Wednesday, 4 April 2012

The Ancillary Benefits of Outsourcing

We are all familiar with the principal benefits of outsourcing which are more often than not denominated in monetary terms. However apart from these principal advantages there is a whole different side to the story which often is not explored. This may be due to two factors: a general lack of interest or else a failure to contemplate the incremental effects of these advantages. With this blog post, I would like to stress upon quite a lot of these benefits which ‘accrue’ as a result of being a service provider in the Outsourcing industry.

Outsourcing not only goes on to increase the GDP of a country, but it also builds up on its Foreign Exchange Reserves. While this equation consists of two parts- it is often only the first part which is contemplated by Corporates. A service provider would principally consider only the cash income it derives as a result of being a player in the Outsourcing Industry. This, at the Micro level of Economics is fine. But looking through the glass at the Macro level, we know that this cash income is derived directly from Foreign Exchange. This currency is then converted into the home currency of the country. Due to these different and stronger currencies flowing in to the country, a basic but pivotal advantageous effect can be seen in the country’s BOP. Also earning these revenues in multi-currencies has a two-fold advantage- As a result of export of services, the Gross Domestic Product of our country rises which then goes on to set-off the amounts due and payable to other countries and the World Bank denominated in strong currencies like the USD, GBP and the Euro. This inflow of Foreign Exchange ensures that we use less of the Exchange than we originally envisioned as now a part of the quantum of payments due are made from the same Foreign Exchange we had earned.

From the point of view of quality, as a country becomes a key player in the domain of Outsourcing, its human resources automatically get enriched as they are trained to provide services of a quality which matches the standards set by the developed country. As a point to be considered, this training is often carried out by the influx of Foreign Capital in certain cases where a giant corporate builds from ground-up an Outsourcing division in India which caters to only its ‘in-house’ services. This is because of the fact that the provision of its services, if outsourced to a developing country will be cheaper while still matching on the quality fronts. So in effect, these corporates are not only contributing towards our GDP but are also training our human resources at their cost.

With these aspects of training comes the summary effect of benchmarking. These effects; though advantageous cannot be quantified in the short-term, but in the long-term they are considered to be a ‘feather in the cap’. F&A professionals can relate it as the value of ‘Goodwill’ a brand enjoys. They will also remember that it is only the ‘Acquired Goodwill’ which can be shown at a cost or market price. Goodwill which is raised internally can never be quantified or denominated in monetary terms. When a country has turned into an outsourcing hub, it is considered to be a ‘notch above the rest’ as from an outsider’s perspective.

Corporates/Banks/Joint Ventures will always consider the country as a safe bet to invest in. The rate of growth; for infrastructure, education and telecommunications grows at leaps and bounds, which compared to the previous era is often seen to be momentous. This is popularly classified under the common phrase of ‘Jumping onto the bandwagon’. As and when other countries/entities observe a particular level of sophistication, organization and satisfaction being doled out to the principal customers, they often would wish to join in. These new interested parties can be classified into two separate domains; Investors and Potential Customers.

The investors; considering the profitability and also the safety of their long term investment would be willing to invest in the capabilities of the country while new potential customers would canvass the operations of the country and evaluate their competencies with a view to outsource their business operations. This would again result into an influx of Foreign Exchange on two levels; in terms of Capital Investment and also in terms of Earnings and Profitability. It would be a never ending cycle of an influx of funds- a cycle which would create huge opportunities and expansion plans for the country and its human resources as a whole.

There are many more ancillary benefits of Outsourcing but the ones enumerated above are considered to be the cream layer of the crop; not only because they bring in much deserved Foreign Exchange and a lot of monetary benefits to the Service Provider, but because it majorly helps in improving the economics of the country at the Macro level and assists in the regulation of the strength of its home currency.

1 comment:

  1. Outsourcing payroll certainly does free up a department to concentrate on other tasks! We use a time clock to help cut down on paper as well, and to get more accurate hours to send off for calculation.

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