WHAT IS IT OUTSOURCING?

Have you experienced called any customer service centre before? Did you know that the customer service centre nowadays for a certain company has been outsourced to others company?

Today, all the company strives to achieve the maximum profits and try to minimize of their operation costs in order to meet the business target.  The effort in minimizing the operation costs included as minimum of employees hiring to do simple and repetitive tasks which not contributed to the sales (example to receive complaints, arranging products warranty, troubleshooting) and reduce spending on computer software and hardware.

Some of the company using the outsource service for tasks as accounting, company secretary, auditor, human resource, despatch, customer service and IT department. Why the company tend to outsource for their certain business activity? Is the outsourcing idea is workable?

Since we are now engaging in the IT revolution era, I would like to discuss and focus more on benefit of outsourcing in information system (IS) and technology service. Why? Because IT department is more challenging due to fast changes in the software, hardware, application and to have an excellent in-house programmer is advantage or burden to the company?

Let we understand first, what is the concept of outsourcing. According to Baltzan, outsourcing is an arrangement by which one organization provides a service or services for another organization that chooses not to perform them in-house. Typically, the outsourced process of function is a non-core business activity. The outsourced services can range from high-volume, repetitive processes such as electronic transaction processing to more customized services such as a help desk.

Some of the company said, outsourcing as a strategic technique that to help them align with technology initiatives and business goals with more on cost effective and this is will allow them to concentrating on company core business activities and keep abreast with rapid IT technological development. Significantly, reducing the operating costs may include applications, assets, people and other resources.

The main reasons why outsourcing become more popular service now is because everybody go globalization, the internet, growing economy and low unemployment rate, technology and deregulation. While there is many benefits associated with IT outsourcing include it will increased quality and efficiency of a process, service or functions, reduced operating expenses, focusing resources on core profit-generating.

Malaysia government too is outsourcing most of the important national projects such as Smart School, Human resources management Information Systems and e-procurement project. IT outsourcing also practices among the top commercial banks in Malaysia. Nevertheless, total outsourcing is only successful if there is a tight and well-monitored contract or agreement between the sourcing firms. To the outsourcer, they perceived potential of cost savings and shifting the burden or risk to the service provider or vendor in order to gain access to the cutting edge technology. The main reason for outsourcing was to access better or acquire more skills.

According to Husnayati in her research, examining factors influencing IT outsourcing success in Malaysia organization, Bumiputera Commerce Bank is the first bank in Malaysia to outsource its IT function, with a USD250 million 10-year contract with EDS in 1999.  Other major IT outsourcing contracts in the private sectors is include Maybank with 1.3 billion deal, the RM440 million Malaysian Airline System Berhad (MAS) deal, and Permodalan Nasional Berhad (PNB) RM 32 million extension contract.

While the Malaysian public sector experience a drastic beginning with outsourcing, largely driven by Malaysia’s strategic framework known as National IT Agenda (NITA) formulated in 1996 and the Multimedia Super Corridor (MSC). Among early Malaysia government’s large-scale systems integration projects were for Malaysia Postal Office and Amanah Saham Nasional Berhad for Permodalan nasional Berhad (PNB).

I also would like to share; there is a three type of outsourcing. Onshore (process engaging another company within the same country for services), Nearshore (contracting an outsourcing arrangement with a company in a nearby country) and Offshore (using companies from developing countries to write code and develop systems and the country is geographically far away).

There are currently three categories of outsourcing countries as the leaders (countries that are leading the outsourcing industry as Canada, India, Ireland, Israel and Philippines), the up-and-comers (country beginning to emerge as outsourcing options as Brazil, China, Malaysia, Mexico, Russia and South Africa) and the rookies (countries that are just entering the outsourcing industry as Argentina, Chile, Costa Rica, New Zealand, Thailand and Ukraine).

The choosing of outsourcing company is based on the certain critical criteria like the expertise that they had, costs of labor, English language proficiency, highly skilled labor pool, low political and financial risk, telecommunication infrastructure, educational system, number of technology students graduates from universities, favourable cost structure and supporting by government. If we look at Malaysia, we are currently in the position of the up-and-comers category. Please refer to table 1 for detail.

Expertise	Wireless applications
Major Customers	IBM, Shell, DHL, Motorola, Electronic Data Systems Corporation
Advantages	▪Good business environment with strong government support for   IT and communications industries. ▪Workforce has strong global exposure ▪World class telecommunication infrastructure ▪Over half of the 250,000 students in higher education major in     scientific or technical disciplines.
Disadvantages	▪Labor costs higher than India ▪Few suppliers, which limits business choices ▪Shortage of skilled IT talent

Overall, Malaysia views outsourcing as a value added service to generate revenues and also a means of improving IT performance. Since 1995, Asia Pacific is the leading outsourcing market. Malaysia and Singapore are the leading countries where interest level is high. To countries where the knowledge of English language is not good as Korea and China, they prefer to purchase technology and buy services. Yet outsourcing carries risks, loss of control, inflexibility and geopolitical uncertainty. Not all functions and process can or should be outsources, at least not without careful analysis of the advantages and disadvantages. When we decided to outsourcing, we need to be ready with the issue of security. It is because in the world heading towards border-less transactions and information communication technology, security is very fragile and crucial to the reputation of the company.

Source : Business Driven Technology, Palge Baltzan, 3rd Ed, McGraw-Hill
             http://www.it-innovations.ae/iit005/proceedings/articles/I_3_IIT05_Suhaimi.pdf
             http://www.wseas.us/e-library/transactions/computers/2010/89-744.pdf
             http://eprints.utm.my/5544/1/zurainismail06_EFIOS.pdf