More than a decade ago, Eastman Kodak stunned the business world when it announced that it would spend $250 million on outsourcing services in the information technology sector.
Since then, the number of outsourcing deals has skyrocketed, and with it the value of outsourcing contracts has skyrocketed. According to a recent study, the annual cost of outsourcing worldwide is over $1 trillion.
In today’s fiercely competitive business world, companies are facing unprecedented pressure from the market. Those who survive and thrive in the market are those who know how to do business more effectively than their competitors, reducing business costs while still ensuring high quality of goods or services. One of the modern business models that helps many businesses succeed today is the outsourcing model.
So what is outsourcing? Outsourcing is the process of transferring part of a company’s functions and tasks to an outside party (from English: out – outside, source – source) – functions that the business previously undertook.
In Vietnam, when mentioning this word, many of us often think of the field of software outsourcing or programming. However, in reality, this term is present in many business fields: accounting, law, human resources, information technology, office/home cleaning (cleaning), logistics/transportation...
And the principle of outsourcing is: “I reserve for myself the tasks that I know I can do better than others and transfer to a third party the tasks that they can do better than me and others.”
Here, we need to pay attention to the form of offshore outsourcing of Western European corporations (in the case of transferring part of the work abroad) and the form of outsourcing outside the enterprise but within the territory of a country.
Offshore outsourcing
The notion of equating outsourcing with software or programming probably stems from the trend of moving part of the jobs of businesses in developed countries to developing countries in the early 90s.
This is the time when large American software companies flock to newly developed countries in Asia such as India and China to take advantage of cheap labor costs to create a competitive advantage.
Many large corporations in the US have built factories, research and product development centers in Asian countries and are increasingly thriving due to the successful application of the outsourcing business model. This process is called offshore outsourcing, or the outsourcing concept that we often hear about.
A typical example of that landing is the birth of the Bangalore high-tech park, the capital of Karnataka state in southern India, known as the "Silicon Valley of India", an ideal location chosen by Western European software companies: IBM, Microsoft, Intel, Sun Microsystems, Dell, Cisco, Oracle...
Even Reuters - a famous American media company - has chosen Bangalore as its headquarters for outsourcing activities to collect financial information from large companies around the world.
Moving some of the work to India has helped Reuters cut costs. With salaries just one-fifth of what they pay reporters in New York, Reuters has saved on salaries without having to cut staff at its headquarters.
However, as labor costs in the software sector in Bangalore are increasing rapidly while the infrastructure in this area is still weak, Bangalore is no longer as popular as before. China, Russia, Brazil, Vietnam ... are becoming more attractive locations thanks to cheaper labor costs and better service quality.
According to Global Services and investment consultancy Tholons, Hanoi and Ho Chi Minh City of Vietnam have been voted as the most attractive emerging outsourcing destinations in the world. In terms of attractiveness in the outsourcing sector, Ho Chi Minh City is only behind 4 cities in India and Cebu in the Philippines.
In Vietnam, most IT companies mainly outsource software to foreign countries and many of them have achieved success such as Digital Glass Egg, FPT, TMA Solutions...
Recently, Luxsoft opened an office in Ho Chi Minh City to carry out software outsourcing projects for Boeing.
According to Mr. Dinh Le Dat, head of Luxsoft's programming operations team in Vietnam, "Vietnam is an attractive destination for investors who want to use outsourcing. Positive economic growth, stable political environment, cheap labor costs... are the factors that create attractiveness for investors. Moreover, with its strategic location in Southeast Asia, Vietnam is an important location for investors to enter the markets of neighboring countries."
In addition to Asian countries, some other Eastern European countries are also becoming ideal destinations for American manufacturers/services: Russia, Czech Republic, or Latin American countries: ,
Outsourcing within national territory
In addition to information technology, outsourcing is also present in many other popular fields.
In the US, more than two million US citizen employment contracts (including recruitment, firing, payroll, professional training) are managed by specialized human resource management companies. Outsourcing in the US is always growing at 30%/year and allows customers to save up to 30% in costs.
Outsourcing service providers such as Exult were founded in 1998 and now manage human resources for BP and Unisys.
The outsourcing market is growing strongly worldwide. Many companies have made a fortune in this attractive service sector: companies providing cleaning services, building and office security, network system management services, etc. Outsourcing has given rise to many new jobs that businesses may not want to include in their list of permanent full-time jobs.
In Vietnam, outsourcing is currently being used by many businesses. For large businesses, popular outsourcing services are office cleaning, 24/7 security, full office moving services, etc. Newly established small companies tend to use outsourcing services for accounting, tax reporting, network installation/administration, or computer/office equipment maintenance, etc.
In the publishing industry, outsourcing translation and editing is also quite popular. The network of translation collaborators has helped publishers save a lot of costs on personnel management.
Payroll Outsourcing Trend – A Growing Trend in Vietnam
In the mid-90s, payroll outsourcing (hiring outside companies to pay employees) appeared in multinational companies and corporations and then spread to joint ventures and small and medium-sized private enterprises.
If in the past, foreign enterprises preferred to use this service from banks, now, enterprises have switched to using the services of headhunting companies or human resource consultants.
In Ho Chi Minh City, it can be said that most companies providing human resource consulting or headhunting services also include this step, although their websites do not publish information about payroll services.
According to Mr. Huynh Minh Quan, director of Nhan Viet HR consulting company (the owner of the high-end headhunting website www.VIPdatabase.com), “This is not a very difficult job but it requires prestige as well as professionalism, accuracy and carefulness from the service provider, so in this field, HR consulting companies have a great advantage. They are the ones who understand better than anyone the importance of HR consulting, including from the stages of personnel selection, salary payment, job rotation to the stage of work quality assessment...
Therefore, when using this service from human resource consulting companies, customer businesses often feel more secure. In addition, in the process of providing this service, we also create added value for customers by consulting and supporting them in many other issues such as health insurance consulting, social insurance, personnel evaluation, etc.
Benefits of outsourcing
In his latest book, “Managing in The Next Society” (Truman Talley Books, 2002), the late author Peter Drucker argues that in the near future, the vast majority of businesses will have to accept a situation where their employees will work on an irregular basis.
But what’s most interesting is not the number or size of deals, but the nature of the form. While some leaders have so far used outsourcing to cut personnel costs, most have tended to take a more sophisticated approach. Many companies use outsourcing to acquire competitive skills, improve their ability to serve, and respond to changing business needs.
The benefits that outsourcing brings to businesses are not small. However, before using this service, businesses should also consider choosing a cooperative partner. A professional, reputable unit will help you save costs while still ensuring the quality of work in the long term.
Benefits of outsourcing
• Cost savings. The cost of outsourcing services is often lower than the cost of building a working structure in the enterprise. You will have to pay additional personal income tax for employees, not to mention health insurance and social insurance contributions.
•Save office space. Creating a full-time staff structure in your business requires you to have enough office space, working equipment (desks, chairs, computers, fax machines, stationery, drinking water, etc.)
•Ensure the work is always running. Your full-time employees have vacation and sick leave benefits, while you need to ensure the workload is kept up. Your outsourcing partner ensures the work is always running.
•Save time and ensure quality. Outsourcing saves you a lot of time while ensuring quality.
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