PROJECT ON OUTSOURCING

Project Report Submitted in partial fulfillment of the requirement for The Award of The Degree of BACHELOR OF FINANCIAL MARKETS SEM V UNIVERSITY OF MUMBAI 2011-2012 Submitted by: ROHIT S. SAHU TYBCFM Roll No: 13241

PARLE TILAK VIDYALAYA ASSOCIATIONS MULUND COLLEGE OF COMMERCE S.N. ROAD, MULUND (W). MUM-80

Declaration

I, Master Rohit Sahu, student of MCC, TYBVFM Sem V hereby declare that I have completed the project on OUTSOURCING IN THE ACADEMIC YEAR 2011-2012 The information submitted is true and original to the best of my knowledge.

_______________________ Signature of the Student

ACKNOWLEDGEMENTS
I owe a lot of people a debt of gratitude for their help with this Project. Its impossible for me to list them in order of importance as all these wonderful people were essential to my project. I acknowledge our honorable principal, Mr. Deshpande, who has given me immense support and encouragement I also thank my project mentor, Prof. Vinaya Marathe, for helping me in the completion of the project. Lastly I thank my parents and friends who have generously given me a helping support and guidance for completion of this project.

DESIGN OF THE STUDY

This project is designed to gain knowledge and fact about the industry, which is the actual indicator of the economy of INDIA. The basic purpose to design this project is to give the reader an idea of the sector, about which he can think of while selecting his/her career. He information given in the project is true and collected from primary as well as secondary sources such as newspaper Business Line, Economic Times, books How to Outsource. Annual reports of the companies and from WEB.

Executive Summary
This project is basically designed to have an outlook of the OUTSOURCING BUSINESS as today it has a major contribution in the overall development of the economy. There are many Major players in this Industry located Globally. Most of these Industries players deal globally. In-depth knowledge and some experiences of vintage corpoes in this industry is also included in the project.

Contents Serial No.

1.
What is Outsourcing?

Particulars

Page No.
7 10

2.
Why Outsourcing?

3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

Types of Outsourcing BPO KPO LPO Benefit of Outsourcing Outsourcing Trends The Global Markets Global Outsourcing Risk in financial outsourcing

11 12 17 29 32 34 36 38 39

Sharing the financial risk Challenges in Outsourcing

42 44

Outsourcing Destinations

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From the Directors Desk.

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What is Outsourcing

Contracting with a vendor to provide a service rather than providing it yourself Outsourcing, in literal terms, means sourcing from outside. It is the contracting out of a company's non-core, non-revenue producing activities to specialists. Principle types

Traditional outsourcing: Here the routine jobs or tasks that the staff of the organization does not perform are identified and the service provider usually hires staff for this job.

Greenfield outsourcing: Without hiring the service provider the organization can directly hire an imminent company that can execute their business that was not done in the organization internally.

Common types

Information Technology (IT) Outsourcing

o o o o

Web site development Software development Network backbone services IT remote support

Business Process Outsourcing (BPO)

o o o o o o o o

Call centers Payroll Finance functions and activities E-publishing Book keeping services Accounting Human resources CAD services

Factors for an organization the decision to outsource can be brought about by a number of factors:

Heavy workload Lack of time or urgency Lack of expertise Deplorable cost to perform services Shift to new technologies and/or existing technologies Add to existing staffing levels hastily Focus on operational, functional, or technical limitations Return the focus of staff to core capabilities Hasten benefits by rapidly employing services or projects Trim down costs in an explicit functional area Increase service levels Reduce capital costs Cut recurring operational costs Enable business tactics and/or transformations

Why Outsourcing
Every Organization looks for

Expertise in latest technology

o o

Tools & techniques More structured methodology, procedures and documentation

Rapid deployment
o

Proficient and skilled man power

Lowered costs
o o

Reduced capital investment Reduced in-house inventory

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Types Of Outsourcing

Outsourcing

Business Process Outsourcing

Knowledge Process Outsourcing

Legal Process Outsourcing

Payroll Outsourcing

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Business process outsourcing

Business process outsourcing (BPO) is a subset of outsourcing that involves the contracting of the operations and responsibilities of specific business functions (or processes) to a third-party service provider. Originally, this was associated with manufacturing firms, such as Coca Cola that outsourced large segments of its supply chain.[1] In the contemporary context, it is primarily used to refer to the outsourcing of business processing services to an outside firm, replacing in-house services with labor from an outside firm. BPO is typically categorized into back office outsourcing - which includes internal business functions such as human resources or finance and accounting, and front office outsourcing - which includes customer-related services such as contact centre services. BPO that is contracted outside a company's country is called offshore outsourcing. BPO that is contracted to a company's neighboring (or nearby) country is called near shore outsourcing. Often the business processes are information technology-based, and are referred to as ITES-BPO, where ITES stands for Information Technology Enabled Service.

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Industry size
India has revenues of US$10.9 billion from offshore BPO and US$30 billion from IT and total BPO (expected in FY 2008). India thus has some 5-6% share of the total BPO Industry, but a commanding 63% share of the offshore component. This 63% is a drop from the 70% offshore share that India enjoyed last year: despite the industry growing 38% in India last year, other locations like Philippines, and South Africa have emerged to take a share of the market. China is also trying to grow from a very small base in this industry. However, while the BPO industry is expected to continue to grow in India, its market share of the offshore piece is expected to decline. Important centers in India are Bangalore, Hyderabad, Chennai, Kolkata, Mumbai, Pune, Patna and New Delhi. The top five Indian BPO exporters for 2009-2010 according to NASSCOM are Genpact, TCS BPO, WNS Global Services, Wipro BPO, and Aegis Ltd.

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Benefits and limitations

An advantage of BPO is the way in which it helps to increase a companys flexibility. However, several sources have different ways in which they perceive organizational flexibility. Therefore business process outsourcing enhances the flexibility of an organization in different ways. Most services provided by BPO vendors are offered on a fee-for-service basis. This can help a company becoming more flexible by transforming fixed into variable costs. A variable cost structure helps a company responding to changes in required capacity and does not require a company to invest in assets, thereby making the company more flexible. Outsourcing may provide a firm with increased flexibility in its resource management and may reduce response times to major environmental changes Another way in which BPO contributes to a companys flexibility is that a company is able to focus on its core competencies, without being burdened by the demands of bureaucratic restraints. Key employees are herewith released from performing non-core or administrative processes and can invest more time and energy in building the firms core businesses. The key lies in knowing which of the main value drivers to focus on customer intimacy, product leadership, or operational excellence. Focusing more on one of these drivers may help a company create a competitive edge. A third way in which BPO increases organizational flexibility is by increasing the speed of business processes. Supply chain management with the effective use of supply chain partners and business process outsourcing increases the speed of several business processes, such as the throughput in the case of a manufacturing company. Finally, flexibility is seen as a stage in the organizational life cycle: A company can maintain growth goals while avoiding standard business bottlenecks. BPO therefore allows firms to retain their entrepreneurial speed and agility, which they would otherwise sacrifice in order to become efficient as they expanded. It avoids a premature internal

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transition from its informal entrepreneurial phase to a more bureaucratic mode of operation. A company may be able to grow at a faster pace as it will be less constrained by large capital expenditures for people or equipment that may take years to amortize, may become outdated or turn out to be a poor match for the company over time. Although the above-mentioned arguments favor the view that BPO increases the flexibility of organizations, management needs to be careful with the implementation of it as there are issues, which work against these advantages. Among problems, which arise in practice are: A failure to meet service levels, unclear contractual issues, changing requirements and unforeseen charges, and a dependence on the BPO which reduces flexibility. Consequently, these challenges need to be considered before a company decides to engage in business process outsourcing. A further issue is that in many cases there is little that differentiates the BPO providers other than size. They often provide similar services, have similar geographic footprints, leverage similar technology stacks, and have similar Quality Improvement approaches

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Threats
Risk is the major drawback with Business Process Outsourcing. Outsourcing of an Information System, for example, can cause security risks both from a communication and from a privacy perspective. For example, security of North American or European company data is more difficult to maintain when accessed or controlled in the SubContinent. From a knowledge perspective, a changing attitude in employees, underestimation of running costs and the major risk of losing independence, outsourcing leads to a different relationship between an organization and its contractor. Risks and threats of outsourcing must therefore be managed, to achieve any benefits. In order to manage outsourcing in a structured way, maximizing positive outcome, minimizing risks and avoiding any threats, a Business continuity management (BCM) model is set up. BCM consists of a set of steps, to successfully identify, manage and control the business processes that are, or can be outsourced. Another framework, more focused on the identification process of potential outsourceable Information Systems, identified as AHP, is explained. L. Willcocks, M. Lacity and G. Fitzgerald identify several contracting problems companies face, ranging from unclear contract formatting, to a lack of understanding of technical IT- processes

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Knowledge Process Outsourcing

Knowledge Processing Outsourcing (popularly known as a KPO), calls for the application of specialized domain pertinent knowledge of a high level. The KPO typically involves a component of Business Processing Outsourcing (BPO), Research Process Outsourcing (RPO) and Analysis Proves Outsourcing (APO). KPO business entities provide typical domain-based processes, advanced analytical skills and business expertise, rather than just process expertise. KPO Industry is handling more amount of high skilled work other than the BPO Industry. While KPO derives its strength from the depth of knowledge, experience and judgment factor; BPO in contrast is more about size, volume and efficiency. In fact, it is the evolution and maturity of the Indian BPO sector that has given rise to yet another wave in the global outsourcing scenario: KPO or Knowledge Process Outsourcing. The success achieved by many overseas companies in outsourcing business process operations to India has encouraged many of the said companies to start outsourcing their high-end knowledge work as well. Cost savings, operational efficiencies, availability of and access to a highly skilled and talented workforce and improved quality are all underlying expectations in outsourcing high-end processes to India

The future of KPO has a high potential as it is not restricted to only Information Technology (IT) or Information Technology Enabled Services (ITES) sectors and includes other sectors like Legal Processes, Intellectual Property and Patent related services, Engineering Services, Web Development application, CAD/CAM Applications, Business Research and Analytics, Legal Research, Clinical Research, Publishing, Market Research (Market research KPO ) etc.

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Scope and Future of KPO

According to a report of National Association of Software and Services Companies (NASSCOM), the Indian chamber of commerce that serves as an interface to the Indian Software industry, Knowledge Process Outsourcing industry (KPO) is expected to reach USD 17 billion by 2010, of which USD 12 billion would be outsourced to India. Another report predicts that India will capture more than 70 percent of the KPO sector by 2010. Apart from India, countries such as Russia, China, the Czech Republic, Ireland, and Israel are also expected to join the KPO industry. According to a recent study by Evalueserve, a Gurgaon based outsourcing company having service chart for global world, the global KPO market is expected to grow at a cumulative annual growth rate (CAGR) of 46 per cent, from $1.2 billion in 2003 to $17 billion in 2010. Compare this with the prediction for the low-end outsourcing services market. This is expected to have a CAGR of 26 per cent, from $ 7.7 billion to $39.8 billion in the same period. Evalueserve says India provided $3.5 billion of BPO and KPO (but non-IT) services in 2003 and is expected to grow at a CAGR of 36 per cent during 2004 to 2010. Hence, it is likely to earn $30 billion in 2010 by providing these services.

Says country general manager, Kelly Services, Achal Khanna India still maintains the competitive advantage for providing, the combination of the most cost-effective and high quality manpower- this is India's strength in the off-shoring business. In the future, it is envisaged that KPO has a high potential as it is not restricted only to Information Technology (IT) or Information Technology Enabled Services (ITES) sectors, and includes other sectors like Intellectual Property related services, Business

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Research and Analytics, Legal Research, Clinical Research, Publishing, Market Research (Market research KPO), etc. "Over the past year or two, the outsourcing industry has been throwing up jobs for Doctors, Engineers, CAs, Architects," says Jacob William of the Bangalore-based Outsource2India, which employs 500 people and offers services in the big-buzz, bigbucks area of knowledge process outsourcing. "Unlike the first wave which was more about entering data and answering phone calls, these jobs involve skill and expertise." Also, of course, the talent is much more affordable. "Law firms in the US charge an average of $400-450 per hour, and we do the same work for $75 to $100 an hour" says Kamlani" who is an outsourcing provider in the same area. In the Indian context, KPO salaries could be 25-50 per cent higher than those offered to the same domain experts such as Engineer, Doctor, CA, Lawyer, Architect, Biotechnologist, Economist, Statistician and MBAs, it said. In its annual publication Strategic Review 2005, Nasscom has said the high-end activity of the BPO industrythe KPO or knowledge process outsourcing could be worth $15.5 billion by 2010. According to earlier estimates, the BPO industry itself was expected to be about $20bn by 2008; hence a very significant portion of the sectorin excess of 50% is now projected to be knowledge based. This represents significant metamorphosis of call centre sector business to completely different model. Interestingly, Sunil Mehta, Nasscom vicepresident research, distances himself from the estimates. The projections are based on a white paper released by Evalueserve. The paper cites reasons for a possible KPO boom. It says higher savings by outsourcing knowledgebased activities combined with the scarcity of specialized talent in developed countries could lead to growth in the KPO sector.

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Billing rates for KPO are higher at $30-45 per hour compared to just $10-14 in the BPO business. However, the paper also warns of several challenges like higher quality standards, greater investments and inadequate talent. The study estimates that while the compounded growth rate of BPO till 2010 would be just 26% KPO is expected to be grow at almost 46%

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Why KPO?
If we look into any financial newspaper, magazine or any literature giving knowledge about the outsourcing business in India, what is found to be most referred word is KPO meaning thereby knowledge process outsourcing. Many new business concerns are coming day by day in Knowledge Processing Outsourcing Industry and KPO is emerging as a new sector that promises to provide long-term jobs for intellectual, analytical and knowledgeable people with a pay scales much higher than the BPO sector. The following are the few areas which are being associated with the KPO sector. Research & Development Financial Consultancy and Services Advanced Web Applications Business and Technical Analysis Learning Solutions Animation & Design Business & Market Research Pharmaceuticals and Biotechnology Medical Services Writing & Content Development Legal Services Intellectual Property (IP) Research Data Analytics Network Management Training & Consultancy

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Benefits of KPO
Standardized technical education is widely available to all in the developing countries especially in India. This skilled and trained manpower is accessible at very low cost as well. It, therefore, is always a wise decision and makes sense to utilize such services. Outsourcing of activities to KPO companies can provide the following benefits: Valuable cost savings that can be utilized elsewhere. Trained professionals at work. Standard operational efficiency. Increase in profits. Savings in time and management energy for maintaining in house services. Option to recruit a larger work force without raising costs.

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What KPO can deliver to you? Any company involved as service provider in the KPO industry works in close coordination and association with the client and provides services that are predefined in terms of quality and standard of work. While working with a KPO firm, the outsourcing company can expect to get the following: Good quality work. Lower costs. On time delivery of services. Uninterrupted services. Adaptability to changes in required quality. Does it imply that with the rise of KPO entities, BPO (Business Process Outsourcing) become extinct. It is undoubtable that KPO is a step ahead of BPO but this does not mean the end of BPO. The BPO Industry will exist and continue to be successful in India. BPO has its own strengths and way to solve a particular problem and the BPO market is long term in nature as compared to the KPO market. With every passing day the BPO market expanding and so is the various systems and processes through it. The following are various areas in which the BPO presence shall not remain in existence but shall also keep growing. Data processing Basic data entry Department Outsourcing

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 Provides technical support Provides email support to its customers Even after the entry of KPO in the Indian market, the amount of total revenue earned in the outsourcing industry in BPO will be higher as compared to the KPO industry. The BPO exports will be as higher as $20 billion by the end of 2010 in comparison to KPO projections of $12 billion in the same period. As per a recent study done by experts the BPO industry is expected to grow globally at a CAGR of over 26 percent by 2010.

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Some of the other factors fuelling growth in KPO are:

* Developed economies, such as the US, the UK, and countries in Western Europe are increasingly facing a shortage of highly trained and specialized professionals in various knowledge-intensive high skill sectors, such as R&D in VLSI, engineering design, IT, financial risk management, etc. * Buyers of off shoring services save more at the high end of the value chain, as compared to the low end on a per-job basis. * High-quality specialized vendors and successful captives have emerged as role models and created awareness for KPO, both in the West as well as in India. KPO is not just about 'Cost Arbitrage' In fact, players solely based on cost differentials will hardly be sustainable in the long run. The central theme of KPO is to create value for the client by providing the highest-quality business expertise and superior productivity/effectiveness rather than cost savings based only on geographic cost arbitrage. KPO services help improve the time-to-market, access to special skills, absorb peak load and enhance organizational effectiveness. Moreover, it simplifies the process and makes it more flexible. Consistent quality is the key word and primarily drives the buying decisions. For example, an error made in a corporate finance valuation model can have a huge financial downside, which is likely to be in factors of 1000+, possibly larger than the savings made by having the spreadsheet produced in India. Similarly, a patent with badly written claims can damage the protection of

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multimillion dollar products in global markets. Finally, the outsourcing solutions for high-end processes are usually highly customized, which is an important element of value creation for the client, but also requires the vendors to run multiple customized processes in parallel. Precautions need to be taken while outsourcing work due to various reasons like money, time, availability of manpower etc. There are many risks involved during process of outsourcing and thus it is imperative to choose the right service provider. The outsourcer should be honest and efficient with good communication skills.

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Threats & Precautions of a KPO

1. Do your homework properly. Find out for how many years the company has been outsourcing. Get adequate information on the company as to the strength of the company and their financial situation. 2. Find out about the quality of the services provided by them e.g. whether they have an ISO and CMM certifications. Customer reference and recommendation are the best way to figure out a company's services. 3. Before you finalize the outsourcing company it is pertinent for you to take into consideration all the hidden costs from maintenance, training, connectivity /infrastructure, transition etc. instead of just the obvious costs such as licensing and consulting costs. 4. Ensure that the company does not make unrealistic promises and keeps them. 5. The outsourcing company should meet requirements in respect to data privacy including infrastructure security (Firewalls, Access Controls, Data Encryption, etc) and human resource related like Pre-Recruitment precautions and checks, Non-Disclosure agreements, etc.) 6. Ensure that the company offers business continuity and disaster mitigation plans as a means of reducing your business related risks.

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7. Companies have to be honest when dealing with invoicing and material type of contract. Always check for referrals of customer for ensuring that the company is honest in financial dealings. 8. Ensure that the company chosen for outsources work is compliant with statutory laws. 9. The company chosen should match work culture and ethics. This will help offshorer in carrying out smooth communication with the company. 10. Ensure that the chosen company has well-trained professionals on their staff and good capacity to handle the work.

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Legal Process Outsourcing Legal Process Outsourcing (also known as LPO) refers to the practice of a law firm or corporation obtaining legal support services from an outside law firm or legal support services company. When the outsourced entity is based in another country the practice is sometimes called Offshoring. LPO services are at a nascent stage with relatively consistent market growth since early emergence of LPO in 1997. LPO providers have established themselves in Canada, India, the Philippines, the US, Israel and Latin America. They traditionally offer services in the areas of document review, legal research and writing, drafting of pleadings and briefs, and patent services outsourcing. In-house law departments of major multinational corporations outsource some of their work in order to limit costs. Initially, legal process outsourcing gained traction in the Asian subcontinent. However, in recent years the so called "near shore", "back-door" "specialized legal firms" have sprung up to satisfy law firms and corporations that demand quality and confidentiality.

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Advantages
Most firms and corporations outsource primarily to save cash, and this is considered the biggest advantage for legal outsourcing. While an attorney in major legal markets such as the US may charge from $150350 dollars/hour when performing rote services, legal process outsourcing firms can often charge a fraction of this. It has attracted major corporations to outsource specific work outside their legal departments. In Gurgaon and Bangalore, India the industry has benefited from the Global Financial Crisis, due to the increasing number of litigations and bankruptcies. Teams of Indian lawyers have achieved notable success providing legal research and drafting services in high-profile U.S. litigation matters. As reported in the ABA Journal, "[t]he market for outsourced legal work is booming in India. While lawyers there are doing a lot of routine work, they are also handling some interesting legal matters, including work for the makers of movies and television shows. As noted in USA Today, "you could call it 'Outsourcing 2.0' or maybe even '3.0.' Now firms are increasingly trying to leverage expertise," says Saikat Chaudhuri, an assistant professor in the business school at the University of Pennsylvania. Legal Outsourcing is "growing very, very quickly."

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Criticisms
One of the major concerns with legal outsourcing is the potential for breach of clients confidentiality. Secondly, another concern is that the people performing legal work may not be bound to the necessary ethical standards. However, there have been ethics opinions from various states Bar Associations (New York, San Diego) and recently, the American Bar Association that discuss ethical legal outsourcing and how to achieve it. Finally, there is criticism that LPO's are in effect practicing U.S law without a license/U.S law degree. (e.g. writing memorandum, briefs, etc). Work traditionally given to a junior associate in a law firm

LPO Industry and the Recession

LPO firms in India had predicted an annual growth of 200% due to recession related litigation and the increased need to save costs in the U.S. Their expectations have not been met. The major reason for this is that U.S. lawyers themselves have started looking at alternative fee structures due to the recession and job losses. In spite of some setbacks, the LPO industry has seen growth of about 40-60% in the last one year. Although some areas of practice, such as real estate, have drastically collapsed due to the recession, some areas such as litigation, document review, and corporate compliance, among others, have gained ground, resulting in a good amount of business directed to LPO firms in India.

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Benefits of Outsourcing

Globalization and de-regulation has changed the entire face of business and the companies are about to receive the new business model, outsourcing'. The new atmosphere speeds up business processes, eliminating administration costs and improving efficiency.

Cost saving by 40-50% Reduce investment risk Get access to specialized skills Faster development and start up Overcome human resource crunch Ability to concentrate on core functions

What makes it possible? It is now possible to have global development teams working round the clock on time critical projects.

Better communication facilities Mature development processes Well-integrated teams

Next Phase in Outsourcing If you've successfully outsourced part of your business, it could be worth looking at other areas to deal out. In short outsourcing:

Enhance out-of-control functions

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Reduces staffing demands Provides access to a new collection of advanced skill sets and technologies Guarantee shared risk and reward Respond quickly to changing organizational priorities
Creates an improved and more reliable level of service

Operating Cost Comparison when a business is outsourced

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Outsourcing Trends

"Outsourcing is nothing less than a full-blown mega-trend all around

the world" Outsourcing, going to be more and more of a mainstream phenomenon, is now a business essential. The next wave in globalization is focused on the transplantation of entire IT departments offshore. Recent trends suggest that the outsourcing market will continue to grow. Contracts are awarded incessantly and study indicates that companies are expanding the range of IT services they outsource.

Recent Trends

Offshore outsourcing is increasingly being accomplished as global sourcing or global delivery. Cannibalization of work: Earlier work was outsourced to a supplier who stayed at home, but today outsourcing is more prevalent. The growth of the captives, organizations owned and operated in a foreign country by a parent firm. Here the offshore workforces are employees of the parent company, not an outsourcing supplier. Outsourced e-commerce: Sending e-commerce out of house is an increasingly popular choice for businesses.

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Outsourcing Cost Dynamics

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The Global Market:

To improve business performance outsourcing of business processes and functional activities is one of the options available. Companies that employ outsourcing are more financially stable than are those that do not.

35-55 percent savings in relevant costs for some global companies. 23 percent of IT services will be delivered from offshore centers by 2007, compared with only 5 percent this year. According to International Data Corporation (IDC), global IT-enabled services market will account for revenues of $1.2 trillion by 2006.

Globalization and de-regulation has changed the entire face of business and the companies are about to receive the new business model, outsourcing'. The new atmosphere speeds up business processes, eliminating administration costs and improving efficiency.

Cost saving by 40-50% Reduce investment risk Get access to specialized skills Faster development and start up Overcome human resource crunch Ability to concentrate on core functions

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The Global Market Survey.

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Global outsourcing

Creates and expands new markets Effectively and efficiently promotes global citizenship Recognizes the benefits of a global economy Enhances technological creativity and diversity Makes good social, financial, and economic sense

Trend setting factors

Conservative companies to experiment with going offshore to withstand competition. Broadening of the IT services offered by the experienced vendors. The launching of captive offshore centers by user companies for business process outsourcing (BPO). Onshore IT technology and services vendors setting up shop in locations like India and China to widen their services. The main three facets; Availability of aptly skilled resources Lower costs of manpower Ability to create better quality of work, more efficiently

o o o

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Risk in Financial Outsourcing

Introduction
Many banks use a third party to perform certain activities that would have been normally performed by the banks themselves. They outsource some activities to a party, which may or may not be affiliated with the outsourcer bank. Outsourcing of financial services is a broad based activity that includes processing of loans at the original stage, credit card processing, document processing, marketing and research, supervision of loans, data processing and back office activities. The banks are exposed to many risks while outsourcing. The interests of the bank's customers should never be compromised. The reputation of the banks and their financial well-being are at stake. Hence, while outsourcing financial services, banks have to understand these risks and make conscious efforts to manage them effectively.

Strategic Risks:
Every bank operates with some strategic long and short time goals. The service provider should relate to these goals and strengthen efforts to achieve them. If the service provider conducts business on its own and in variance with the strategic goals of the bank, it would mean trouble for the bank.

Reputation Risks:

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The very idea of outsourcing is to provider better service to customers. The service provider should be conscious of the standards set by its client in dealing with customers.

Compliance Risks:
Prudential laws, consumer and privacy laws are the foundation for good banking. The service provider may not act in accordance with these laws.

Operational Risks:
Failure of technology, fraud, inadvertent errors on the part of the service provider, and most of all the failure of banks to fulfill the obligations of their customers by providing remedies represent a grave risk to banks.

Legal Risks:
The errors on the part of service provider deliberate or not, may result in legal action in the form of fines, penalties, punitive damages, as well as compensatory settlements by the banks

Exit Strategy Risks:

Over-dependence on a single service provider is not a good idea. The bank cannot acquire and nurture relevant skills within. Even if the bank wants to get out of such a rut, it cannot do so as it may turn out to be an expensive proposition. The bank is stuck with its outsourcing partner.

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Counter party Risks:

There is always a risk of the service provider not making correct credit assessments or of underwriting them.

Country Risks:
This is a risk that common with off shore outsourcing. The political, social, cultural and legal set up of the country in which the service provider is located plays a crucial part in the success of outsourcing. Since these are not static and often unpredictable, the risk is more critical.

Contractual Risks:
This risk is possible when a bank is unable to enforce the contract entered between the bank and the service provider.

Concentration and systemic Risks:

In certain cases, all the banks of a country or region have a single common service provider. In such a situation, the individual bank may not be able to control the service provider.

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Sharing the Financial Risk: Outsourcing

Its an unfortunate consequence of business, a reality that must be faced by all success is not a certainty. It is instead a wish, fragile and far too easy to shatter. Failure waits for all, willing to appear at the first loss of profits, the first unexpected costs. Industry is a risk; and many are refusing to appease it any longer. They believe the consequences far exceed the potential rewards. Finance is too wild to predict and it can disappear all too quickly, leaving employers with nothing but the memory of better times. Fear of such a memory has forced many to reexamine the notions of beginning a business. Making it a singular venture is now considered foolish. No individual should be weighted with the burden of all decisions, all possibilities. There are simply too many variables and too little relief. Because of this companies have instead been considering the concept of outsourcing which offers a promising solution to the worries of a solitary mistake. Outsourcing, simply explained, is a shared venture. Corporations that are sent to new cities, new countries, are not merely on their own. They are instead partnered with others (who may provide employees, locations, tax benefits and more). This partnership creates an instant trust each company must be fully invested in the notion of working together, striving toward a mutual success. This helps to lessen the strain a singular business would have to bear, as well as creating precautions against the possible complications of the future: there is instead a greater surplus of funds, talent and comfort. This reduces the chance of succumbing to tension.

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Through outsourcing individuals will find their profits strengthened and their hesitations dissolved. The intention is to minimize concerns by maximizing the number of those who must fight against them. The result is an obvious
convenience and an obvious ease. It works.

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Challenges for Outsourcing

Outsourcing are countered by some important challenges

Selection of appropriate offshore location

o o o

Political and economic fidelity of the country Language and talent set of local population The condition of the country's existing telecommunications infrastructure

Selection of ideal outsourcing partner

o o o o o o o

Price Expertise in a particular industry Integration capabilities Training and qualifications Overall customer service strategy Company information privacy Knowledge in latest technology

Dynamic challenges
o o o o o o

Management challenges Cultural/language communication risks Security risks Legal concerns Time zone challenges Legal issues

Outsourcing in-house problems

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o o o o o o

Sign up for projects without enough preparation Striking big deals for the wrong reasons Lack of legal and regulatory expertise Appropriate recruitment Shortage of technical expertise Up-front investment

Challenges in Outsourcing

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Outsourcing Destinations
Firms are considering outsourcing more than ever before -- and their choices are growing by the minute IT outsourcing continues to dominate; however, in the global marketplace, an increasing number of companies, both multinationals and service providers, are heading into the business process outsourcing (BPO) arena. Outsourcing destinations are grouped into three categories:

Main destinations Upcoming destinations Others: Chile, Venezuela, Thailand, South Korea, Malaysia, Vietnam, Singapore and Romania.

The countries have been compared on parameters such as total size, average IT employee costs, total workforce, number of quality certifications, main clients and other considerations.

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Main destinations at present, the most preferred destinations for IT services outsourcing include Ireland, India, Israel, Canada, Philippines and South Africa

India is leading the list of the most favored outsourcing destinations across the world has a proven process maturity model and has captured major share of the offshore market. The significant increase in offshore outsourcing is in part, a result of the quality work that India has provided for US companies and others. There are about 300 million English-speaking Indians, so language isn't a barrier, and India 's labor costs, though rising, remain low. Ireland is the one of the largest IT services outsourcing destination in the world. There taxes are favorable and infrastructure and educational system is very good. Outsourcing in Ireland is driven mainly by the development centers of large technology companies such as Microsoft, Dell, and IBM etc. Israel has been ranked as a country that has an extremely skilled programming workforce. Software export sales are under $1 Billion. Canada definitely gains owing to close proximity to the US and also due to favorable business climate, greater cultural compatibility and comprehensible legal system. Philippines is Indias closest competitor in terms of low average IT employee costs. Here the education system is on par with the US system. The total outsourcing revenues from Philippines is estimated to be under $350million.

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South Africa is emerging as a noticeable destination. The IT manpower that was homegrown to achieve self-reliance is now beginning to be leveraged to serve global markets.

Outsourcing Destinations Today

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Upcoming destinations
Include Ukraine, Russia, the Czech Republic, Poland, China, Pakistan, Brazil, Argentina and Mexico.

In terms of size of the industry, the most serious contenders are Argentina, the Czech Republic and China. Pakistan, Russia and Ukraine are still much smaller in size. The Ukraine is preoccupied with the challenges of economic transition from the Soviet to the Western economy model and has not as yet fully entered into the Global IT offshore. The Czech Republic having cultural affinity with Western Europe, relatively low costs and strong education system are some key factors in its favor. In Poland the outsourcing has identified as one of four critical export industries. Here cost is lower than Czech Republic and has good infrastructure and Government working hard to promote IT sector. In China the Government has been taking a lot of initiatives in the recent past which has given a boost to the IT sector in China. China has the numbers and the low cost structure. Scalability, reliability and low-cost environment makes Pakistan the hot new offshore information technology (IT) destination. Argentina is an ideal location for outsourcing, with low costs, large labor pool including solid base of engineering talent. Mexico, shares the same socio-cultural milieu with the US.

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Brazil, becoming more popular as destination of Western outsourcing, as well as off shoring activities from Asia and other regions owing to its cheap and efficient labor. Most of the East European countries boast of good quality engineers. This may result in high end engineering jobs moving to these locations.

Negatives for these upcoming destinations include unstable economies (Eastern European countries), geo-political risks (Pakistan ) and problems in retaining talent and poor infrastructure.

The countries like Chile, Venezuela, Thailand, South Korea, Malaysia, Vietnam, Singapore and Romania are prepared to compete for providing ever-cheaper locations for work.

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From The Directors Desk

People who have been there, done that! Outsourcing Business includes tasks like sales, up-selling, customer care, Tech support in which you need to perform on a day to day basis. Bargaining isnt allowed which makes a person more productive and target oriented. -Rahul Shivhare, BD Marketing. DeAtlantic Pvt. Ltd Accepting Outsourced campaigns and make it grow makes life challenging. And a true businessman can see opportunities in challenges. -Jijoy Joseph, VP. Wipro.

I see outsourcing my business as giving my baby to a well nurtured family for

better upbringing so that I can focus on my other responsibilities. -Gordon Mckenna, President. FixMyComputerDude & TeleQuest Global.

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Bibliography:

Internet. Work Place. Research and surveys via Colleagues in Outsourcing business.

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