UKRAINE: A PROMISING IT OUTSOURCING HUB

May 4, 2007 on 5:24 am | In Uncategorized | No Comments

“The government is encouraging IT exports in the country in
each possible way,” says Deputy Head of Kiev Region

By Imrana Khan, Global Services, Manhasset, NY, Wed, April 18, 2007

Ukraine , an Eastern Europe country with a small population of 46.7 million,
has started making its mark as an IT outsourcing destination. In the last
five years the country’s export of IT and related services has only risen.

In 2006, Ukraine ’s IT exports reached $280 million registering a growth of
over 60% over the previous year. This is remarkable compared to the paltry
$70 million in 2003.

In the recent past, the country has attracted many technology companies like
Cisco, Motorola and IBM. In 2005 Belarus-based software development
company EPAM that services American and European clients also opened
a development center to leverage on low-cost engineering skills in the
country.

TechnoPark and GlobalLogic are other companies that have bet on Ukraine ’s
promise. Some of these companies are planning more centers in the country.

“GlobalLogic is planning to set up two more development centers in Kiev ,”
says Rohit Sharma, Director, Marketing, Global Logic. “We are also planning
to establish a center of excellence for telecom software. Ukraine offers a
skilled and cheap talent pool. “

The Ukrainian government is actively supporting the industry with pro-active
legislation. In 2006 the government passed more than 20 laws, and many laws,
including those to do with intellectual-property issues, are being revised
to provide impetus for growth.

The government is also actively promoting Ukraine as an outsourcing
destination by participating in roadshows and organizing events.

“We have developed liberal rules for the IT sector,” says Yuriy Kovbasyuk,
Deputy Head of Kiev Region, State Administration. “We are taking several
initiatives to attract foreign companies and to make Ukraine a promising
outsourcing hub.”

Ukraine stands tall in one of the fundamental drivers for globalization of
service delivery - having a large base of educated and skilled labor pool.
Its large labor has been instrumental in keeping wages stable, and its
software programmers are comparatively cheaper in the region.

IT salaries in the country are less than the salaries of EU and U.S. IT
specialists, according to research by Jones Lang LaSalle, a real-estate
services and money-management firm.

A number of professional organizations has contributed to the development of
industry in Ukraine : Ukrainian Association of Software Developers, which
espouses policies and conducts programs to promote technology and market
growth, and IT Committee of American Chamber of Commerce in Ukraine ,
committed to the development of the IT market in the country.

Ukraine has been in the spotlight for sometime with all the right elements
to score as an outsourcing destination: Skilled labor pool, stable wages,
low operational cost and favorable government initiatives. Tholons, an
outsourcing advisory firm has ranked Kiev , the capital of Ukraine among the
top 50 outsourcing cities in the world.

Its geographic proximity to Europe makes it an ideal nearshore destination.
While it cannot match the scale of India or scale it can position as a
desirable destination for small and medium companies.

BPO Services Types

May 4, 2007 on 5:13 am | In Uncategorized | No Comments

BPO Introduction

Business Process Outsourcing (BPO) is outsourcing of business functions generally performed by white collar and clerical employees to achieve various benefits such as cost savings, better quality and ability to focus on core competence. BPO involves outsourcing processes that are not core to a company, however, are essential for smooth operation of the company. The customer transfers the complete responsibility of these functions to the vendor who guarantees certain service quality standards. Such processes include customer service, payroll processing, inventory management, etc.

The global market size for BPO is estimated to be around USD 382.5 billion in 2004 according to market intelligence firm IDC. The research firm expects robust growth in the BPO industry with more and more companies reaping the benefits of BPO all over the world. The BPO market size is expected to reach USD 641.2 billion by 2009 with a Cumulative Annual Growth Rate (CAGR) of 10.9 percent from 2005 to 2009.

BPO has evolved over the years, beginning with time-sharing data processing in the 1960s; according to technology research and consulting firm ebs. Over these years, like outsourcing, BPO has moved from being transactional (task oriented) to being strategic (process oriented). Table 1 provides the key milestones in the evolution of BPO.

What constitutes BPO?

BPO deals mainly with non-core processes of an organization. Some of these processes have been briefly explained below.

• Administrative support: Outsourcing of administrative support functions includes data entry, document conversion, forms processing, document scanning, indexing, secretarial tasks support, etc.
• Customer relationship management: Customer service outsourcing includes outsourcing of functions such as customer support, order taking, customer service, product support, technical help desk, collections and market research. Refer to the report on Customer Service Outsourcing for more details.
• Document processes: Document process outsourcing includes outsourcing of customer facing, technical, marketing and communications, financial accounting, and regulatory compliance documents.
• Finance and accounting: Finance and accounting outsourcing includes services such as internal auditing, time and expense management, travel expenses, credit and debt analysis, collections, invoicing, accounts payable, accounts receivable and billing-dispute resolution.
• Human resources and training: Human resources (HR) is one of the most critical assets of a company and companies need to carry out various tasks such as recruitment, training, attrition/retention, database management, contract-worker management, etc., for their employees. Carrying out these tasks through an internal HR department is costly and diverts the attention of the management from its core business issues. Hence, companies are now resorting to HR outsourcing big time.
• Intellectual property research and documentation: Outsourcing in intellectual property research and documentation includes filing and drafting of patent applications, prior art research, licensing support, and patent portfolio analysis.
• Legal services: Legal process outsourcing (LPO) involves consulting, research, transcription, documents management, billing, translation and other administrative and secretarial support services required for various legal functions such as commercial litigation, arbitration and mediation, appeals, government contracts, legal risk evaluation, etc.
• Medical transcription: Medical transcription is writing down medical records dictated by physicians and other healthcare professionals. These records include patient history and physical reports, clinic notes, therapeutic procedures, clinical course, diagnosis, prognosis, discharge summaries, etc.
• Payroll maintenance and other transaction processing: This segment includes payroll, payment, check, credit card and stock trade processing. Forester research predicts transaction processing to be a large segment within the BPO industry soon, with a market size of USD 58 billion in 2008. Some vertical processes such as mortgage, loans and insurance claims processing are also being outsourced.
• Product development: Companies need to constantly innovate to remain competitive in the market. With the increasing specialization of expertise required to carry out product development, companies choose to outsource their R&D functions to vendors who have expertise in a given field. Over the past few years, numerous MNCs have initiated offshoring R&D to other countries including India which is emerging as a hub for R&D outsourcing.
• Publishing: Publishing outsourcing involves outsourcing of publishing functions such as book design, book digitization, e-publishing, drawings and graphics, indexing, journal administration, etc.
• Research and analysis: Companies require data and its analysis for making informed strategic decisions. These companies have started outsourcing their research and analysis requirements to vendors who specialize in typical research and analysis work such data analytics, financial analytics, market research, secondary research, primary research, industry overview, competitive intelligence, etc.
• Sales and marketing (including telemarketing): Sale and marketing outsourcing involves delegating parts of sales and marketing functions such as cold calling, email pitches, telephone surveys, lead generation, lead qualifying, appointment setting, sales team management, etc.
• Security: Companies have to search for new technologies and employ qualified security professionals to keep their data secure from theft. Maintaining these resources and implementing a fool-proof security policy is a difficult task which can be better handled by experienced third party security agencies. Security outsourcing involves management of investigative services, physical security, electronic security systems, computer and network security, etc.
• Supply chain management: Outsourcing in supply chain management involves logistics, procurement, warehouse management, contract management, supply chain relationship management, etc.

BPO Business Models

 

Over the years, different models have been used for conducting business in BPO. The regular outsourcing models of on-shoring, near-shoring and offshoring are seen in BPO as well. TPI, a sourcing advisory, has observed that in addition to on-shoring, near-shoring and offshoring, BPO operations are also conducted through the following three business models :

•  Transactional BPO: Transactional BPO handles one aspect of a process only. The customer has to carry out a significant part of the process in-house and hence the customer owns the risk of the process. Also, outsourcing many aspects of the process in a transactional mode leads to complex fragmentation which can pose as a threat to productive delivery.

•  Niche BPO: A niche BPO carries out 3-4 aspects of a process. A niche BPO, which also makes certain investments in the customer’s process, aims at improving the efficiency of the process. The vendor in a niche BPO works in close coordination with the buyer, sometimes seeking the services of the customer’s employees. Both the vendor and the buyer share the risk of the process.

•  Comprehensive BPO: A comprehensive BPO handles both transactional and administrative tasks in a process and takes 70 percent responsibility of the output. The vendor purchases the buyer’s assets and also hires most of its employees. Comprehensive BPO has bulk deals lasting for 7-10 years.

Types of BPO Services

BPO services are generally categorized into horizontal and vertical services. These have been explained below:

1.       Horizontal BPO: Horizontal BPO involves function centric outsourcing. The vendor specializes in carrying out particular functions across different industry domains. Examples of horizontal BPO are outsourcing in procurement, payroll processing, HR, facilities management and similar functions. Automatic Data Processing (ADP) is an example of a horizontal BPO vendor. ADP focuses on providing services in horizontal functions such as payroll, HR, benefit administration, tax solutions, etc. However, according to Gartner, companies should focus on providing vertical services as the market matures.

2.       Vertical BPO: A vertical BPO focuses on proving various functional services in a limited number of industry domains. Healthcare, financial services, manufacturing and retail are examples of vertical BPO domains. EXL Service Holdings is a vertical BPO having focus on industry domains such as healthcare, business services, utilities and energy and manufacturing.