Outsourcing in the World

In the framework of public-private partnership:

 
• Development of concepts of public-private partnership for the RF subjects and municipalities; 
• Strategy development and implementation of mechanisms for public-private partnership; 
• marketing strategies of the RF subjects and municipalities; 
• the concept of socio-economic development of the RF subjects and municipalities; 
• Attracting investment in the RF subjects and municipalities on a contractual basis; 
• A program of development of investment activity for the RF subjects and municipalities. 

 

In the area of ​​investment:

• assessment of investment potential; 
• attracting investment; 
• looking for a strategic investor; 
• assessment of the economic and other types of investment efficiency; 
• legal support.

In the development and implementation of projects:

• Analysis of market and competition; 
• Identification and assessment of target customers; 
• organization of economic activity; 
• expert review the effectiveness of projects; 
• legal analysis and support.

In the area of ​​strategic consulting services: 
• Development of corporate strategy; 
• Develop policies and programs of socio-economic development of the Russian Federation; 
• Business Seminar "Managing business value."

9. Outsourcing of call-center⁹

 
Every year the number of call-centers (contact centers) increases. Wishing to use the services of call-center ,business leaders facing a choice - it is more profitable, more correctly, it is wiser: the organization of call-center in the company or take advantage of outsourcing call-center? 
In the case of the term to call-centers for outsourcing means: 
• Rent the organization of working time of call-center operators; 
• Rent Organization jobs call-center; 
• Rent the functional organization of call-center equipment. 
The advantage of outsourcing call-center: 
• reducing the costs of recruiting and training staff; 
• efficiency; 
• reduction of costs; 
• systematization of relations call center and other business unit

 

In brief, we should list main advantages of outsourcing: 
1. Reduce overhead costs (rent, maintenance and transportation costs, the audit and financial statements, etc.). 
2. Professional responsibility provided by the outsourcing company. 
3. There is no need to monitor all changes to legislation relating to the functions transferred to an external organization. 
4. Training staff costs associated with the selection of personnel and the need for context and continuity, become care of contractor. 
5. Reduce costs associated with obtaining the tax and legal advice.¹⁰

 

Outsourcing is not panacea for everybody and it has its own disadvantages, such as not every company will entrust internal information outside the organization. Second disadvantage is that transfer to the outsourcing of certain functions can lead to a loss of some activities, which together with the main; give the organization a success in the consumer market.  
Transferring to the outsourcing of many functions, the organization can increase costs. The excessive enthusiasm in outsourcing can completely lead the outsourcing consumer to full dependence on foreign firms. Also nobody can be insured against losses due to low quality. In addition, the company-outsourcer, as well as any other, can be ruined, and therefore, the contracting authority will have to use the services of a new outsourcer, and it is additional moral and material costs. And one more significant factor is the lack of control over the activities of organizations or specialists who provide services.¹¹

 

 

 

1.2 The process of outsourcing

 

 

A process approach to activities of the organization makes it possible to choose the functions that can be brought outside the organization without affecting its strategic position and competitiveness. For the outsourcing of certain functions important how close they are to the main activities of the organization and strategic importance. Traditionally, outsourcing should be used only for minor functions. But the main activity that provides long-term competitive advantage must be hard controlled.¹²

 

However, there are situations when core functions outsourcing can be very helpful. For example, if the firm is significantly behind their competitors, it may transfer some of the main activities to the outsourcer to purchase the necessary knowledge. In addition, it is possible that the company does not have enough necessary resources and technological capabilities to enter the just emerging and rapidly developing markets. In that case it is possible interaction with firms working in the same market who was considered before as a competitor¹³

 

The methodology of outsourcing consists in the selection of milestones of business processes, just those that make up core functions of the organization. The number of key functions can be relatively small, and all other business process may be transferred to outsourcers, and it concerns not only supporting, but the main activities of the Organization. The following steps without affecting its future help to determine what business processes must be "inside" of the company:¹⁴

 

• Accurate description of the process and resources used

• evaluating the effectiveness of the process

• Need for continuous improvement

 

There are a lot of benefits from using outsourcing services:

1. Ability to focus resources and attention on core business 
2. Reduction of investment in functions that are not core for the business.  Not the basic functions do not require capital investment, and funded under the current operating expenses, which, in particular, improves the return on invested capital. 
3. Specialized outsourcing organization provides client access to the best resources and business standards, improving the quality of business processes while reducing costs. 
4. Volume of work provided by an outside contractor, easily scalable, meeting the demands of a growing or decreasing business. 
5. The process of restructuring the company - a client becomes smoother, as the support functions are controlled by a professional, responsive to changing requirements.¹⁵

Nevertheless it is often not enough to make a definitive decision to bring or not the outsourcing company. Therefore, one of the main criteria for deciding about the using outsourcing for companies in most cases is its economic justification. The economic justification is the comparison of the cost of production of goods and services on their own with their purchase.¹⁶In practice, to evaluate their own cost, they should take into account only those that can be reduced during the outsourcing:

• staff costs;
• the cost of production areas;
• the cost of the means of production;
• the cost of support means of production;
• Management costs.

Next step, compare the cost of purchasing functions outsourced and the cost of performing these functions natively.

If the ratio of costs of their own performance to the cost of purchasing > 1, so in this case, you should prefer the use of outsourcing. If <1, the improvement of their own division is preferable, since the transfer of functions to serve the information needs to a third party artist does not bring benefits in terms of reduced costs.¹⁷

2. Outsourcing in the World

2.1 Outsourcing in General Motors Company

Alfred Sloan one of first in the world rated and practically realized on a large scale the advantages of cooperation. The crown of the project was the Sloan car production, based on co-operation of highly specialized plants. In the 40's. XX century. methodology of Sloan adopted the company Ford Motors and Chrysler. Thus, the took shape "Big Three" U.S. auto industry, whose share in the 60s. in the production of passenger cars accounted for about 95%, in the production trucks - about 80%.

Outsourcing in the "Big Three" has three levels of vertical integration.

The first level - production at specialized factories of companies (in 1965 - 250 plants)

The second level - cooperation factories of "Big Three" with the companies supplying ready for kitting car parts, components and aggregates (about seven thousand firms). 
 
    The third-level factories of the second-level are cooperating with companies supplying various products and materials. The amount of such enterprises is more than 100 thousand of which only two thousand enterprises have the number of employed over 250 people, small businesses make up the majority.¹⁸

Thus the share of outsourcing accounted for 66% of the total cost of the automobile industry. The level of labor productivity in the automotive industry in the USSR was six times lower than in the U.S. auto industry.

Slowly the methodology of work in the area of outsourcing, applied by the U.S. car companies began to use and other American industrial companies. Nowadays, about 50% of U.S. companies use outsourcing in different areas: the main production equipment maintenance, transportation, supply, maintenance of warehouse, distribution, etc.

Thus, Western production is characterized by the highest degree of specialization. Practically all Western production differs by maximally simple structure; the majority of operations delivered ​​on outsourcing. Outsourcing is the result of building an effective development strategy based on industrial cooperation and long-term mutually beneficial partnership. The use of outsourcing as a fundamentally new strategy for the management is actively used by leading corporations in the world.

Today, it is the largest organization, such as, Ford, British Petroleum, Procter & Gamble, Dell, Exel, and others due to the use outsourcing achieved the most impressive economic results: an increase in profit almost doubled by reducing the organizational and production costs, improving the overall efficiency of their companies.

 

2.2 Outsourcing in Russia

 

Outsourcing in Russia is much younger than the western and has about 15 years.

Birth of entrepreneurship in Russia was held in extremely bad conditions, when the methods of competition threatened to not only businesses but also the lives and health of its owners. So the first task of the Russian business has become the task of economic and physical survival.Thus, the pioneers of outsourcing in Russia are private security companies, which allowed hundreds of companies to protect their business better and more professional than a few full-time security guards. The first private security companies appeared in the early 90s, some of them successfully, there is still turned into a quite large multi-disciplinary company specializing in the field of physical security of person and objects, commercial security and technical protection of objects.¹⁹

Progressively the business became more civilized and advertising become increasingly important .Advertising specialists catastrophically lacking that created favorable conditions for the formation of advertising agencies. The cost of attracting advertising agencies were not less, and in many cases more than the execution of works by his own department, but it was the only way to create high-quality advertising.

 

Following the advertising agencies emerged PR-agencies and research companies.

 
By early 2000 Russian business has recovered from the 1998 default in Russia, many entrepreneurs have returned, and began a new phase of enthusiasm with modern business technology.

The relatively stable economic situation in Russia has contributed to the emergence of new services in the outsourcing market. The main of them are IT outsourcing, staff outsourcing and the outsourcing of accounting.

The first offered in the market functions of IT outsourcing were technical maintenance of office equipment and system administration.

Transfer of maintenance and system administration to outside organizations significant savings to companies with a small number of computers and users, but at the same time created significant risks to information security. This represented a serious threat to large companies, so they preferred to use a full-time employees.    

Even in large companies, for which the Service of IT department is a complementary, sometimes used IT outstaffing.In most cases, outstaffing served to create a project team in a relatively short period of time.

Outsourcing of accounting caused the greatest concern among owners and managers of Russian enterprises, but as more and more offices of foreign companies gave their accounts to third parties, some Russian companies have also made ​​their choice in favor of outsourcing.

It is logical to assume that the list of services provided by outsourcing companies, will only expand, creating new opportunities for mutually beneficial cooperation.

 

Unfortunately in Russia, outsourcing has not yet become popular. The economic situation established in Russia, inhibits the formation and development process - namely, imperfect legislation and the mentality of the business relationship, which not credible. These factors further increase the possibility of losing control over the process, failure the obligations , information leakage. It is also important that Russia has some of the activities are semi-legal nature (accounting), which further complicating the situation.

These circumstances are taking place in our economy, but despite that, over the past 3-4 years the situation with the spread of outsourcing began to change for the better. This can be explained by the following reasons:

During this time, there were significant qualitative changes in the economic and social life; many companies have tried, Other ways to optimize the production alternative to outsourcing, while business competition is not only not weakened but got stronger.

 

But despite the fact that outsourcing in Russia has not received such an extension in the West, there are several bright examples:

• «LUKOIL" and the "Yukos" singled out its drilling division into separate company "LUKOIL-drilling" and "Siberian Service Company", without leaving a controlling interest in participation in these companies;
• «LOMO" defense enterprise engaged in production and sales of opto-mechanical and opto-electronic devices, abandoned the domestic manufacture of printed circuit boards after the analysis has shown that the existing plant equipment is outdated and requires significant modernization;
• «Irbitsky Motorcycle Plant," has sold automaton and smiting department; 
  - Company "August", a manufacturer of women's clothing under the brand name OGGI, has reserved only for model development, production planning, procurement of materials, accessories and clothing for sale. Production of most clothing is carried out outsource and executed numerous small and medium enterprises of light industry.²⁰

The conclusion

In difficult economic situation significantly intensified demands on the efficiency for the business. The more you are able to functionally unload the company, so it is more stable in times of crisis. The meaning of outsourcing is reduced to a simple formula: focus all resources on that kind of activity that is central to your company, and pass the associated functions of a reliable and professional partner.

One reason for the spread of outsourcing - the complication of of business processes, creating an unacceptable burden for the company. Passing the same painful duties to third-party professionals, the firm can concentrate on its main type of occupation. In this case there is good reason to hope that the execution of certain functions by the contractor will be better and less expensive than keeping them within the company.

In such a scheme of cooperation is a very important issue of managing and interacting with the outsourcer. Outsourcing involves a safe and guaranteed execution of functions. Because of the undeveloped legal basis, only the quality of their services determines whether to continue the cooperation. If your partner will do their job low quality, the customer-company simply find another performer.

The benefits of outsourcing include:

- reduction in the cost functions transferred outsourcer. Outsourcer performs execution of tasks assigned to it at a lower cost due to specialization in a narrow field, and due to the effect scale achieved through the execution of similar operations for multiple clients;

- improve the quality and reliability performance of outsourced functions, as outsourcer in solving similar tasks accumulates experience;

- Greater concentration on core objectives of the company, which makes it possible to focus on meeting customer needs and technology development;

 

 

 

 

 

 

The disadvantages are:

- The risk of information leaks during transmission of several important functions and the emergence of a new competitor that uses experience and knowledge of the company, ordering outsourcing;

- Loss of control over their own resources, a partial isolation from the leadership of the company

- Probability of collision with the need to urgently look for new partners, or start their own act, before were upon outsourcing

In Russia outsourcing has not yet received such a powerful development, as in the rest of the world. But gradually comes to understand that outsourcing is an effective way to reduce costs and to concentrate on running their core business.

A number of factors is still prevents widespread use of outsourcing. Our companies are afraid to trust the information to strangers, fear of losing control over the situation. Difficult to find a partner to companies in which you can be ensured, and the imperfection of the laws does not always guarantee the conditions of the agreement.

In our country there is one more feature of the business: Many companies do not just care about privacy, but are not interested in any, that may be openness, because accounting is often is semi-legal nature.

 

 

 

 

 

 

 

 

 

 

 

Literature

1. Aksenov, E., I. Alshutler: Outsourcing, 10 commandments and 21 tool 2008

2. Hira, Ron; Hira, Anil; Dobbs, Lou (Foreword by). Outsourcing America : The True Cost of Shipping Jobs Overseas and What Can Be Done about It. Saranac Lake, NY, USA: AMACOM Books, 2008.      

3. Business Process Outsourcing. Problems and solutions F.N. Filina 2008

4. CFO Insights: Achieving High Performance through Finance Business Process Outsourcing S. Clements, M. Donnelan 2007

5. Cullen, S. ‘Outsourcing Success’, Sourcing and Vendor Relationships Executive Report, Cutter Consortium, December 2007.

6.  Cullen, Sara. Contract Scorecard : Successful Outsourcing by Design. Abingdon, Oxon, , GBR: Ashgate Publishing Group, 2009.

7. Financial newspaper №27 01.07.2010 and №28 08.07.2010

8. http://www.mealtime.ru/outsourcing/

9.http://jpbranding.ru/outsourcing/?PHPSESSID=5bd9001995f10aacd15909b85a3ae3c5

10. http://www.business-magazine.ru/

11. http://www.outsourcing.ru/content/rus/291/2914-article.asp

12. http://www.rusconsult.ru/cms-news.php?mode=view_news&id=229

13. http://www.upcoo.ru/

14. OUTSOURCE: Competing in the Global Productivity Race by Edward Yourdon Prentice Hall/PTR 2007

15. Outsourcing and outstaffing - high-tech management Anikin B.A., Rudaya I.L_2009

16. Outsourcing Dilemma: The Search for Competitiveness Second Edition J. Brian Heywood 2008

17. Outsourcing: A Strategic Alliance special type. Berlin. Eric Schmidt, 2007

18.  Power, Mark John; Desouza, Kevin Clyde; Bonifazi, Carlo. Outsourcing Handbook : How to Implement a Successful Outsourcing Process. London, , GBR: Kogan Page Ltd., 2007

19. The Outsourcing Enterprise: From Cost Management to Collaborative Innovation  Leslie P. Willcocks, Sara Cullen, Andrew Craig  2011

20. Wanna, John; Butcher, John; Freyens, Benoit. Policy in Action : The Challenge of Service Delivery. Sydney, NSW, AUS: UNSW Press, 2009

21. Zubanov Arthur. Consulting Center of Financial Academy under the RF Government 16.10.2009

¹ Hira, Ron; Hira, Anil; Dobbs, Lou (Foreword by). Outsourcing America : The True Cost of Shipping Jobs Overseas and What Can Be Done about It. Saranac Lake, NY, USA: AMACOM Books, 2008. p 250.

² Outsourcing: A Strategic Alliance special type. Berlin. Eric Schmidt, 2007

³ Outsourcing Dilemma: The Search for Competitiveness Second Edition  
J. Brian Heywood 2008

⁴ Power, Mark John; Desouza, Kevin Clyde; Bonifazi, Carlo. Outsourcing Handbook : How to Implement a Successful Outsourcing Process. London, , GBR: Kogan Page Ltd., 2007

⁵ OUTSOURCE: Competing in the Global Productivity Race by Edward Yourdon Prentice Hall/PTR 2007

⁶ Business Process Outsourcing. Problems and solutions F.N. Filina 2008

⁷ The Outsourcing Enterprise: From Cost Management to Collaborative Innovation  Leslie P. Willcocks, Sara Cullen, Andrew Craig 2011

⁸ http://www.upcoo.ru/

⁹ Financial newspaper №27 01.07.2010 and №28 08.07.2010

¹⁰ http://www.mealtime.ru/outsourcing/

¹¹ Wanna, John; Butcher, John; Freyens, Benoit. Policy in Action : The Challenge of Service Delivery. Sydney, NSW, AUS: UNSW Press, 2009. p 305.

¹² Outsourcing and outstaffing - high-tech management Anikin B.A., Rudaya I.L_2009

¹³Aksenov, E., I. Alshutler: Outsourcing, 10 сommandments and 21 tool 2008

¹⁴ Cullen, Sara. Contract Scorecard : Successful Outsourcing by Design. Abingdon, Oxon, , GBR: Ashgate Publishing Group, 2009.

¹⁵ Cullen, S. (2007) ‘Outsourcing Success’, Sourcing and Vendor Relationships Executive Report, Cutter Consortium, December 2007.

¹⁶ http://www.outsourcing.ru/content/rus/291/2914-article.asp

¹⁷ 16.10.2009, Zubanov Arthur. Consulting Center of Financial Academy under the RF Government

¹⁸ CFO Insights: Achieving High Performance through Finance Business Process Outsourcing S. Clements, M. Donnelan

¹⁹ http://www.rusconsult.ru/cms-news.php?mode=view_news&id=229

²⁰ http://www.business-magazine.ru/