Data management – working with wider EuropeData management – Working with wider Europe
By Michael Rawls, BDEE Writer
Move over India, Asia and Malaysia and make room for Eastern Europe, the new kid on the block. There is no doubt that technological advancement brings about change. It is also clearly no secret that the global data management outsourcing market or the business of ‘offshoring’ is a new wave. In this ever-shifting economic trend, companies worldwide are seeking to find the most expedient methods of restructuring. Offshoring is essentially outsourcing work done in a country other than that where a company’s primary operations are located. According to A.T. Kearney, one of the world’s largest business management firms, data management outsourcing, especially in terms of offshore locations, is a new way of doing business and it is not a passing phase of economic development, it is a cutting edge methodology that is here to stay.
With the ongoing upgrades of technology, consequential economic development and relevant eastern Europe EU legislation supportive of IT investment, eastern Europe is becoming a force to be reckoned with. The eastern European countries are quickly becoming an exciting place for trade and investment as well as a remarkable offshore location source site for companies looking to expand into an enlarged Europe. Global statistics indicate that, to date, the eastern European region is increasingly gaining popularity as an offshore site for outsourcing data management, printing and imaging technologies. In addition, eastern Europe and any other offshore potential sourcing site, should utilise local and global research resources in order to gain expertise, further advance and successfully compete in the offshore outsourcing business.
Companies worldwide are looking for better and more cost effective ways to operate. A successful business will always strive to fine tune its functionality and streamline its expenditures. Offshore data management has proven to be an effective measure in terms of ‘cutting the fat’. According to a recent study conducted by A.T. Kearney’s global procurement team (the largest and most comprehensive global procurement study conducted to date), companies are chasing offshore sourcing savings, but they are not effectively evaluating the risks nor cultivating the skills essential to guarantee future success. Therefore, this new trend, which has been dominated by the Indian and Asian markets, is beginning to shift to other locations. Which simply means, that companies are realising the scope of global opportunity and possibly, a potential and better deal.
Since the onset of offshore outsourcing, India and Asia have been and remain the leading market contenders. As the concept of outsourcing and its economical benefits gain worldwide attention and understanding, companies are seeking not only to take advantage of their recorded savings, but they are attempting to strategically gain a more precise cutting edge. In efforts to further reduce overall outsourcing costs, many global companies are eyeing eastern Europe as a new and more attractive potential outsourcing location site; it is currently considered to be a more feasibly economical offshore location, primarily due to its global geographic position (it is closer to the western hemisphere), as well as its reasonable labour rates and its overall production costs. A.T. Kearney’s global procurement study also reveals that, the number of companies sourcing from China, eastern Europe and India has drastically increased in the past five years and will continue to rise in the near future. By 2009, 72 percent of companies plan to source from China, a rise from 30 percent in 1999; 59 percent plan to source from Eastern Europe by 2009 (an increase from one-in-three five years ago; and half of the companies surveyed plan to source from India in 2009 (nearly tripling the number of its 1999 recorded outsourcers).
According to a study conducted by the Economist Intelligence Unit (EIU), India will continue to dominate the offshore market. India’s offshore status is based upon its ability to provide low labour costs, its developed legal system and its English-speaking graduates. While India continues to maintain its stature as the number one outsource site, its fluctuating economy and distance will invariably have an impact on its future standing and this reality is already somewhat evidenced by eastern Europe’s most recent appearance on the scene.
The EIU, also noted that while China, the second ranking offshore location, benefits from its abundant supply of low-cost labour, its lack of English skills will keep it behind India and possibly allow the rapidly approaching Czech Republic to gain a further lead and in time, vie amongst the top three offshore leaders. In general, as companies further seek to restructure, the outsourcing market continues to gain momentum. Thus, this growing market sector becomes a more competitive and complex arena. This new insurgence can be best measured, by the increasing numbers and geographic direction of new emerging sites. Recent analysis and in-depth studies indicate an eastward movement in offshore location sites, as Bulgaria, Slovakia and Romania all enter the Index for the first time. Eastern Europe has increasingly become attractive among offshore outsourcers, because of its reasonable economy and its geographic proximity. In general, at a glance, it makes sense to consider eastern Europe to be a potential offshore contender. Although eastern Europe may be gaining notoriety as a newly desired offshore sourcing location, some of its sites have, however, been determined to fall short of the cutting edge. Thus, those companies who are currently considering this attractive region, might want to re-examine or weigh their particular needs and the overall effectiveness of such business venture. Eastern Europe, like any other developing offshore regional location, can, however, pose certain concerns or disadvantages, such as language barriers, the lack of adequate equipment, educational training and more then often, overall qualified personnel.
Nevertheless, eastern Europe holds its desirable status and the above mentioned shortcomings cease to be an issue, when they engage in partnership. Offshore partnership is becoming increasingly popular, because it allows a less developed offshore site the available essentials, i.e., updated equipment; training and qualified personnel to not only compete, but to remain on the cutting edge. It is assumed, that eastern Europe’s reputation as a future potential offshore leader, will inevitability come to fruition and have unlimited skyrocketing potential, as they continue to participate, gain knowledge and experience as well as concentrate on building stronger and more secure partnerships. As a matter of fact, in lieu of maintaining its cutting edge advantage, India seeks out potential partnership from eastern Europe, because it will allow a degree of security in terms of global presence, provide unlimited flexibility or options in terms of other offshore locations and allow them to remain on the cutting edge. Eastern Europe will stand out amongst the offshore leaders, as long as they continue to accept suitable partnership. Eastern Europe must, however, remain cautious in their business dealings, by monitoring and constantly improving appropriate communication channels in order to effectively maintain the organisational structure necessary to succeed.
According to Paul Laudicina of Kearney, there are many implications for global location decisions. He says: “Ultimately, the clearest message from the 2005 Global Services Location Index is the ever-increasing complexity of the location-decision calculus. As we hear year after year in the FDI Confidence Index (our annual survey of the leaders of the world’s top 100 corporations), executives today are faced with an ever-more complex menu of opportunities and risks.”
Today, there are 40 countries covered in the Index. Due to increased participation, it is no longer enough simply to find some low-cost location, which offers only basic performance, companies now need to carefully analyse and consider their business needs in order to find a range of different locations that will make sense in terms of their particular activities. Such considerations should include individual language requirements, skill levels, security concerns, regulatory structures and other specific criteria.
Listed below are the 40 countries covered in the index:
Top Forty Global Offshore Locations
1. India 21. Costa Rica
2. China 22. Ghana
3. Malaysia 23. Argentina
4. Philippines 24. Romania
5. Singapore 25. Jamaica
6. Thailand 26. Vietnam
7. Czech 27. Russia
8. Chile 28. U.K.*
9. Canada 29. Australia
10. Brazil 30. Tunisia
11. U.S.* 31. Germany*
12. Egypt 32. South Africa
13. Indonesia 33. Israel
14. Jordan 34. New Zealand
15. Bulgaria 35. France*
16. Slovakia 36. Panama
17. Mexico 37. Portugal
18. Poland 38. Spain
19. Hungary 39. Ireland
20. UAE 40. Turkey
*Based on lower-cost locations in each country: San Antonio (US), Belfast (UK), Leipzig (Germany) and Marseilles (France).
The A.T. Kearney Global Services Location Index analyses the top 40 services locations worldwide against 40 measurements in three major categories: cost, people skills and availability, and business environment.
Although many global companies are jumping on the outsource bandwagon, according to PriceWaterHouseCoopers, less than half of large US and European companies actually contended, that outsourcing is cost effective. In addition, PWC reveals, that many companies believe outsourcing to be crucial in terms of future growth, but many remain divided regarding its effectiveness. The top four outsourcing categories are:
• Payroll and billing.
• IT systems support.
• Tax services.
• Benefits.
Below are global statistics of percentages of the top four outsource functions, as reflected by PWC:
All Multinational US Europe
1. Payroll and Billing 63% 74% 48%
2. IT Systems Support 56% 45% 70%
3. Tax Services 56% 54% 59%
4. Benefits 52% 70% 29%
As evidenced in the above categorical offshore chart, Europe is the leading country in terms of the outsourced IT systems support area and they dominate the offshore Tax services market. The US leads in payroll and billing, as well as the benefits sector. According to PWC, together, in all four areas, as compared to all multinational sourcing sites, Europe and the US, despite their current Index positions, are exhibiting their leadership potential.
Based on EIU reports and on-going analysis of senior executive surveys, most leaders believe that the business of outsourcing or offshoring will prove to be a critical factor in reshaping the global market. Thus, they predict that over the next few years, companies will offshore a wider range of functions, including payroll, finance and accounting services. It is also speculated, that in the near future (as EU engage in suitable partnership and become more active, experienced players in the offshore market), eastern Europe will possess the tools to lead the market. At that juncture, it is probable and assumed without question, that eastern Europe will challenge Asia in outsourcing. Analysts are already predicting that the growth in outsourcing over the next three to four years and the maturity of Eastern Europe in conducting its business will inevitability result in countries like the Czech Republic and Poland challenging India and China as the leading destinations for outsourcing.
Since eastern Europe currently stands as a potential new offshore leader in the IT systems support area and is predicted to excel as a future global offshore giant in the worldwide outsourcing circuit, it would be wise to examine the functionality of some of the existing, more, successful businesses and their methods of operation. Mediasoft SRL, located in Moldova, is currently a thriving IT offshore sourcing business that offers opportunity for foreign contractors. In addition, other prominent market leaders, such as AIG Global Investment Group, American Airlines, Boeing, Bristol Myers-Squib, Citigroup, Xerox and Avon, deserve equal examination for their success in offshore operations and continued partnerships that thrive, because they understand the basics and basis of maintaining a level of presence, as well as their determination to remain on the cutting edge.
Finally, it is safe to assume that the offshore outsourcing market is prepared to accept a new leader. Although it may be presumptuous to outright declare eastern Europe as the best potential candidate for future leadership in the global outsourcing market, it is however, a reality that the alliance of the European Union and its continued focus on advancing the strength of the European economy, is truly a global force to be reckoned with.
In conclusion, if eastern Europe takes an in depth look at recent history and a current view of the offshore sourcing market and carefully examine and take advantage of available researched data, they will be well on their way as a contender or possibly the new world leader in the global offshore sourcing market. Whether or not, eastern Europe will make history as a new trendsetter, is yet to be seen?
Simply, through data management, the global market is working with wider Europe. [Go Back]
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