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As multinational corporations continue expanding around the world, they are making more extensive use of Business Process Outsourcing (BPO) to facilitate their entry into foreign countries, markets, and cultures. They are contracting with local outsourcing firms that can provide the back-office infrastructure, technology, and professional services that are needed to support their start-up investments in what are often unfamiliar territories.

"BPO is becoming part of the new model for managing international growth," says Ton Heijmen, a partner at PricewaterhouseCoopers, who oversees the firm's regional BPO practices in Latin America, Asia Pacific, Russia, and India. The benefits of this model are very clear: Management can focus more time and attention on building their core business, without the distraction of back-office operations and administrative issues. Also, management can avoid having to invest in office facilities and computer systems, thereby freeing up investment capital that can be used to better advantage elsewhere.

Another benefit is that local outsourcing firms can provide valuable in-country experience and really help new entrants get things done more efficiently, Heijmen points out. The outsourcing teams are mostly nationals who have an in-depth knowledge of the business practices, tax and labor laws, regulatory issues, and social customs in their home countries. They can make everything so much easier for outside investors from obtaining government permits, to setting up financial/administrative systems, and to getting the entire business up and running quickly.

Global Outsourcing Alternatives

Companies are exploring all kinds of outsourcing alternatives for locating their back-office processing centers, Heijmen says, because the relative labor costs can vary so widely around the world. Annual compensation costs for qualified accountants average about $35,000 in the United States and about $25,000 in Western Europe. But the annual compensation for equally skilled accountants in Poland is about $10,000 and only $3,000 in India. With cost differentials like these, he notes, more companies are taking a hard look at the economics of outsourcing their various business processes on a more global basis.

Under the new global outsourcing model, companies can contract to have work done anywhere in the world where it makes good business sense, Heijmen says. Offshore processing centers can be set up in countries like India, Ireland, the Philippines, and Poland where skilled labor forces can manage the work at half of what it would cost in the United States or Western Europe. All this is possible with today's computer and telecommunications technologies for moving voice and data traffic among countries at high speeds. U.S. companies, for example, can have their computer applications run overnight in Asia with the results sent back the next morning.

Looking ahead, companies want to develop global outsourcing solutions, Heijmen says, and the firm's BPO group is working with clients to project and support their worldwide infrastructure needs. Outsourcing specialists are helping clients organize new business units, set up shared service centers, consolidate operations, acquire companies, and form joint ventures. The idea is to provide outsourcing solutions that are coordinated seamlessly throughout the company on a local, regional, and global basis in ways that support the company's strategic business plan, and improve performance, profitability, and shareholder value.

Lessons from the Outsourcing Primer:

• Business Process Outsourcing (BPO) can help multinationals expand around the world, facilitating their entry into foreign countries, markets, and cultures.
• BPO lowers the initial capital investments and ongoing operating costs that a company would otherwise incur with new business start-ups in unfamiliar territories.
• BPO specialists provide valuable in-country experience with local business practices, laws, and customs and can help new entrants get things done more efficiently.
• Multinationals are taking a hard look at the economics and alternatives of outsourcing various business processes in more cost-competitive locations.
• Companies are developing global outsourcing solutions to support their strategic business plans and worldwide infrastructure needs.

Publish Date: May 1999

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Copyright © 1999 - Everest Partners, L.P.

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