Outsourcing: The First Option | Article

Man writing in front of computerCustomers considering a move into the international marketplace should rank outsourcing as their number one option to support that growth. That bold statement sums up industry analyst Michael Corbett’s view of the role of outsourcing in the booming global marketplace.

“As they grow their businesses, that growth may be coming from the fact that they’re moving into new countries, new marketplaces within those countries or new regions of the world,” said Corbett. “As they do that, outsourcing should be their first option, not their second option. They should look at developing and deploying resources internally only after they’ve come to the conclusion that the right type of outsourcing service provider network doesn’t exist for what they need.”

Corbett is president of Michael F. Corbett and Associates. He also is chairman and executive director of the Outsourcing Resourcing Council. From his perspective, he sees outsourcing gaining strength in the international marketplace. The activity, he said, falls within two main categories: U.S.-based companies expanding their international operations and companies based outside the U.S. using outsourcing both in their native countries and other parts of the world.

The U.S. Perspective

“U.S.-based corporations are more aggressively applying outsourcing outside the U.S. than in the U.S.,” he said. “If you look at a company like General Electric and the strategy their appliance division is pursuing in Asia, they are basically creating their presence there through a network of outsourced manufacturers, outsourced logistics companies and companies that are creating the relationships with their retail stores for them.” He also cited Coors and Disney as U.S.-based companies that are aggressively using outsourcing to establish their presence in other countries.

Around the World

Among non-U.S. companies, the use of outsourcing varies by location, according to Corbett. “When you look at companies based in other parts of the world, the application of outsourcing within their businesses takes on very much of a geographic type of bias,” he said. “Companies based in England, for example, are aggressively looking at outsourcing across most aspects of their operations.

Companies based in France, Germany and Italy are certainly taking a closer look at outsourcing, although they may not be applying it very widely in their operations yet. There are other countries in Europe where outsourcing is still not being looked at very much at all.”

In South America and Australia and the rest of the Pan Asia region, most of the emphasis on outsourcing has been in the area of privatization of phone companies, power companies and other major assets that formerly were operated by government, according to Corbett. However, interest is growing in the commercial sector in those regions, he said.

In Japan, China and other parts of Asia, he sees the situation as one where most of the focus on outsourcing is among companies doing work for U.S.-based firms.

“There’s a growing interest in using outsourcing as a management tool within the companies themselves that’s just now beginning to emerge in Asia,” he said.

The People Factor

Although the growing international market offers ‘enormous opportunity,’ Corbett noted that the situation is also fraught with challenges. One of those challenges is the different social and legal structure around the relationship between employees and the company in Europe.

“There is more legality around that relationship than there is here in the U.S.,” said Corbett. “So the people impact on outsourcing in Europe and the implications for companies that choose to outsource there are even more significant than they are here. I think that has a slowing effect on the application of outsourcing in Europe.”

Understanding the Markets

The need to understand the market being entered is paramount, according to Corbett. “I would caution against going into any market without a very thorough understanding of their idiosyncracies and a very focused and targeted strategy on a country-by-country basis. You need to understand all the particulars of that country, the history of the companies in that country and the legal issues.”

The existence of that body of knowledge within the outsourcer’s organization should be one of the early screening points in the selection process. A customer should be ‘absolutely certain’ that the outsourcer understand both the customer’s home country and the countries where they are doing business.

“Those are critical points in the selection process,” said Corbett. “First and foremost, you’re not looking for the best deal exclusively. What you’re really looking for is the best partner. Then within the framework of the best partner, you’re looking for a good deal.”

Companies considering expanding into Europe should be aware that the move toward a common European currency will have a major impact on outsourcing there.

“Over time, that certainly will drive more outsourcing because it will become easier to create relationships across country borders,” he said.

The focus on achieving a common currency already is affecting outsourcing in another way, according to Corbett. He said the currency issue now is drawing management attention away from the impact outsourcing could have on internal operations. That situation may change after the currency is addressed.

On the Brink

When Corbett looks at the world marketplace, he is reminded of the situation in the U.S. just before the explosion of outsourcing earlier this decade.

“Generally speaking, I sense that the world marketplace is poised at exactly that point,” he said.

The impact of such an explosion in the global arena will be tremendous. “International will expand faster than the U.S. market over the next few years,” said Corbett. “That’s going to create enormous opportunities for U.S. companies to offer their solutions around the world. It also will result in a lot of new international players coming on the scene. They, interestingly, will probably then turn around and begin to focus on the U.S. marketplace, as time goes by.”

Lessons from the Outsourcing Primer:

  • Outsourcing should be a company’s first option to support international growth.
  • The emphasis on outsourcing varies from country to country.
  • The legalities surrounding employee relationships can be a challenge for companies moving into Europe.
  • Understanding specific markets is essential and should be a factor in screening for outsourcers.
  • The move toward a common European currency will drive more outsourcing there.

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