmes where senior managers spend significant time on training in the UK and US annually at universities and on accountancy profession courses.

The processes tend to be more environmentally friendly. Services exports and outsourcing do not create many of the negative externalities associated with manufactured goods, such as environmental pollution and lower labour standards. The effects of this type of environmental degradation are usually ignored since it is hard to quantify these negative externalities and the actual consequences are only revealed over a long period of time.

The Challenge

The challenge for outsourcing providers is to make sure they can maximise the benefits of global trade while minimising the problems, by ensuring that their staff are paid living wages, work reasonable hours and are provided with a safe place to work. The developed world’s role in this is to ask the right questions and, as customers, be comfortable that they are working with responsible organisations.

With companies in the developed world needing to keep costs down to stay competitive, outsourcing is set to become a permanent feature of our business world, and the future for the developing world is bright.

1 Extracts taken from the World Bank report: Sri Lanka: Offshoring Professional Services (Ismail Radwan, the World Bank, & Gihani Fernando of HAAS Business School, University of California at Berkeley). For the full article: siteresources.worldbank.org/…/Resources/Offshoring-in-Sri-Lanka.doc

Globalisation has seen its fair share of bad publicity over the years, with large corporations from the developed world offshoring of their production work, paying low wages and taking maximum profits back to their home countries. However, true globalisation provides an equal transfer of services, goods and profits between the developed and developing world, providing sustainable solutions to alleviate poverty.

In order to take advantage of this opportunity, it is therefore necessary for people in the developing countries to access international customers, and it’s often the services industries that provide the easiest access to these international markets. Outsourcing of services is one such industry that can achieve this.….. read more by clicking on the continue reading link below.

Look out for our next fortnightly blog: The impact of outsourcing on Sri Lanka

Companies in India, Sri Lanka and the Philippines have been taking advantage of outsourcing for a number of years. Until recently outsourcing has been the preserve of large corporations in the developed world who have the resource to handle the scale of the outsourcing projects, this limits the number of businesses in the developing world who were able to take advantage of this opportunity. However, with the increase of access to technology and flexible global markets these opportunities are now being made available to SMEs (small- medium sized enterprises), allowing smaller companies in the developing world to take a bite of the opportunity, further spreading the benefits of globalisation.

Despite the global recession, or maybe because of it, the future for outsourcing host countries still looks bright. In India, for example 700m people are under the age of 35 and with English widely spoken this creates a solid resource pool for many years to come. Many people in India feel that because the growth has come from the ground up they have created a more stable future for their country than if they were relying on the government to play a bigger part. This is not to say that the Indian government has had no role in developing the outsourcing trade, it has invested considerably in infrastructure and education. Each outsourcing job creates many more jobs for others as the money earned travels around the local economy.

Another former British colony, Sri Lanka, has many advantages like India in the outsourcing trade. Like India, English is widely spoken and education standards are high. UK professional bodies such as the Chartered Institute of Management Accountants (CIMA) have tapped into this and Sri Lanka now has the largest pool of CIMA qualified accountants outside of the UK. However, because it cannot compete with India on high volume, transactional based outsourcing it has focussed itself on higher quality, lower volume processing and this positions it well to take advantage of the opportunities to work with SME customers. Accounting is Sri Lanka’s specialism.

Outspan is a leading UK accountancy outsource provider with service centres in Sri Lanka. Jim Downey FCMA, Outspan’s Managing Director tell us “we chose Sri Lanka for our service centres because of the high number of UK qualified accountants, the good English language skills and pipeline of trainee accountants, this works well for us in helping to maintain high standards of quality. We work with our service centres on a partnership basis and the in country teams are deliberately kept small, creating good rapport within the team and providing a broad spectrum of work. This ensures that our staff are happy and motivated, well trained and have a stimulating and career rewarding working environment. Holding strong ethical practices is very important to Outspan.”

For more information on outsourcing for SMEs, contact: Outspan. www.outspan.co.uk, 0845 838 1965

Much has been written and debated about the issues of global poverty and the possible solutions. There have been many examples of dependencies created by the long term provision of humanitarian aid and much lobbying of governments to relax the trade restrictions on developing countries with the aim of creating a more sustainable solution to eliminating poverty. Both of these viewpoints are complex and have their own issues attached….. read more by clicking on the continue reading link below.

Look out for our next fortnightly blog: Outsourcing and it’s impact on growth in developing countries

Aid money is without a doubt extremely valuable in providing emergency relief to disaster or poverty stricken areas, however it is when the funding continues for long periods of time, or the same area continually receives funding, that problems arise. These days aid money is big money and not only can that create little incentive for the recipients to take back control of their lives, it can also be tempting to divert some of the aid money away from the projects it was intended for. This can happen both within the organisations handling the money and within the host governments. During the Tsunami recovery period in 2005 the Sri Lankan government brought in a tax on aid money coming into the country, despite the majority of the money having already been taxed from donor’s salaries before being donated to the aid agencies in their home countries. The tax rule of 0.9% of funds is still in place although most aid agencies are still challenging it. Within organisations themselves, although nearly all of the aid agencies in the UK have robust financial controls and audit frameworks in place, corruption is still rife in certain regions making aid work more difficult.

For a number of years now governments of the developed world have been lobbied to lift trade restrictions on goods from the developing world, and in recent years some progress has been made, whether it be reductions in EU farm subsidies or US gestures on steel imports. However, lifting trade barriers often isn’t as easy as it seems as many governments are worried about the impact that it will have on home producers. It is often politically easier for governments to pledge aid money, which they control, than lift the trade barriers and lessen their hold on global wealth.

However with high profile organisations such as the IMF and the World Bank mediating better trade arrangements with the developed world, the benefits of globalisation have become more accessible to the poorest regions. “Policies that make an economy open to trade and investment with the rest of the world are needed for sustained economic growth. The evidence on this is clear. No country in recent decades has achieved economic success, in terms of substantial increases in living standards for its people, without being open to the rest of the world.” IMF, Global trade liberalisation and the developing countries (Nov 2001).

Trade in the services industry has increased considerably in recent years, particularly with companies in the developed world outsourcing their back office functions to places like India and Sri Lanka. This increase in service trade has provided the host countries with the ability to play on the world stage, bringing in much needed profits and creating job opportunities that are the bedrock of economic development.

For more information on outsourcing for SMEs, contact: Outspan. www.outspan.co.uk, 0845 838 1965

As the UK prepares itself with the threat of dipping back into recession, more and more innovative ideas are required by businesses to keep their finances healthy and prevent becoming yet another bankruptcy statistic. However, through this urgent need to relook at the way a business is run, recessions can bring out long term sustainable opportunities that could otherwise be overlooked.

Cost pressures and the need for management to spend less time on administrative tasks and more on getting in new customers, or simply keeping the existing ones, are a couple of reasons why outsourcing is becoming more popular as a viable business option for small to medium size enterprises (SMEs). For a number of years now outsourcing has been the privilege of large corporates who have the resource to manage large scale outsourcing projects and the economies of scale to make them worthwhile. However, with the increase of access to technology and flexible global markets these opportunities are now being made available to SMEs…… read more by clicking on the continue reading link below.

Look out for our next fortnightly blog: Trading the world out of poverty

For more information on outsourcing for SMEs, contact: Outspan. www.outspan.co.uk, 0845 838 1965

The increased need for flexibility to accommodate short term decreases in productivity without the cost and emotional upheaval of making redundancies, while also having the ability to upsize quickly when customer demand returns, is an attractive proposition for most companies.

However, outsourcing should not be seen as a quick fix to abandon once the market returns to a buoyant state as Jim Downey, Managing Director of Outspan a UK leading outsource provider specialising in SMEs, explains. “Outsourcing should be approached as a long term strategy to take costs out of the company permanently and gain access to additional resources and technology. This long term focus allows for companies to build sustainable relationships with their outsource partners and maximise the benefit of outsourcing.”

Small to medium size companies in particular are often weighed down with concern at having to lay off members of staff in difficult times, some of whom may have been working with the company for many years. However, Outspan’s experience shows that “the majority of our customers use outsourcing as a way to either redeploy their staff into higher skilled roles, outsourcing the low end work, increasing productivity and therefore company profitability, or to gain access to resource they do not currently have. Very few redundancies are made by our customers as a result of outsourcing”.

So with such an attractive proposition why are some SMEs still hesitating to outsource?

Outsourcing has gained a negative reputation over the years, which has created a barrier in the minds of some business owners and managers that is often hard to overcome. But is this negative reputation really justified?

Some of the main concerns about outsourcing are:

• The work goes outside of the UK (offshoring) where the workers may not be easily contactable. There may be concerns that the outsource provider works within a culture very different to that of the UK and this may impact delivery.
• Whenever work is outsourced outside of the company, whether to a provider on the same street or to another country, there may be concerns around loss of control over the work, a reduction in quality and an issue of trust that the work is being done correctly.
• Sometimes the cost of transitioning from an in house team to an outsource provider can be enough to deter the move.
• There may be a strong sense of patriotism and the feeling that to outsource the work outside of the UK is damaging to other UK companies and ultimately to the UK economy.
• There may also be a feeling that once a contract is agreed with an outsource provider the company is tied into an inflexible arrangement which is hard to change to accommodate the businesses changing requirements.

However, if we look at each of these concerns in detail we discover that with good planning, guidance and the right provider there is little reason for outsourcing to have a bad name.

Offshoring

Offshoring is a continuation of something manufacturing businesses started 20-30 years ago when factories were moved out to the Far East. This is now happening with services, and particularly with online accounting, supported by easy and fast access to the internet, the availability of technology and communications and increased standards of education across the world. It is now part of doing business in a global economy and it can bring true benefits to the bottom line.

The challenge for businesses is to choose a reliable, experienced outsourcing partner who can provide the reassurance business owners and managers need. Ideally your outsourcing partner will be working in a country with good English language skills and some understanding of UK working culture (particularly around meeting deadlines, providing clear explanations and summaries to support their work, and having at least part of the working day coinciding with the UK working day). The partner should provide the facility for you to be in direct contact with the people doing the work (even better if this is via a UK phone number) as this will inevitably make communication faster and clearer.

Maintain control and quality levels

“Increase in controls and quality levels versus the client’s previous solution is often something that attracts a client to outsourcing in the first place” says Jim Downey from Outspan. “Because outsource providers specialise in their field and are providing services for a number of other companies, their control frameworks and management supervision structures are often stronger than those of their clients. It is important, however, that this is achievable while maintaining the flexibility SMEs need to operate.”

A good outsource provider will be able to demonstrate a sound control environment and management structure to all clients; this is something worth asking about before committing to a outsourced partner.

Transitional costs of outsourcing

Not all outsourcing will incur a transition cost; it depends on what is being outsourced and whether those processes can be easily transferred to the provider. Accounting services, for example, often have no transition costs, providing that the accounts are up to date before transition and the work can easily be handed-over to the new provider.

Loss of UK jobs

SMEs tend to differ from larger corporations in that they look to outsourcing as a way of gaining access to additional resource more cheaply than they could get locally, as a result there are often very few redundancies, if any.

The cost savings gained from outsourcing have an immediate impact on the company’s profit which in return allows for better future opportunities for growth in business and staffing levels. As outsourcing primarily focuses on the low end transactional work, this allows for UK staff to be employed in value adding, higher skilled, work.

Inflexibility

Far from being inflexible, flexibility can be another strong reason for outsourcing. The key is to ensure that the SLA (service level agreement) you have with the outsource provider gives you the flexibility you need both now and in the foreseeable future. Many providers are happy to increase your services levels, but few are happy to reduce the levels once the work has peaked. This is because the providers may have taken on additional staff to support your needs which they then may find hard to employ elsewhere. Look for providers who have the capacity for clients to tap into a shared pool of resources for short term peaks rather than only a dedicated resource.

So what are the main questions to ask when choosing an outsource partner?

• What processes do you want to outsource? How experienced is the provider in delivering these processes? Do they have specific qualifications in this field?
• Cost. Provision of a quote for the work you need now and a confirmation as to how long they will guarantee those costs for.
• How much flexibility they have for increases and decreases in work load, what their lead time are and what impact that will have on cost.
• Can the provider give you referees to talk to, or a low cost trial?
• How long will the provider take to deliver your work to your required frequency?
• Is there anyone in the UK who could provide extra support if required?

The type of work to outsource is also a key success factor. In assessing what to outsource Jim Downey, Outspan suggests “outsourcing lends itself well to routine, transactional level processes. Look at which of your processes are core and which are not, the non-core transactional level processes are often the best to outsource leaving you to spend your time on the high end and core activities”.

So, rather than being a dirty word, Outsourcing can be an important tool for businesses both during difficult times as well as on a long term basis to bring costs down and increase the profitability of their business model, maximising profit and future growth.