, Singapore, Nov. 7 (UPI) -- Outsourcing by Asian businesses is set to increase over the coming years. While the region had been lagging behind the United States and Europe it is now starting to increase outsourcing as the Asian culture comes to terms with the concept.
Outsourcing is the transfer of ownership of a manufacturing or service process, giving the right to the supplier to determine that process. As the economy weakens and companies are looking to cut costs, outsourcing has become a popular strategy in the United States, for example, to improve operational results and maximize efficiency.
"Outsourcing is very threatening. It is a bit like grafting a new arm or a kidney ... The concept of letting go is difficult to accept for the Asian culture, as there is this notion of loosing face," said Peter Bendor-Samuel, head of the outsourcing management and consultancy specialist, Everest Group, one of the world's most prominent consulting group.
But paradoxically, the Asian culture is better suited to outsourcing than North America, Bendor-Samuel said.
"Asian companies really understand alliances and how they operate over the long run, where North American companies really have a short term orientation, but find themselves in long term relationship. I believe that fundamentally, as Asia moves towards it and companies bring with them their long-term perspective, they will probably outperform in this area," he said.
Outsourcing decisions are not made in a day. "To put together a sophisticated plan you're looking at 4-18 months. These are long alliances. Typically the length of relationship contract for IT can run from 1-10 years," he noted.
Right now, Australia and New Zealand are the most mature outsourcing markets in the Asia-Pacific region, accounting for more than half of the regions outsourcing business, but other countries are poised to discard business and cultural inhibitions.
According to U.S. research consultancy, IDC, the Asia/Pacific, excluding Japan, will see outsourcing spending increase by over 20 percent in the next four years. Greater China, Korea and Malaysia are key target markets for outsourcing service providers, while even in already high-tech Japan, outsourcing expenditure is due to grow at a rate of 14 percent.
"The issues in Asia are cultural. How do you transfer the ownership? How do you overcome life-long employment?" Bendor-Samuel said.
Those are the very issues that have been exacerbating the Japanese recession, as the lack of flexibility in the economy prevent companies to scale both up and down, especially down.
"There are huge structural problems throughout Japan, where outsourcing is clearly a first choice tool ... Outsourcing provides the ability to both scale up and down. It fundamentally lowers cost, there is no statistical doubt on this," he said.
"Japanese companies need to address the inefficiencies that have built up over the last 30 years to stay competitive with the North Americans. That means they're going to have to focus on what they do best, and they're going to have to scale up and down, and the only vehicle that I'm aware of that really allows you to fundamentally address this is outsourcing."
Bendor-Samuel pointed out that IBM has been very effective at overcoming the cultural issues in Japan, through joint-ventures.
"Asia (excluding Australia) is just now starting to adopt outsourcing, and there is a huge move in Japan on that front, really led by IBM, which is gaining significant market shares in that space," he said.
Information Technology is by far the most mature market for outsourcing. IT outsourcing includes data centers; networks; help desks; application development and support; desktop, hardware and software maintenance; purchasing; asset management etc.
Worldwide spending on outsourcing IT will nearly double by 2005, driven by competitive strategies and not just cost cutting. IDC estimated in recent research that spending on IT outsourcing globally reached $56 billion in 2000 and is expected to surpass $100 billion by 2005.
But Bendor-Samuel is very exited about the new embryonic markets for outsourcing: Business Process Outsourcing. This is the outsourcing of any non-IT business process, like building and facility maintenance, human resources, customer care, warranty support, and accounting.
"BPO is very new. This is where you start outsourcing finance and accounting functions and human resources function. In IT, you might get a 10-15 percent saving, which is a legitimate saving over the long run. But with BPO we can see savings of 40 percent sometimes. It's staggering the value it can unlock," he said.
"And the opportunity for Asia is to leapfrog (the United States)," he added.
