Positive externalities of the BPO industry in India - strategic lessons for bilateral trade and regional agreements

Abstract

A common definiton of Outsourcing is, “the delegation of non-core operations or jobs from internal production to an external entity that specializes in that operation.” Outsourcing is a business decision that is often made to focus on the core competence of the firm, thereby reducing cost. A subset of the term, offshoring, also implies transferring jobs to another country, either by hiring local subcontractors or building a facility in an area where labor is cheap. Since the early 1980s, technological advances have allowed institutions to standardize and consolidate business operations. In the first wave of global consolidation, organizations used technology to increase scale, centralize and regionalize operations and improve overall resource utilization. Since the mid-1990s, rapid improvements in infrastructure, and particularly telecommunications, have triggered a second wave of consolidation: the global sourcing of business processing. Technology has allowed operations to become more independent of location than ever before. Financial institutions’ global sourcing of business processing is similar to multinationals selecting remote locations for manufacturing plants. Competitors can now reap time-zone benefits and adopt round-the-clock, seven-day-a-week servicesSeveral companies have aggressively exploited this global business-processing opportunity. Among the most prominent early movers and the locations they chose are GE Capital (India, China, and Ireland); American Express (India and the Philippines); Bank of America (India and the Philippines); AXA (India and the Philippines); Citigroup (India, the Philippines, Malaysia, Taiwan, and Singapore); HSBC (India and China); and Standard Chartered Bank (Malaysia, India, and China). With IT budgets facing a major squeeze in these tough economic times, global companies are focusing on reducing costs, cutting IT investments and outsourcing certain processesthat allow them to concentrate on their core competencies.