India as an Outsourcing Hub-Advantages and Challenges

Transcription

1 India as an Outsourcing Hub-Advantages and Challenges Author: Dony Devanesan Supervisor: Wendy Currie This master thesis is submitted for the degree of MSc in Supply Chain and Purchasing Management 1

2 Executive Summary: Business process Outsourcing has become a global trend in business in a recent decade. Some managers even think it as an essential element for every company. India has been a hub for sourcing due to its labour availability and Cost competitiveness. In recent decades, Technology enhancements have proved India to be one of the best places to implement global sourcing strategy. International firms see India as an area where they get continuous cost reductions and as an alternative source of rising cost in other countries. Procurement function, in general, is one of the areas where there is an immediate scope to obtain cost reductions. Companies spend nearly percent of their budget in procuring goods and services. In any typical procurement process, purchase engineer spends most of the time in doing an administrative task rather than strategic work deviating from buyer s core competency.solution to the problem would be to retain the strategic function internally and to outsource the administrative task to an external company expertise in the procurement function. Companies outsource, order management, Compliance management, logistics, spend analysis and other administrative task related to procurement. To explain in detail, classification falls into two broad categories direct and indirect category. Most companies start their outsourcing plan with the indirect category relying on third-party procurement services for computer equipment s, peripherals and other administrative material. Bigger organisations have seen multimillion dollar cost reductions through this process. Nowadays, it has become more common that companies outsource their direct buying activities which include Customer Support, Contract administration, Value Engineering, Buying, Quality Engineering, Logistics, and NPI. According to NASSCOM, growing vertical of procurement outsourcing will emerge as India s next success story (Mittal, 2007).The main scope of the thesis is to study and analyse the challenges and advantages of digitally outsourced jobs in procurement function using case studies and conducting interviews.the thesis also gives a comprehensive comparison of India with other countries and explain the benefits of outsourcing to India and challenges that India has to face in the coming years. 2

3 Acknowledgment: First of all, I would like to thank Professor Federico Caniato for MIP Politecnico di Milano School of Management and Professor Mihalis Giannakis from Audencia business school for imparting sound knowledge in procurement. I also thank Professor Micheli Guido for bringing some clarity to my topic in the begin stages I want to thank from the bottom of my heart my academic supervisor Madam Wendy Currie, from Audencia Business School for her wonderful support. Her inputs were helpful in developing the core of my thesis. I also want to express my deep gratitude to my mother- without her support and love; it would have never been possible to reach this stage of my life. Last but not least I want to thank Mr. Michael McDaniel, Senior Managing Director from Accenture BPO for supporting me with interviews and imparting some practical knowledge in procurement Business process outsourcing 3

4 Contents Executive Summary:... 2 Acknowledgment:... 3 Abstract:... 8 Problems: India-An Overview Introduction to India: India in Future: Indian Outsourcing Industry: History of Outsourcing in India: Outsourcing to Bangalore: Reason for choosing Bangalore: Outsourcing to Chennai Reasons for choosing Chennai: Outsourcing to Delhi Reasons for choosing Delhi: Outsourcing to Hyderabad: Reasons for choosing Hyderabad: Outsourcing to Mumbai: Reasons for choosing Mumbai: Outsourcing to Kolkata: Reasons for choosing Kolkata: Outsourcing to Pune: Reasons for choosing Pune: Country comparisons: Overview on Indian Competitors: India: The Undisputed Global Leader China Mexico: Malaysia: Philippines: Poland : Future competitors for India:

5 4.1.Brazil: Costa Rica: Colombia : Trinidad and Tobago Peru Romania: Ukraine Egypt : Turkey Kenya South Africa: Business Process Outsourcing: a review on Indian perspective Outsourcing: Evolution of Business process outsourcing in India: Reasons for outsourcing to India: Drivers of BPO Importance: Resource Shortages Realignment with Core Business Cost Savings Business Flexibility Reduced Overhead Costs Types of Outsourcing Tactical Outsourcing Strategic Outsourcing Operational outsourcing Manufacturing Outsourcing Services Business Process Outsourcing: Knowledge Process Outsourcing: Professional services outsourcing: Methodology: Overview Research Questions Advisors perspective

6 6.4.Unstructured Interviews: Structured Interview Definition of Case study Overview about Case study company Reasons for choosing explanatory case study Surveys Case Study: Infosys build an outsourcing partnership in the mining sector to solve labour shortages Project Palm: Philips partners with Infosys to transform its procurement process using shared service centers About Phillips: Business case: Solution proposed by Infosys: Effective Integration of shared service centers: Governance model for effective collaboration: Framework for Reporting: Efficient delivery management tools: HR Solution: Innovative projects: Infosys Transformation Objectives: Realization of Business value: Transaction based pricing: Leveraging into best shore locations: Improved Organisational Agility: Attrition Reduction: Improved Customer Satisfaction: GEP Supported Customer with better Compliance Management Process using No-PO-No- Pay Policy Challenge Approach Results Recommendation Conclusion:

7 7.4.GEP supported the customer with a customised Procurement Technology Platform Challenges: Solution from GEP: Strategic Sourcing: Contract Lifecycle Management Introduction to Procurement Outsourcing Procurement Outsourcing: Impact of Technology in Procurement Outsourcing Definition of Procurement Outsourcing Reasons for Procurement Outsourcing Drivers for procurement outsourcing Procurement Outsourcing Spend vs. Complexity model Challenges and advantages of Procurement Outsourcing-Indian Market Perspective Procurement Budget Challenges Service Provider Innovation Market Economic Improvement Service and Capability Improvement Human resource Languages Infrastructure Government Policies Productivity Culture Risk management Time zone difference Compliance management Conclusion References Appendix Appendix Appendix Appendix Appendix

8 Abstract: Outsourcing is essential for every organisation regardless of its complexity and structure. Every company has now recognised to outsource it non-value added activities to concentrate more on its strategic goals. This paper examines the major advantages and challenges of choosing India as an outsourcing hub for non-value added activities related to procurement. The results will be made on the basis of case studies, surveys and interviews conducted with the employees working in Business process outsourcing organizations with the major focus on advantages and challenges faced by procurement BPO S. Finally based on the interview, case studies and surveys we will draw a conclusion on the benefits and difficulties multinational companies are facing in procurement outsourcing. Recommendation will be listed to make competitive strategies to enhance the productivity of business process related to procurement and supply chain management Problems: Due to the increasingly competitive environment, companies are now forced to outsource their nonvalve added activities to low-cost sourcing countries that would increase the efficiency of the internal processes. Companies are now forced to balance quality, delivery, product development and price when choosing suppliers for new projects and implementing cost innovation strategies. Many major organisations have now worked out distinct methodologies regarding the procurement commodity and spend that shall be sourced from the low-cost countries in the future. According to Accenture, Business Process Outsourcing in India gained more business due to their low cost with leaner supply chains (accenture.com, 2012).however if the companies have the intention to increase the share of sourcing from India. How come it s not executed on a full scale?.it has now turned out to be a challenging task to figure the challenges faced by the Indian procurement BPO during the process. Therefore, it's now a matter of concern to determine and realise the objectives that are so complex to achieve in practice 8

9 1.India-An Overview 1.1.Introduction to India: According to (tradingeconomics.com, 2015), India is the eighth largest nation in terms of economy and Purchasing power with a GDP of billion in 2015.India has a population of 1.2 billion and is the second most populated country in the world with the total area of 3,287,590 sq.km. The median age in India is 27 years and holds one of the highest youth populations in the world (worldometers.info, 2016) According to (cia.gov, 2013)India holds the literacy rate of 71.2% ( a population that has the capability to read and write and over the age of 15). Hindi is spoken by more than 30 percent of the people in India and is considered to be the primary tongue of the people. However, there are also 18 other languages which serve as the administrative language of state assemblies. Being a British colony, English also holds the equal status for the political, national and corporate communications. Due to the IT Revolution, India is currently a growing pool of middle-class population and a rich elite group which accounts for about 20% percent of the total population. However, still, a population of 25 % is below the poverty line (data.gov.in, 2016).Urbanization is focussed only on a particular region with 90% of the industrial investments focused on growing and big cities. In recent decades, India has become a pool of engineering students with 1.5 million graduates passing out every year (dazeinfo.com, 2014) 1.2.India in Future: Along with China, India is expected to see a tremendous growth in future. According to (goldmansachs.com, 2003)I India will be the third-largest economy overtaking Japan at some point before 2040 falling only behind China and United States. The analysis states that the India s growth rate will be approximately 6% until 2035 and 5% after that. Despite the steady increase expected in world population in coming years. India will maintain its share of 17% of the world's people. However according to (un.org, 2015)India is expected to be the most populated country in the world surpassing China in 2022.Due to the smaller population growth, China is expected to have a population of 1.4 billion by 2050 whereas India will have a population 1.7 billion with China and India together will make up to 33% of world population (money.cnn.com, 2015). 9

10 Figure 1.India path to 2050 (goldmansachs.com, 2003) 2.Indian Outsourcing Industry: Indian outsourcing industry has seen some extreme growth over a short period. In this chapter, we will discuss a brief historical perspective of Indian outsourcing industry which will leave to discussions on Procurement business process outsourcing which is the main theme of the thesis. Some In-depth discussions will be made on IT services and BPO and the main Indian Outsourcing Locations. 2.1.History of Outsourcing in India: Right from its inception the term outsourcing has undergone some changes as it is today.outsourcing initially started with the shifting of manufacturing to low countries with cheap workforce and resources. In today s business environment, where IT became an essential requirement for any business across the globe outsourcing means the process through which a company transfers a part of its work to another company. The service company holds the full responsibility for the design and implementation of the business process under the guidelines of the client company. This process has proven effective in low-cost countries like India where both company s get benefited enabling the outsourcing client to reduce cost and improve quality. In India, BPO Industry is getting more apparent due to the availability of IT Resources. Indian Government, on the other hand, have worked towards liberalising the private organisation especially multi-national companies. Until 1994, the Indian telecommunication companies were under the direct government supervision and state-owned units. The new telecom policy adopted by the Indian government encouraged multinational corporations to invest in India (dot.gov.in, 2015).this was the opening point for the era of ITES/BPO industry e.g. call centers. Multinational corporations started outsourcing services such as data processing, billing, Medical transcription and customer support and some establishing their subsidiaries, serving as an outsourcing partner for their parent organisation. 10

11 Today, Indian offshoring and the outsourcing sector is the world largest and fast growing. According to (tholons.com, 2014), Indian cities holds a significant ranking in Top 100 Outsourcing destinations. In 2016 Indian BPO Industry has generated a revenue of about 143 billion (nasscom.in, 2015) and is the significant contributor to country s GDP (timesofindia.indiatimes.com, 2004).These numbers are going to increase due to Make in India initiatives that are currently happening in India (makeinindia.com, 2016) 2.2.Outsourcing to Bangalore: The outsourcing capital of the world and Silicon Valley of India continues to be the top even after 25 years. Proudly known as the technology hub of the East, Bangalore is the pillar of India's $60.5 billion outsourcing industry. When it comes to outsourcing services, Bangalore is the first choice for most multinational companies. Even with several political issues (Pokharel, 2016), Bangalore remains a final and popular outsourcing destination in the world due to its technical capabilities. Several reasons that make Bangalore an outsourcing destination (tholons.com, 2010) Reason for choosing Bangalore: Bangalore has grown into a renowned outsourcing destination due to its ability to provide outsourcing services in diverse sectors. Technology hub of the East has moved from delivering volume-based services to IT/ITES, KPO, to other professional business services. With nearly 25 years of experience in outsourcing, Bangalore is one of the cities in the world that offers global technology firms with a unique combination of talents combined with a vast network of suppliers and business opportunities. Outsourcing to Bangalore can provide companies a faster business implementation with lower operating cost (tholons.com, 2010). Shyam Banerji, the former head of development operations of an American firm in India and now the managing head of his start-up, says "Bangalore has its legacy, like some other very famous places" (Rai, 2010). Our company was the very first international company to set up operations in Bangalore in the year 1984, thereby igniting the start of an outsourcing revolution in India. "Legacy is a difficult thing to overlook in multinational corporation boardrooms even when cheaper options become practical," says Banerji (Rai, 2010). This fame has made Bangalore a top notch outsourcing location and a center for innovation. Sandeep Dhar, CEO of an Indian firm says that Bangalore is a safe bid for many global multinational companies looking to outsource its ITES Services Because of its multicultural ecosystem and business reputation. Over the years, there has only been a massive increase in the number of multinational companies setting up their back offices in Bangalore (outsource2india.com, 2016). Companies like IBM, Intel, Google, Yahoo, Accenture, and Cisco run their core business functions from Bangalore. 11

12 The outsourcing industry has transformed Bangalore into a cosmopolitan city with Tidal parks, schools, and Urban Infrastructure. Ajay Kela, managing director of the outsourcing firm, says that these factors make Bangalore an attractive spot for the employees in multinational companies (Rai, 2010). Bangalore has also always been a top choice for Indian expatriates. In the previous decades, City of Bangalore has often criticised for lack of support from the local government. The local government has taken steps to improvise the infrastructure in the city by including metro service, high-speed rail linkages to the Bangalore airport, setting up elevated expressways (outsource2india.com, 2016). The government is also developing a modern suburb in north Bangalore. (apranjeestates.com, 2016) 2.3.Outsourcing to Chennai Chennai, situated in Tamil Nadu is in the race to overcome Bangalore as India s number one outsourcing destination. Low operation cost, improved telecommunication facilities, experienced professionals, lower land values, cheap labour, low cost of living and urban infrastructure has made Chennai an ideal city for foreign investors. Today, Chennai marks itself as India s second largest exporter of IT/ITES and software services. Chennai contributes 39% of states GDP Chennai has several technological companies, such as Red Hat, Caterpillar, Siemens, L&T Engg, Citi, CB Richards Ellis, Texas Instruments, Deloitte, Philips, and Maersk amongst others. Recently, Chennai has also started specializing services in Healthcare BPO, with leading Healthcare IT/ITES firms, such as Lason, Hinduja TMT, Paramount Healthcare, Apollo Health Street, Ajuba Solutions and ihealthcare Reasons for choosing Chennai: One of the world s top eight global outsourcing destinations in the world for ITES industry Chennai s famous technology and educational universities, such as Indian Institute of Technology has provided talented computer engineering graduates to companies like Facebook and Google (recruiting these graduates every year) Tamil Nadu has more than 500 engineering colleges, Tamil Nadu on average produces 75,000 engineering graduates and 35,000 IT specialists every year (tamilnadugim.com, 2016). Tamil Nadu has more than 45,000 skilled IT professionals, making it the state with the highest number of IT/ITES professionals. This huge talent pool has made the city an ideal offshore location for BPO services. On comparison to other South Indian cities, Chennai has a lower cost of living and better technical infrastructure (tamilnadugim.com, 2016). 12

13 Chennai International Airport in makes it easy for multinational companies to visit the city and monitor the progress of projects frequently. The government of Chennai has passed a different IT / ITES state policy to encourage foreign investors to outsource. On comparison with Bangalore and Hyderabad, Chennai has a lower attrition rate and more land availability Chennai is on the verge to become India s BPO hub. The leading ITO and BPO service providers in Chennai are IBM, Accenture, L&T InfoTech, Mahindra Satyam, TCS, Infosys, Perot System, Virtusa, Wipro, Cognizant, HCL, 24X7 Customer, KPMG and Office Tiger, e.tc. 2.4.Outsourcing to Delhi Though Bangalore s technical resource pool has made it India s outsourcing capital, Delhi is currently overtaking Bangalore for its expertise in BPO and customer support services. Delhi has better outsourcing capabilities when compared to other Indian outsourcing locations. The national capital consists of Delhi, Noida, and Gurgaon. These three cities are the best Indian outsourcing locations for development, accounting, business analytics, engineering services, software development, and customer support services (outsource2india.com, 2016). Over the past few years, Gurgaon and Noida have become famous offshore destinations due to the availability of the skilled human resource, low labour cost, closeness to the capital, improved transport with Delhi and other international cities. Leading global organisations such as Cap Gemini, SAP, Accenture, Dell, Microsoft, Motorola, IBM, Intel, HP, Oracle, Siemens and Amdocs have set up firms in Delhi and NCR. Infosys, Wipro, and TCS are some of the famous Indian IT companies in Delhi and NCR (outsource2india.com, 2016) Reasons for choosing Delhi: Delhi ranks at number two among the world s top eight global outsourcing destinations. Most outsourcers choose the national capital due to its availability of skilled resources, technological infrastructure, and international airport. Delhi has a huge number of educational universities that attracts young graduates from all over India to pursue higher education. Currently, Delhi is producing 400,000 highly skilled graduates on a yearly basis. Delhi is one of the hubs for low labour cost when compared to other Indian outsourcing destinations. The salary for an entry level IT fresher is $320, while Delhi s BPO sector has salaries ranging from $220 to $

14 Recent research conducted by the NASSCOM states that Delhi and NCR have contributed 18 % of India s total IT/ITES services exports. Delhi has a stable government that offers multinational companies a friendly operational and business policies. The Indian government is currently investing in the development of Delhi and Noida s infrastructure because these cities are rapidly growing India s leaders in providing design and electronic services, new product development and back office services. NASSCOM firmly believes that Delhi has many potentials to become India s best outsourcing destination for multinational companies. 2.5.Outsourcing to Hyderabad: Hyderabad, the capital of Andhra Pradesh which now shared by two other states is one of India s hottest outsourcing destinations. This growing IT city is rightly nicknamed as Cyberabad, as it holds the seventh spot among the world s top ten outsourcing destinations. This city is famous for HealthCare, software, customer support, product development, finance & accounting services and ADM services. Hyderabad s lower cost of living and its large number of skilled resources have attracted several multinational companies. Though not a cosmopolitan, Hyderabad has now became a stable outsourcing location over the years. Today, a huge number of IT/ITES companies, BPOs, business consulting firms have set up their operations in Hyderabad, making it a hi tech city (G.Balatchandirane, 2007). Leading ITO service providers in Hyderabad are Infosys, Wipro, IBM, TCS, igate, Accenture, Satyam, and Mahindra.Several IT / ITES companies have set up operation centers in Hyderabad and are indeed becoming a hub of BPO companies. The leading BPO service providers include EDS, Mahindra Satyam BPO, Deloitte, and SITEL. Leading international companies has made huge digital infrastructure investments within the city, making it a competitive outsourcing destination Reasons for choosing Hyderabad: Hyderabad is second largest provider of IT-enabled services after Delhi in India With large talent pool, Hyderabad now holds a status of leading outsourcing destination for IT, ITES, ITO, BPO, pharmaceutical back office support and other front end outsourcing processes (G.Balatchandirane, 2007), Hyderabad has a huge number of highly educated professionals. Global companies, such as AT&T, Deloitte, Microsoft, Bank of America, HSBC, and Novartis have set up operations in this city to use the skills of Hyderabad s expert professionals. 14

15 Many multinational companies prefer Hyderabad, because of its robust infrastructure and government cooperation (G.Balatchandirane, 2007). Hyderabad has low labour costs compared to other outsourcing locations, such as Bangalore. Government of Hyderabad has established business-friendly policies that offer lower taxes and infrastructure requirements to multi-national companies 2.6.Outsourcing to Mumbai: Mumbai is the home of Bombay Stock Exchange, which is one of the oldest stock exchanges in the world. In the past, Mumbai earned its reputation through its harbor and textile industries. The establishment of Tata Consultancy services in 1967 marked the birth of the IT/ITES industry in Mumbai. In 1973, software export zone, SEEPZ, was set up, where more than 80 percent of India s software Operations were carried out (outsource2india.com, 2016). Mumbai is famous for its outsourcing capabilities in, animation, game development, entertainment and media outsourcing services, application development and management (ADM) and finance & accounting services. Mumbai has found a place for itself among the world s top global outsourcing destinations with its technological infrastructure, government policies and large talent pool of nearly 60,000 in the BPO industry (outsource2india.com, 2016). Some leading IT service providers in Mumbai include Infosys, Accenture, Cognizant, Wipro, Convergys, Minacs, EDS, TCS, Mahindra Satyam, IBM, ACS, HCL, CSC, Genpact, Caliber Point, Firstsource and WNS Global Services amongst others Reasons for choosing Mumbai: Due to flexible government and trade policies, urban infrastructure and availability of quality resources, Mumbai has become a preferred outsourcing destination among multinational companies. Nearly 5 percent of India s total GDP generated from Mumbai. Per capita income is $1,010 in Mumbai, which is three times the national average. In 2008, the estimated exports from Mumbai in IT/ITES services were between $3.0 billion to 3.6 billion. Apart from BPO and accounting services, Mumbai is rapidly becoming India s leading outsourcing destination for research and development services and marketing analytics At SEEPZ, Mumbai has nearly 30 electronic hardware firms and 74 software companies 15

16 Foreign Investors can easily find skilled resources in Mumbai for almost any service, be it engineering, research, and development or software development. After Mumbai terrorist attack, NASSCOM has taken initiatives for geopolitical issues by training Mumbai s police department for better security. However, Mumbai terrorist attack has not affected the long-term growth of outsourcing in Mumbai or India. 2.7.Outsourcing to Kolkata: Kolkata is the capital of West Bengal. Over the years, Kolkata has grown to become a major IT/ITES outsourcing destination in Eastern India. Kolkata is the place for cheap labour and is easily available. When it comes down to trade and finance, Kolkata acts as the main business hub in eastern India. Kolkata-based software companies, such as; UshaComm, TCG Software, Alumnus Software, Serenus Infotech, Metalogic Systems, Data Core, TCG Software and RS Software have been responsible for the growth of outsourcing and information technology in Kolkata (outsource2india.com, 2016). Kolkata s main IT/ITES parks at Salt Lake, Rajarhat and Bantala has attracted several foreign investors to outsource to Kolkata directly. Nearly 80,000 employees work at the Salt Lake IT Park, and 10,000 employees work at the Rajarhat IT Park. Leading IT firms from the US and Europe have branches in Kolkata s well structured IT parks. Three new IT Parks will be created by the end of 2016, to attract several global IT organisations (timesofindia.indiatimes.com, 2016). WEBEL is a support entity for IT/ITES investors. Through WEBEL, companies can purchase office spaces on rent/lease or even procure land. WEBEL helps businesses to avoid bureaucratic problems by interacting with local government bodies and municipalities in getting necessities. Recently "IT Incubation Center" was set up by WEBEL to create skilled human resources and knowledge competencies in Kolkata. WEBEL is also helping IT start-ups or turn their ideas into business Opportunities (webel-india, 2016) Reasons for choosing Kolkata: Comparing Bangalore, Delhi, and Mumbai, Kolkata has the lowest attrition rate. State of West Bengal is one of the rapidly growing economies of India. The IT sector in Kolkata is increasing at a rate of 70 percent per year which is two times that of a national average In 2009, the GDP of Kolkata was the third highest among other Indian cities. With lower cost of living and growing economy, Kolkata is one of the global centers for business for BPO and IT Services 16

17 Kolkata s lower land value and urban infrastructure have also made the city an ideal outsourcing location for global IT companies. Some famous companies in Kolkata include Wipro, Tata Interactive Systems, TCS, NIIT Technologies, Sonata Software, Aditya Birla Minacs, Tech Mahindra, Moser Baer Ltd, Tata Interactive Systems, HCL Technologies, Genpact, CMC Limited, Cognizant and ITC Infotech Several international firms have also set up branches in Kolkata to tap into the benefits that the city offers. Some of them are, HSBC Global Technology, Sun Microsystems, Cisco Systems, Capgemini, Intel Asia Electronics Inc, Novell, Deloitte, Honeywell, Texas Instruments, IBM, Atos Origin, Siemens, PwC, Foster Wheeler, Lexmark, ABN AMRO, AIG, and Skytech 2.8.Outsourcing to Pune: Pune, located in Maharashtra is rapidly becoming a leading outsourcing destination. The outsourcing industry in Pune has been developing because of its proximity to Mumbai, urban infrastructure and access to skilled labours. With hundreds of educational institutions and nine renowned universities, Pune is a popular location for both foreign and Indian students. The growing number of migrants to Pune has turned cosmopolitan Pune into India s fastest growing urban cities in recent times (outsource2india.com, 2016). Pune s large student population has created an adequate availability of skilled resources and made it a popular outsourcing destination among multinational companies. The first IT parks were set up in Pune in the year 2000 to support new IT/ITES companies creating a business environment to this city. Pune has developed a long way with several IT/ITES parks all over the city. MIDC Software Technology Park at Talawade, Rajiv Gandhi IT Park, Weikfield IT Park, Marisoft IT Park, Magarpatta Cybercity, International Convention Centre (ICC) and Kumar Cerebrum IT Park at Kalyani Nagar are some of the famous IT parks in Pune (outsource2india.com, 2016) Reasons for choosing Pune: As stated above, Pune has a large talent pool of 650,000 students specialising across various sectors. Pune has a total 526 affiliated engineering colleges and universities. Pune has now become an industrial hub for several industries, such as automotive, engineering and pharmaceutical marking itself a techno-commercial city Over the years, Pune has been inviting several multinational companies. Today Pune has 212 IT/ITES companies, followed by Bangalore and Hyderabad. Pune is currently on a verge to break Mumbai s record of 300 IT/ITES companies. 17

18 Pune is one of best outsourcing location to outsource engineering services, due to the availability of various sectors. Pune is also famous for new product development and design services. When comparing with other Indian outsourcing locations, Pune also offers low labour costs. Entry level IT/ITES executive in Pune earns between $270 and $290 Maharashtra IT policy provides special allowances to IT/ITES industry, thereby making Pune a preferred outsourcing destination for multinational companies. The government has also created friendly business operational policies making it a favourable outsourcing location for all sectors. When compared to Mumbai, Pune has a pleasant climate throughout the year., Pune has a better housing and local transportation facilities. The city also has lower land costs and taxes attracting several foreign investors all over the world When compared to the other main metropolitan cities, Pune is considered to be safe and secure when it comes to terrorism and geopolitical issues 18

19 3.0.Country comparisons: 3.1.Overview on Indian Competitors: The marketplace for IT/ITES outsourcing is changing fast, and the strategies developed just a decade ago has now become obsolete. Globalisation is evolving with innovations, multinational companies looking for cost-effective locations following the classic India-centric offshore model. Proximity is increasingly becoming an essential factor in location decisions as organisations seek solutions to cultural issues, operational challenges, and time zone differences. Risk management has become a top-priority issue as organisations strive to limit their exposure to financial, regulatory and operational risks. Moreover, technological advancements keep moving at lightning speed, with the cloud technology in data storage and crowdsourcing just two major advancements transforming IT/ITES. According to (atkearney.com, 2016) India remains the global leader, with some strong competitors such as Mexico, Poland, and China offering potential benefits in areas such as financial attractiveness, business environment, and skills availability. Although India is undoubtedly the leader in IT outsourcing, other countries have unique benefits that they can offer. For example, although India remains the leading choice for organisations based in the US, historically the largest consumers of IT/ITES services, other nations are gaining ground. Mexico offers excellent language skills, efficient IT expertise combined with geographical proximity and time zone similarities. China offers U.S firms proximity to business operations in that country, as well as a large pool of skilled resources. European companies, meanwhile, are increasingly favored by service providers in Bulgaria, Poland, Hungary, and other Eastern European countries, due to their European language skills. In the Middle East, Egypt is becoming one of the top choices. Japanese companies, are now seeing China as an attractive IT/ITES outsourcing option because of its cultural advantages time zone, and language. Many Australian companies are choosing Thailand, Malaysia, Philippines and Indonesia as alternatives to India. In the following sections, we examine the several country comparisons in the IT/ITES outsourcing market and what they can offer to organisations. 3.2.India: The Undisputed Global Leader India remains the world s undisputed leader in IT/ITES outsourcing. Stable IT/ITES infrastructure, impressive service capabilities, Strong processes knowledge, global exposure, renowned service culture, and mindset make India an ideal location for IT/ITES Outsourcing. Its wide range of popular IT services includes remote infrastructure management, application development and maintenance, software testing, R&D, and high-end software engineering, among others. India s advantages in 19

20 IT/ITES outsourcing have not diminished as it produces millions of it graduates with degrees in engineering and technology with strong English proficiency that gives it an advantage over US and UK organisations. On the other hand, high employee turnover has now become an issue, and India s business environment is getting hampered by wage pressures, corporate tax rates, and physical infrastructure issues that are creating less favorable situations compared to other countries. For buyers, India provides specialised commodity and ERP training. Moreover, the maturity of IT/ITES services in India offers flexible outcome-based contracts. India has the world s widest range of IT/ITES service providers. Local leaders include Tata Consultancy Services, HCL, Infosys, Cognizant, Tech Mahindra, and Wipro; international firms with an Indian presence include IBM, HP, Accenture, and CSC; India s long tail of small but solid IT players includes Mphasis, L&T Infotech, IGATE, and Syntel, etc. These firms have established IT/ITES delivery centers in most of the Indian metropolitan cities, with expansion plans targeting tier 2 and 3 cities. With the labour supply market expected to remain stable and tier 2 and 3 cities offering additional cost advantages by means of impact sourcing strategies.overall, India s control on IT/ITES outsourcing market looks good to proceed for the foreseeable future. 3.3.China China s advantages include good technological infrastructure, stable environment and a low ratio of public debt to GDP which also helps to minimise the risk associated with IT outsourcing decisions. The Chinese government has made tremendous progress in protecting intellectual property, but past issues still influence customer thinking when it comes to IT/ITES outsourcing in China. China produces, even more, engineering and technology graduates than India, but its English language skills remains a barrier to becoming a true challenger to India s dominance. IBM remains the leader in China s IT outsourcing market, with Genpact, Infosys, Capgemini, HP, Pactera, PCCW, and Tata Information Technology among noteworthy challengers. Companies considering China as a location for IT are evaluating and aligning their corporate strategies and needs with the diverse location options in China, each offering different benefits regarding government support, cost, and economics. China is becoming the preferred offshore location in areas where intellectual property is not a concern, such as localisation, local IT delivery operations and application development of packaged software. 3.4.Mexico: Mexico also features a skilled, multilingual workforce platform to serve North American, Latin American, and European companies. In particular, its geographical proximity With the United States makes it an attractive service provider. The risk is reduced by cultural and language similarities and 20

21 NAFTA-facilitated economic procedures. Mexico s IT/ITES industry includes nearly 500,000 professionals, with considerably low attrition rates, and technical universities that produce a steady source of new talents. Most major U.S. IT/ITES firms have established branches in Mexico, HP, IBM, Accenture, Softtek T-Systems, Tata Consultancy Services, Stefanini, Carvajal, and much more provide different services offering both nearshore opportunities for Canadian and US clients and IT/ITES delivery centers for Spanish-speaking countries. Further, Mexico s labour cost arbitrage is not as huge as India, but for some buyers, proximity hits the balance in Mexico s favor. According to (atkearney, 2014) Even though India is the strongest IT/ITES Service Provider, Mexico and China are catching up quickly in the global outsourcing market. Lower interest rates, lower corporate taxes, and high infrastructure rates offer cost advantages compared to India. Historically, China has always remained a steady second spot to India in the GSLI; Mexico is rising acquiring most of the projects from the United States Figure 2.Comparison of India, China and Mexico (atkearney, 2014) 3.5.Malaysia: Malaysia is now marching in the ranking compared to previous years. Improvements in compensation costs and IP security has given the country a leap over Brazil. Outsourcing adds up to roughly 60 percent of Malaysia s IT/ITES services. Malaysia is now showing some solid performance; that has enabled a third spot in the Index since its inception (atkearney.com, 2016). In Kuala Lumpur, Tech Mahindra is currently launching an excellence center for Google Technologies. This will act as the stepping for the other main -players opening their branches in Malaysia.Malaysia is also developing a major offshoring hub just 160 kilometers south of Penang, where a new IT/ITES BPO is being built to accommodate 21,000 new opportunities by

22 3.6.Philippines: BPO and KPO Services dominate the Philippines IT/ITES Outsourcing Industry. Most of the projects coming from US and Japan. This developing player has a small labour pool IT enabled service industry, but it is currently developing specialized IT outsourcing services for domains such as software development, Web design, and Animation by taking advantage of its current benefits and clients in call centers and BPO services. Almost all the main global IT/ITES service providers have their presence in the Philippines. Being a multi-cultural environment, it can adapt to both western and Asian projects effectively. Current service providers are developing their services with multilingual IT help desks, with growing application development and maintenance and infrastructure services. Accenture, Convergys, IBM, Aegis, and Genpact are some of the larger players in the Philippines, and in the past five years, large India-based providers (Cognizant, Infosys, Wipro, Tata Consulting Services, and Tech Mahindra) have expanded their capabilities, given the high demand for call center services. Country is also focussing on Impact Sourcing choosing marginalized individuals in tier II and tier III cities. Recent offshoring includes the opening of Accenture s third support center in the country in Ilocos to support its operations in Cebu and Manila City. Both Convergys and Sutherland are expanding their delivery centers in Davao City, which will create 4,000 new opportunities. Davao City is just one of several tier 2 and tier 3 cities. A public-private partnership developed between the Information Technology, and Business Process Association of the Philippines and Department of Trade and Industry is currently taking initiatives to offer job opportunities to country s 100 million inhabitants. 3.7.Poland : Despite slight declines in regulatory costs and for IT/ITES experience, Poland has made a strong improvisation in compensation costs (atkearney.com, 2016).Poland s Association of Business Service Leaders states that the nation's services industry is currently on focus to reach 170,000 workers by the end of The financial services service alone will create 5,000 new back-office opportunities by the end of 2016 (ABSL, 2015). Most of the back office operations are based in Warsaw. However, a location like Wroclaw, Katowice, Krakow and Lodz are under development. A large number of Polish who has worked abroad learned the European and Western languages and the culture, and returned to the country is another advantage. One of biggest challenge for Poland will be to minimise that the rising labour costs According to (atkearney, 2014)Philippines, Malaysia, and Poland have the potential to become global leaders offering specialised IT/ITES services. Malaysia and the Philippines benefited from 22

23 cultural awareness of western countries which Asian countries like India still lack, which could put them in a position to capture new projects from the United States and the United Kingdom. Poland s language capabilities which span many European languages its excellent infrastructure and advantageous labour costs present a particularly strong case for European investment Figure 3.Comparison of Malaysia, Philippines and Poland (atkearney, 2014) 23

24 4.Future competitors for India: 4.1.Brazil: The value of the Brazilian currency has dropped from an average rate against the US dollar of 1.95(2012) to 2.35(2014).due to currency devaluation, Brazil has now risen four positions in the GSLI (atkearney.com, 2016), despite its decline in its relative scores for IT and BPO sectors. Significant recent investments include Softtek s launch of an IT R&D center in collaboration with the University of Fortaleza, the opening of GE R&D center in Rio de Janeiro, and the Italian Gi Group s acquisition of Brazilian BPO Holomatica. 4.2.Costa Rica: Costa Rica has made a huge investment for its GDP in economic infrastructure than any other nation in South America. Costa Rica s labour resource is small and relatively more expensive in South America, but social interaction is high, the business-friendly environment is well connected with the US culture. According to the Costa Rican investment promotion agency, computer services, management, and other business functions accounts exports amounts to country s GDP (CINDE, 2013). 5.8 percent of the Walmart manages its supply chain services in Central America out of Costa Rica, and Amazon offers highly efficient English-language customer support from the country. In the mid of 2015, Cargill opened an IT-enabled services center employing 200 people to manage finance and human resources back-office functions for its operations in American regions, with strategic plans to add IT, sourcing and logistics in the future. At the beginning of 2015, Indecomm started IT operations in Costa Rica, with 100 software professionals to support North American customers 4.3.Colombia : Columbia has proved its capability in IT and BPO industry.with country infrastructure, coupled with economic improvements has fueled its growth. Since 2012, the Columbia s Digital Talent Initiative has funded IT studies and has educated more than 6,100 Colombians so far. The country has 4G Technology infrastructure connected with six submarine cables. EXL has made an agreement with Colombia s Carvajal Tecnologia y Servicios to Provide English and Spanish -language operations support from Cali and Bogota. Atento has also announced it will open a new delivery center by the end of the year in Pereira, where 2,000 new employees will serve Chilean and Colombian customers in the communications financial, and health industry. In 2016, Atento has planned to set up another delivery center in Bogota that will employ 1,500 people. 24

25 4.4.Trinidad and Tobago A nation with a population of 1.4 million just near the coast of Venezuela, enters the GSLI (atkearney.com, 2016)for the first time as it turns its experience in the energy industry to other sectors. The nation has some exceptional language skills and infrastructure costs and has significant improvements in other categories, such as IT and BPO. The country has a higher literacy rate with more than 7,000 people(99 percent ) graduate each year from professional universities. Trinidad and Tobago have the largest density population of native English-speaking talents in the Western region. Further, advanced telecommunications infrastructure, labour force availability, IP security, a near shore location to the United States, tax incentives makes it one of the favorable location for ITES outsourcing. for e.g. Canada s Scotiabank operates its Caribbean administration and finance service from Trinidad and Tobago 4.5.Peru Labour costs in Peru are relatively low, and Most of Peru s service centers support Spanishspeaking customers. Infrastructure costs in Peru are very competitive, but attention is required to improve infrastructure quality and labour skills. National Fiber-Optic Backbone Network of Peru will connect the provincial capitals of the country, including Trujillo, Arequipa, and Chiclayo, with highspeed networks. According to Everest Group, employees in business processes and IT are paid around one-third of their counterparts in tier 2 UK cities and one-fourth of similar resources in tier 2 cities in the US. For, e.g., Atento will start a call center operation in 2016 in Tacna near the Chilean border, where it will create nearly 1,000 opportunities. 4.6.Romania: According to (atkearney.com, 2016), Romania has risen five spots compared to the previous years. Labour costs in Romania is much lower than Poland. According to the Employers Association of the Software and Services Industry in Romania, a significant amount of international IT/ITES service providers currently operates in 50 delivery centers, most of them BPO and IT-enabled services. About 50,000 Romanian people work in the outsourcing sector, and the country has a large pool of skilled IT/ITES workers. Major service centers are located in Bucharest, Cluj-Napoca in Transylvania and Timisoara. 4.7.Ukraine: Though a hub for geopolitical risk, The nation has moved to 17 spots in the GSLI (atkearney.com, 2016), Improved tax benefits and regulatory cost accompanied with currency depreciation has given a competitive advantage over other countries. The challenges in political system restrict the government's implementation of new initiatives that will boost the country s competitiveness. The 25

26 Ukrainian IT /ITES sector consists of more than 500 outsourcing firms and 100 international R&D centers, employing engineers 4.8.Egypt : Egypt is large and has a highly educated population.due to the cultural advantage it now holds most of the middle east projects. Egypt is one of the favored destination for ICT outsourcing and currently poised by political conditions. Agreements signed at the beginning of 2016 between the Egyptian Information Technology Industry Development Agency and eight multinational companies, HSBC, IBM, Nestle, P&G, Axxcelera, Mobinil Contact Services, EMC2, and Teleperformance to create 6,000 new opportunities in coming years (newsghana.com, 2015). Of the 90,000 opportunities in Egypt s outsourcing and ITES shared services sector, about 50,000 are supporting offshore projects. Everest Group estimates that the country s offshore global services industry are growing at a rate of 7.5 percent every year. 4.9.Turkey According to (atkearney.com, 2016), Turkey has the second largest increase in ranking this year, vaulting 18 positions up the Index. The Eurasian nation has shown improvements in infrastructure costs compensation costs, and availability of labour force with no significant decrease in any other factors. Turkey s outsourcing industry is growing continuously, with the IT/ITES sector increasing from 1.4 billion dollars in and 70,000 employees in 2013 to 1.6 billion dollars and 80,000 workers in Kenya Kenya is a new entry to the GSLI (atkearney.com, 2016) because of good improvements in compensation and infrastructure costs. Nearly 7,000 employees currently work in IT/ITES Sector, mostly in voice-based processes and transactional back-office services. Local outsourcing firms are finding it difficult to resist customers from mature markets in India and Southeast Asia. However certain advantages such as compatible time zones with Europe and low-cost labours makes it one of choice for the global players. Many local companies are serving clients in neighboring countries such Uganda and Tanzania and currently started to expand to new regions 4.11.South Africa: According to Business Process Enabling South Africa, more than 210,000 South Africans work in the BPO or service provider industry, and more than 25,000 workers serve international market particularly Australia and the United Kingdom (bpesa.org, 2016). Many companies outsource their 26

27 back office operations to South Africa not just for the cost advantage but for the quality of service they offer. Country offers high security to multinational companies using an efficient judicial system South Africa is also currently focusing on impact sourcing by recruiting marginalised youth who does not have access to jobs (bpesa.org, 2015) 27

28 5.0.Business Process Outsourcing: a review on Indian perspective 5.1.Outsourcing: Outsourcing is a version of make or buy decision in which an organisation elects to purchase an item that previously was manufactured internally or a service that was done in-house. It involves transferring a particular group of items or services to a supplier who then provides the manufacturer with the finished items and services. Outsourcing today also involves either IT or BPO. Information technology essentially involves contracting a third party to manage the entire business process such accounting procurement and HR. The primary motto of BPO is to deliver the target values with greater sustainability and productivity (Bhimrao Ghodeswar, 2008).In the recent decade, business process outsourcing has been evolved as one of the essential element in an organisation. Popularly it deals with the transfer of non-valve added activities to a vendor who has the domain expertise and has a good reputation in terms of quality and service. Additionally, it also involves the outsourcing of IT-enabled platforms and infrastructure supporting the process, Including its IT and networking infrastructure, enterprise resource planning tools and IT-enabled business process (VENKATRAMAN, 1992).According to (Panda, 2012)Towards the end of 1980, Western multinational companies started to outsource their business activities to low-cost countries like India to get a competitive advantage and make use of the sound infrastructural facilities and the favorable business environment.during late 1990, with the growth of information technology, telecommunication, and the internet altogether helped the companies to access the necessary information and services for various geographical locations across the globe. Due to the skilled labour and cheap global communication companies opted India for their business process outsourcing Evolution of Business process outsourcing in India: Evolution of Indian business process outsourcing industry dated back in 1968.The government felt that the software development is ironical for the growth of the country. However, restrictive rules and regulations made multi-national companies think about having footprints in India. However, the policies adopted by the Indian government in 1986 made liberalised access to software and associated hardware. Software technology park in 1990 s paved the way for newer technology domains. India s tryst to process outsourcing started way back in 1990 s with GE setting its business process outsourcing in Gurgaon.Some other early birds include American Express and British Airways. Though low-end work such as data entry and customer service activity was outsourced initially, Increasing confidence and quality made companies outsource value-added work such as processing of accounts and non-core functions (ameykantak, 2012).In the current scenario, companies have started to install their R&D and excellence centres in India due to its technical 28

29 expertise.for e.g. Apple has opened its development office for maps in Hyderabad (indianexpress, 2016) 5.3.Reasons for outsourcing to India: According to (Nasscom, 2014), Nearly half of the Fortune 500 companies have chosen India for their IT developments. Though the countries like China, Philippines, Mexico and Ireland appeared to major competitors, India was able to outsmart them with its technical expertise, Cost competitiveness, and quality. With the population of over 1.2 billion people and with an average of 3.1 million high qualified graduates, India is has become a pool for outsourcing in the business process outsourcing industry. English speaking population even bigger than UK and US has now become a strategic choice for companies to invest. Best in class infrastructure and technological capabilities with the support of the Indian government have given multinational clients with the added advantage. The state of the art telecom and cellular networks with a customised support for individual sector make it more competitive. Currency value and the pricing option is the predominant factor for outsourcing to India. For e.g. a good software cost 80 US Dollars per hour in united states however in India it costs not more 15 US Dollars (outsource2india.com, 2016). 5.4.Drivers of BPO Importance: The growth of business process outsourcing industry gives evidence that outsourcing has become increasingly important in the current global trend. According to (TechNavio, 2016), Analyst forecast that global data processing and outsourcing services market to grow at a CAGR of 5.2% over the period of hence the importance is visible due to the impact of a current increase in the trend and existing business.globalisation, as stated above, will act as one of the major contributors for the inter-organisational and business relationship maintaining the success factor.competition, shifting customer and new markets have made outsourcing an important element for corporations and to position themselves differently. According to (Deloitte, 2014), developments in enterprise mobility, big data, hosted virtual desktop, business process as service and cloud computing will increase outsourcing.the increase and change in the information technology has an impact on the knowledge flows resulting in the rapid technological transformation which is one of the main drivers to be considered. For e.g. the innovations in database management and internet communication has changed the way the business was done before. This is one of the main reason for the increase in business process outsourcing in India. The technical complexity of the process also has its share in complicating the business process outsourcing. for e.g. Product database with the functional specification is hard for the purchasing associate to understand unless and otherwise trained by the research and development from the headquarters. 29

30 Operational effectiveness is another important driver that affects every segment of the outsourced operation. Through the efficient operation, the company will be able to take over its rivals if the resources are used better. The company that outsources the business process should gain operational effectiveness through low expensive process solutions. The resources allocated to the process should be superior with the effective performance. Last but not least, Strategy formulation is the core to any business process outsourcing. Inter-organisational relationship with the external outsourcing provider will get aligned only with an effective strategy for e.g. a business provider that outperforms a process can be rectified by mean of an alignment strategy and effective training thereby concentrating on value creation and sustaining competitive advantage. Main reasons why organisations outsource include Resource Shortages The major reason for outsourcing is a lack of basic resources. This can be available workers in a specific region (e.g., engineers), the accessibility of raw material and available labours Realignment with Core Business Some non-core operations are outsourced. This gives the directors the capacity to focus on the core business issues instead of committing themselves to areas that are not related to the core business capabilities. For example, some hospitals outsource its security operations to an outside company that specialises in security Cost Savings The prices of labour and materials are continuously increasing, and competition makes companies look for markets with lower prices. Outsourcing is one of the solution that can save the company s expenses to a considerable level Business Flexibility Occasional or repetitive demands have a considerable effect on the company s profit and expenses. An outsourcing contract could give expected adaptability to balance these fluctuating demands. Example: A business acquires new accountants during tax season Reduced Overhead Costs Certain functions require an extensive amount of capital to begin. This could be avoided by contracting to a third-party service provider. For example, outsourcing to a call center instead of undertaking an expensive development initiative 30

31 5.5.Types of Outsourcing: Tactical Outsourcing Tactical Outsourcing is utilised as a tool for reconstructing a company, specifically concentrated by firms with insufficient funds, inadequate decision-making powers in the execution of the tasks, lack of access to cutting edge strategies and equipment and reduction in employment. Tactical outsourcing is defined as the process of hiring a firm to perform specific development function such as software development process. It gives the organisation to have more control over the process by retaining oversight of the project. This is extremely useful to finish a project within a short span of time because it avoids the lengthy procedure of searching for the right candidate. Tactical outsourcing is additionally useful when there is a short-term requirement for a highly skilled developer in a particular technology that organisations do not regularly utilise. A developer with the right aptitude set might be exceptionally hard to find, so going through a skilled tactical partner can mean quick turnaround and lower overhead than hiring internal resources. With tactical outsourcing, the organisations can maintain a sequential procedure, including gathering prerequisites from stakeholders and designing the framework that the developers will make. Tactical Outsourcing builds administration overhead and supply base cost associated with it, yet it additionally permits the organisations to have more control over the procedure and more information about what is going on (Chamberland, 2015) Strategic Outsourcing Strategic outsourcing is defined as the process of engaging the service provider to manage essential tasks.for e.g. partnership with an IT company to provide networking services. They handle the whole planning and development processes, leaving users to focus more on other aspects of the business. This is always a value addition to organisations because they can pay per project instead of per hour of work. In Strategic outsourcing, the organisations should address viewpoints with their prospective outsourcing partner. Project documentation plays a vital role to handling outsourcing projects.clear documentation is essential to add functionality to an existing project; the service provider should be provided with appropriate documentation to know how the project is working. Further, Organisations should provide full technical information about the necessities to they require from the outsourcing partner. Leaving out any details could cause extreme problems as the company experience the process. Including all decision makers and stakeholders in discussions is an important step to guarantee that project goals align legitimately. Repeated changes will significantly increase the cost of the outsourcing project, hence plan everything in advance is essential for a successful partnership. 31

32 Organisations should examine service providers prospective partner's portfolio, which would give a consistent and excellent performance. Not all outsourcing companies are same; even great companies have failed to make a right choice. If their goals do not align with parent organisation will lead to serious disaster. It is also important to note for what sectors the service provider has worked. If the service provider has the expertise to work in the same industry, it means that they are already familiar with some processes and terminologies, making communications much easier. "Strategic" outsourcing is not driven by a problem-solving mentality. Instead of that, it is aligned with the company s long-term goals. The changes that firms expect from strategic outsourcing vary according to their requirement, however, common value additions include (a) achieving gain through Cost Savings, (b) spending time with activities that are core to the organisation, (c) Gaining competitive advantage by repositioning the companies value in the marketplace, or by achieving increase in its share value. (Chamberland, 2015). In strategic outsourcing, the optimal relationship is required in the form of joint ventures. The traditional customer-supplier relationship is typically inadequate for strategic outsourcing, it often fails to allow the parties to address key business considerations and necessities (Chamberland, 2015). A structural approach is required to enhance the partnership where the outsourcing organisation and the service provider will share their views allowing the service provider to deliver greater value during the course of the project Operational outsourcing Operational outsourcing is quite common in the manufacturing industry. Manufacturing Companies outsource their non-core operational functions to a third party service provider, For example, machine maintenance, and equipment repairs can be outsourced to a specialised outsourcing organisation. Manufacturing companies also outsource other non-core activities such as: cleaning catering facilities management deliveries installation after-sales administration repairs 32

33 5.5.4.Manufacturing Outsourcing Services Manufacturing outsourcing service is frequently industry-specific in its nature (usually followed in the electronics industry). A typical scenario is a mobile manufacturing organisation that can choose to get an outsourcing service for making a whole cell phone by sharing its technical specification, e.g., Apple.The greatest advantages that originate from utilising manufacturing outsourcing services is cost saving, plus decreased assembling time. Organisation can spend their valuable time in business initiatives eliminating the risk associated with production (Krstić Bojan, 2015) Business Process Outsourcing: Business process outsourcing is an evolutionary form of tactical and strategic Outsourcing.In BPO (Business Process Outsourcing), a specific process is outsourced. Payroll is the best example of business process outsourcing. Other examples include data entry, proofreading and editing, business consultancy, call center Multimedia/Animation, bookkeeping, handwriting services, medical billing and transcription, web design, and development, etc.bpo could be either back office related or front office. Front Office functions involve customer oriented work like marketing, answering calls, technical support, whereas back office category include internal work like billing and purchase, etc (John K.Halvey, 2007) Knowledge Process Outsourcing: The success of BPO in the low-cost countries paved the way for new innovations in process outsourcing. KPO industry is an evolutionary form of BPO segment. KPO or Knowledge Process Outsourcing is defined as the process that needs higher technical involvement from the service provider. Service providers need to utilise advanced levels of research, analytical and technological skills. Eg. Legal services, patent/intellectual property research, pharmaceutical research and development, Data research and analysis, animation, content writing and development and database development services. (Praveen, 2012) Professional services outsourcing: The business functions recorded under professional outsourcing services incorporate legal, accounting, information technology, purchasing, as well as other particular services. This type of outsourcing inquires a huge capital investment and has a prominent business pattern typically unique to that organisation.further, the business model is entirely different compared to previous 33

34 outsourcing types. (Simona D Antone, 2016) e.g., Transaction based pricing used by Procurement Outsourcing service providers where they charge the customer for every invoice issue. Processes that companies outsource include: IT functions IT Outsourcing functions includes network management to project work, website development and data warehousing. IT functions may get benefits from recent innovation and programming updates without investing in costly frameworks. Business processes and HR - for example, recruitment, payroll, and secretarial services give access to specialist abilities. Finance It involves auditing, accounting function, bookkeeping, tax management and invoicing. Sales and marketing - Many organisations utilise consultants to handle marketing communications. 34

35 6.0.Methodology: 6.1.Overview: The methodology is to study the companies who has Procurement business process outsourcing centers in India. The research will be formulated using a case study and advisor perspective. The case could be an individual or a group of people working in Procurement BPO S.The representatives are chosen according to the skills and expertise they have in procurement BPO. Case studies adopted will be used to make the qualitative empirical investigation. Qualitative interviews will be conducted as a part of the empirical investigation so as to understand the advantages and challenges in Procurement BPO'S better.the reason for choosing empirical investigation through case studies and in-depth interviews is to strengthen the relevant data for the respondents so as to conceptualize the information embedded within the case.the research method will also involve the identification of concepts and patterns from the recent journals and websites related to procurement and supply chain management which will further strengthen the qualitative empirical investigation.additionally, outsourcing surveys conducted by various consulting firms were taken into account to state the opinions of chief procurement officers with respect to the latest current market trend 6.2.Research Questions: The critical nature of the thesis calls for a qualitative approach. Hence, it does not contain Quantitative data or hypothesis, but will focus on finding a solution to research questions targeted at achieving the following objectives: 1.What is the reason for choosing India? Who are its future competitors? 2.What is procurement outsourcing? 3.What are the main advantages, challenges, and key issues procurement BPOs face in India? 6.3.Advisors perspective: The advisor company (Accenture) is a Fortune 500 company with a global reach serving clients across 120 countries.the company is a leading professional services company, providing a broad range of services and solutions in strategy, digital, operations, consulting and technology. The company provided its services across 40 different industries and considered to be the largest independent technology service provider.the company is also a pioneer in handling procurement outsourcing projects having clients across various industries 35

36 The advisor company representative who was interviewed on ( ) is a Senior Managing Director of BPO Projects within the enterprise subsidiary located in Phoenix, Arizona, United States. The representative has been into a consulting role for nearly 20 years. The representative has handled various procurement outsourcing projects across the globe especially in Asia-Pacific region and has worked with Shared services, procurement outsourcing advisory, Transformation and change management regarding procurement functions with some focus on other supply chain management processes. This expert advisor was chosen for a structured telephonic interview in order to facilitate about the challenges and advantages that procurement BPOs face in India. 6.4.Unstructured Interviews: Unstructured interviews are usually conducted with no prior preparation and considered to be the least reliable form of interviews. Unstructured interview, in general, is found to contain a high level of bias and different answers due to the difference in the formulation of questions during the course of the interview (research-methodology.net, 2016). Procurement Outsourcing being a new innovation in Procurement, Several unstructured interviews has been conducted to determine the greatest challenges and advantages Indian procurement BPOs face and drafted into a PEST framework. PEST Analysis was carried out to determine the major factors that impacted the Indian Procurement BPO s in a larger scale PEST framework is one of the most common techniques for accessing the external business environment. The value of the PEST is likely to access directly to the quality of a particular process.pest analysis signifies Political, Economic, Social, and Technological analysis and describes a common framework of macro-environmental factors. Political changes include shifts in the internal political climate, the effects of political integration, world power shifts and specific legislation and governmental regulation. Economic changes likely include the effects of economic cycles, changes in global trade policies, changes in currency conversion rate, commodity prices variations and economic effects on suppliers and customers. Social changes include the effects of demographic patterns, habits and tastes, and concerns on sustainable and environmental development. Technological changes cover technological effects on products, processes, and marketing channels. The PEST analysis is very general tool and can apply to varying circumstances. Global or geographically dispersed companies general conduct separate PEST analysis for different regions as trends occur at different rates in different places. 36

37 Figure 4.PEST Analysis to determine the Challenges and Advantages of PO in India Finally, a set of factors were determined, and a structured interview was carried out to derive the final results 6.5.Structured Interview: A structured interview is a set of predetermined questions where interviewee answer in the same order. The results obtained through a structured interview is more accurate and straight forward compared to other forms of interviews, because the researcher can compare and contrast different solutions obtained through other types of research (research-methodology.net, 2016).In this thesis, Structured interview was conducted with the managing director of one of the Fortune 500 companies pioneer in procurement outsourcing. 6.6.Definition of Case study: Case study research is used in exploring and understanding complex ideas. Unlike quantitative analysis which requires several patterns of data at a macro level, It is one of the robust research methods, particularly when an in-depth, comprehensive, investigation is needed at a micro level. Recognized as a tool in sociology studies, the role of case study method in business has now become more prominent due to several dissimilarities and Innovation in the business environment. In most business cases, a case study method selects a small number of processes or individuals as the subjects of study. Case study methods allow us to understand the behavioral conditions through an advisor's perspective thereby explaining the process and outcomes of the research in a comprehensive form.in this thesis, Case studies were framed to support the theoretical structure of 37

38 procurement outsourcing and to get a clear understanding of Procurement Outsourcing and its impacts on Procurement function (Rowley, 2002) Overview about Case study company: The company 1 used for the case study is one of the global leaders in technology services and consulting having clients in more than 50 countries. The company was started as an IT Services company in 1981.Currently, the company is verge for digital transformation handling projects in application development, Knowledge management, and business process outsourcing. The company is also one of the pioneers in procurement outsourcing positioned as one of the leaders in Everest group assessment in 2013 (infosysbpo.com, 2016).The company 2 used for the case study is a multinational company that provides consulting, software and outsourcing procurement and supply chain management. The company is headquartered in New Jersey,USA. The company has more than 2000 technology, outsourcing and consulting professionals worldwide. Interactions with the Service provider company representatives was helpful in framing explanatory case studies Reasons for choosing explanatory case study: Explanatory case studies examine a topic closely both at a micro and macro level to explain phenomena. For instance, a researcher may explain why an organisation uses a global strategy in procurement outsourcing.by the information, the researcher may further form a theory and explain it in detail Furthermore, explanatory cases are also deployed for business studies where pattern-matching can be used to investigate certain phenomena in complex business processes. Through an explanatory case study, a complex case can be explained in three types of rival theories: social interaction theory, a problem-solving theory, and knowledge-driven theory. The knowledge-driven theory stipulates that final commercial solutions be the results of research and discoveries from the basic idea. Problem-Solving theory can also be approached in the same aspect. However, the solution is derived from external sources rather from research. In Social interaction theory, the solution is obtained by professional network interactions between the researchers and users (Zainal, 2007). In this thesis Case Study, 7.1 is a knowledge driven theory depicting how procurement outsourcing was helpful in saving euros and overcoming talent issues. Rio Tinto, a mining company, integrated its procurement function with Infosys. The mining company also wanted to create an offshore excellence center as it faced labour issues in the remote mining sites.partnership with the mining company gave a considerable growth rate saving Euros with significant process improvements 38

39 In the thesis case study, 7.2 is a knowledge driven theory depicting how Procurement Outsourcing can bring value to an organisation compared to the company owned shared service centers. In the year 2007, Phillips selected Infosys to operate its shared service centers in India, Poland, and Thailand. Within two years Infosys implemented several process automation and transaction-based pricing models, Infosys leveraged some of its potential projects to low-cost locations like India and reduced employee attrition. Currently, Infosys supports complex procurement operations for Phillip s In the case study, 7.3 is a knowledge driven theory depicting how Indian Procurement BPO service providers support better compliance management in the procurement process. Service provider was helpful in gaining indirect spend visibility and implement better controls and policies through a No- PO-No-Pay initiative. In the case study, 7.4 is a knowledge driven theory depicting how Indian Procurement BPO service providers support the customer with better procurement technology. Service provider developed and implemented a technology platform for strategic procurement framework that transformed the procurement function from a transaction-based model to a much more strategic, supportive highvalue group that consistently delivered high-cost savings and strong Return on Investment 6.7.Surveys: According to (Kowalczyk, 2016), A survey is defined as a brief interview or discussion with individuals about a specific topic. However, in this thesis, Surveys were not conducted to determine the results. Surveys from the consulting firms were used to state the opinion of the chief procurement officers and latest market trend.these surveys were useful in making a constructive argument to state the advantages and challenges Indian procurement BPO s face 39

40 7.0.Case Study: 7.1.Infosys build an outsourcing partnership in the mining sector to solve labour shortages: A win-win situation between two can be only achieved between two partners when they are ready to come out of their zones in their outsourcing relationships. Here is a case study between a world leading mining company Rio Tinto and Infosys it's procurement outsourcing service providers which will explain how Procurement outsourcing will be helpful in adding value to the procurement organisation. According to (infosysbpo.com, 2016) Infosys BPO had the hunger to penetrate new sectors, including the mining industry in the APAC region. In the meanwhile Rio Tinto had a shortage of qualified labour for their procurement organisation states its procurement head The real problem of Rio Tinto is that its growth is restricted by the shortage of qualified people for its procurement organisation. Though outsourcing to Infosys gave considerable cost reduction and value addition, the process was not fully stabilized After two years of relationship, the drive to outsource still exist and Rio Tinto as the company is still growing.two partners out of trust came back with the solution. Infosys agreed to send its procurement professionals to the global procurement organisation in Rio Tinto for one year to access the changes happening in the function Project Palm: An enhanced outsourcing relation started with Project Palm. By the end of 2007 Infosys made a strategic move to target the Asia-Pacific marketplace. At the same time, procurement head of Rio Tinto Moved from America to Australia to restructure its organisation structure. Movement of procurement created a difficulty in hiring transaction and procurement employees.the company has the complex procurement process with nearly 2.5 million purchase orders issued per year. Procurement executives from both the companies looked at India to solve the talent issue. The mining another objective was to create a center of excellence in an offshore location In the middle of June 2008, the mining company came up with the RFP for Project palm, a deal that will enhance the value of sourcing and procurement function. The mining company wanted a service provider who would be an extension of their procurement function. The core purpose of the project is to centralise the operation with true value and partnership from the service provider The mining company made it a global proposal performing the work from the centers in Australia, France, and the United States. Though Infosys is a new entrant to procurement outsourcing, it won the project due to its willingness to work with the mining company. The procurement head stated 40

41 that Infosys has an excellent partnering and business orientation with a global implementation of SAP which will be helpful to consolidate the IT into a single working platform thereby reducing the process complexity Infosys knew that it has to deliver what it promised. Any failure in the process will demolish the whole outsourcing process and the relationship. However, it establishes itself by saving euros in 24 hours by making a process improvement in France justifying its capability. In early 2009 the transition process reached a steady state We communicated well, monitored the deliverables closely and ensured we kept our promises says Mehra (infosysbpo.com, 2016). The procurement head of Rio Tinto said that the results proved that the company has the capability to take future procurement projects In September 2009 Rio Tinto issued a brand new Proposal that combined sourcing and procurement with finance and accounting approaches like accounts payable and expense management. The mining company asked its leading supply chain professionals to form a team and move around their company sites with Rio Tinto executives to craft a solution together. The proposal included:» Savings: $500,000 a year in sourcing spend with a considerable reduction in cycle time» invoice backlog reduction» common process design supporting existing and new procurement units» Enhancing synergies using integrating the procure to pay process» Creating a multi-cultural workforce which will enhance the benefits of the procurement process Infosys visited the mining company offices located in Australia, Canada, France, Singapore and the United Kingdom. Procurement head of Infosys said, We knew they were assessing us on some parameters while the team traveled the globe and chiseled the solution for Rio Tinto, Finally, Infosys won the deal as it provides similar services in India, Poland, and Mexico Infosys, India on account to build value made a colocation by merging the accounts payable team with the upstream procurement team in one floor which improved the visibility in the overall operation to a considerable extent which created a positive synergy for ongoing procurement business transformation. Ongoing live Infosys made continuous process improvements using streamlining the process said Singer-Procurement head of Rio-Tinto. 41

42 One of the process improvement includes the reduction of blocked invoices for payment.upon merging the process, Infosys did a root cause analysis to merge the problem. It was made possible due to the centralises accounts payable and Upstream procurement team on the same floor. According to singer Infosys is playing an integral role in streamlining work, Singer said that their procurement function is a transaction intensive organisation with many elements to considered in the procure to pay system. Any discrepancy would slow down the process creating inefficiency. Integrating processes will be the key solution to this problem. Infosys today controls ten global procurement centres processing 3500 invoices transactions per day. Both the client and the customers have now adopted a hybrid approach to enhance the mutual benefits.for e.g. fuel and lubricants are one of the high spend categories where Rio Tinto retains its ownership.on the other hand, Infosys who is an expert in vendor and market analysis supports the category managers.due to its enhanced efficiency, Infosys now takes care of office supplies and print management.this hybrid approach has now created a unique cross geography workforce with multiple benefits that supports growth said, singer Even after outsourcing certain procurement function Rio Tinto still faces labour shortages in some of its procurement centre. Senior executives of Rio Tinto approached Infosys and requested to send the most talented procurement professionals to their centres for the period of 6 12 months which would strengthen the procurement outsourcing abilities and will further enhance the understanding of the operation.infosys has now approved the proposal letting ten employees to move to Canada and Australia in a short while. The relationship became successful because of the trust between the two partners and had created a platform for building new opportunities.mehra states that Besides this, we have seen cultural fit among ourselves, and this has helped us quickly solve any issues that surface, Singer was also happy about the relationship and want Infosys to understand the mining business further 42

43 7.2.Philips partners with Infosys to transform its procurement process using shared service centers: Phillips in the year 2007 chooses Infosys to operate its shared service centers after several rounds of exhaustive capability assessment process. Two years into the operation, Infosys has added value to the organisation using implementing process automation in procurement projects, transactionbased pricing model and leveraging the procurement process to best shore locations thereby reducing the attrition rates.today, Infosys has 1400 full-time employees handling accounts payable and procurement process supporting Philips complicated supply chain network About Phillips: Phillips is one of the pioneers in technologies related to lighting, healthcare and consumer electronics. Philips has its manufacturing operation in 28 countries and has a distribution network in 150 countries. The company has a net income of 659 million euros in 2015 and employs worldwide Business case: In the years 2002 to 2007, Philips operated shared service centers in India, Poland, and Thailand to process its accounts payable and procurement transactions in a more efficient way. These centers supported 400 reporting units In the period of four years, Phillips standardized its process by means of automating the transactional procurement activities and achieved a significant cost reduction. However, shared services center faced significant challenges Lack of technological expertise for procurement innovation projects and process improvements Inability to adapt to the economic changes and currency fluctuations with its inadequate cost structure Lack of confidence among the employees who felt they were not integrated with the core Phillip s organisation Lack of value addition in service excellence due to the shortage of potential labour To increase the business value and to address the challenges, Phillips sold its shared its shared service center to Infosys. Infosys was selected after several rounds of exhaustive capability assessment process. Cost optimization through transaction based pricing Generating value by moving more processes offshore Increasing the service delivery excellence by means of increasing the organisational agility 43

44 Process standardization and automation by means of commoditization and category management Service level improvement by means of streamlining functions and adopting new technologies Restructuring employee engagement with broader career opportunities Solution proposed by Infosys: Phillips relation with Infosys was unique as it controlled 1400 FTEs in three countries.phillips already achieved the benefits of centralization and labour arbitrage, and now it s time for Infosys to make smooth service transition and provide transformational initiatives to enhance Phillip s business values.infosys highlighted the following solution Effective Integration of shared service centers: Shared service center integration was one of the strategic decisions adopted by Phillips.Phillips and Infosys explained their employees about the acquisition provided them with sufficient inputs to streamline the integration strategy.for instance Infosys provided some mock branding shows in Poland and Thailand to teach the corporate values of Infosys. Infosys, India trained the shared services employees on Infosys HR Policies, equipped them with various HR Tools and created an organized platform for senior management interaction Governance model for effective collaboration: Governance model was created at different levels of tactical, strategic and operational levels to understand the responsibilities of Phillip's and Infosys better.it was supported by the Key performance indicators across different levels were developed to determine the performance of ongoing service delivery and scope expansion initiatives. A unique governance model was created by the Phillip s which depicted the shared service function as Shared business services Finance (SBSF).SBSF will now act as Phillip s front end and will manage the procurement outsourcing activities with Infosys as shown Figure 5.Governance model created between Phillips and Infosys 44

45 7.2.6.Framework for Reporting: Discrepancies in the early stage of partnership forced Infosys and Philips to formulate a strong reporting framework to monitor and measure performance.reporting framework was made by Infosys by creating a service level management dashboard for Philips reporting units.the dashboard will act as the KPI for 400 different units measuring its service levels.relationships play a vital role in developing service levels and hence another framework model was created with a dashboard that determines the relationship between various business units Efficient delivery management tools: To enhance the visibility and to streamline the process, Infosys created several workflow tools.the complexity of the delivering process was reduced by means of deploying Operations Excellence Management system and several procurement proprietary tools. Finally, Infosys installed a workflowbased management with Phillip s HR Solution: Employees transferred from Phillips now have a broader career development option being part of a leading BPO organisation. They have the possibility of working with different clients and pursuing other career opportunities within Infosys. Infosys provides a wide variety of opportunities through internal job movement process where they have the option to work for various other business functions which were not the case before. Infosys HR Policy mainly focuses on hiring, developing and retaining the best employee in the market. Infosys rewards their best employees with cash awards for achievements in quality, customer satisfaction, process improvement and team engagement. Overall to meet the challenges of attrition and recruitment lead time, Infosys has adopted a strategy of advance recruitment optimizing the process using an early warning from operations Innovative projects: This is one of the main reason why Philips decided to outsource its procurement process to Infosys.phillips had already gone through its transformations in process stabilization, globalization, and scope improvements before outsourcing it to Infosys. Now it s time for Infosys to take the operation to the next level in the transformation process. A joint Innovation board was set up to monitor the innovation and robust automation based transformations.the core purpose of the team is to interact with the process owners of Phillip s and Infosys. Team also initiates and sponsors process innovation projects that focus on value creation thereby enhancing the efficiency of business functionality and delivery models 45

46 Figure 6.Phillips Transformation Journey Infosys Transformation Objectives: a. Automation: One of the key motto of Phillip s was to leverage supporting procurement technology. Infosys created a detailed framework of a business roadmap for Phillip s procurement operation that will leverage Phillip s procurement tools.infosys and Phillip s jointly committed themselves to jointly monitor the progress of process innovation roadmap based on capital investment and market changes b. Process standardization across shared services center: Infosys has taken further initiatives to standardize the processes across various Phillip s procurement functions.infosys is currently working on commodisation of processes to enable robust automation and further transition of processes to low-cost countries. c. Full leverage of scope: joint partnership in place to increase the extent of this project with the probability of expanding to new services for e.g. logistics, quality management Realization of Business value: Infosys promised several numbers of objectives that will be put forth during the time of acquisition.those objectives are still in progress to ensure continuous improvement and further realization of business benefits for Phillip s. Those objectives were briefly explained below Transaction based pricing: The Transaction based pricing approach was one of the best transformational, innovative project adopted by Phillip s and Infosys. Though Infosys provided the overall framework of transactionbased pricing model during the contract, both the organisations worked together to implement a time-bound transaction based model.this project unleashed an increase in productivity and acted as a gain sharing innovative mechanism. Phillips benefited by means of variable cost model paying according to the number of invoices issued. This mechanism brought major benefits to Phillip s especially in times of decreased volumes and global recession in 2011.On the other hand, Infosys was highly incentivized with enough working capital to run the delivery model. 46

47 Leveraging into best shore locations: To improve the competitive advantage, Infosys moved some procurement processes from Thailand and Poland to global hubs in China and India.It helped Infosys to save additional cost and stabilize the procurement process. Infosys also opened a new center in Brazil to support Phillip s operation in Brazil due to the lack of Portuguese speaking employees in its global centers. Infosys continued to focus on such transitions and analysing the skills based on particular location. Language neutralization techniques were adopted to reduce the language dependency in procurement processes so that the low-cost delivery location can be leveraged Improved Organisational Agility: Infosys has a huge network of clients across the globe which provided them a stronger ability to integrate new acquisitions.transaction based pricing gave Phillip s flexibility to change volumes as per requirement.infosys delivery capabilities and backup options and now become a key to extending new services. The most optimal delivery location was leveraged depending on the cost, skill, and service related considerations. Infosys also has a business continuity plan to leverage new locations in China and India as backups Attrition Reduction: Due to its advanced recruitment techniques, attrition was reduced to a considerable level between Procurement professionals were motivated by the new responsibilities offered to them in various new procurement domains including procurement solutions design, supplier sourcing and customer management Improved Customer Satisfaction: Customer satisfaction was monitored on a monthly and annual basis to calculate the overall satisfaction and capture some feedback across various parameters such as people, quality, technology, etc. Infosys uses surveys and governance calls to capture feedback from its valued customers.infosys believed the firm focus on customer satisfaction is a key factor for consistent improvement in the process.infosys and Phillip s also conducts quarterly partnership health checks to calculate the level of partnership at strategic, tactical and operational levels (Refer Appendix 5.0) 47

48 7.3. GEP Supported Customer with better Compliance Management Process using No-PO-No-Pay Policy Challenge The client s motto was to gain indirect spend visibility and implement better controls and policies through a No-PO-No-Pay initiative Approach GEP was already supporting this customer in Procurement outsourcing who is a consumer products manufacturer. The customer approached GEP India to develop and implement new policies and processes to ensure a smooth transition. The Corporate Strategy team developed a No-PO-No-Pay policy with a consistent supply chain strategy and trained customer teams regarding its implementation. Corporate strategy team also developed a PO approval strategy which was followed by a supplier master cleanup, updating records for current suppliers and setting up related payment terms. The supplier approval policy itself was restructured and implemented. A front desk support was created to enhance the users transitioning to the new policy. Corporate strategy team also worked with the category management team to implement a new supplier set up the process Results Finally, the No-PO-No-Pay policy was implemented across the procurement organisation. The supplier master data list saw over 75 per cent reductions, while automation of PO processes led to over 35 percent reduction in indirect PO transaction costs. Processes were mapped over 15 internal procurement teams, and differences in reductions were identified over time Recommendation Companies are using compliance management platforms to monitor overall service quality to minimise revenue leakage. An efficient approach is to set up a self-sustaining process where dynamic changes to compliance procedures and policies are introduced, based on the final results achieved and feedback received from the external and internal stakeholders. Further, an explicit support from the top management is necessary to enforce these policies at every level to ensure GEP did a supplier maximum compliance Conclusion: The client achieved over 30 percent reduction in indirect PO transaction costs. 48

49 7.4.GEP supported the customer with a customised Procurement Technology Platform Challenges: A highly successful Fortune 300 consumer products manufacturer, with factories in the United States and Puerto Rico.GEP India has been giving procurement services support to the client using a hybrid approach where a part of the non-core process is carried out by GEP and rest by the customer.right from the beginning, The customer had been experiencing increasing regulatory and competitive market pressures that had combined with decreased operating margins restricting overall growth. With nearly $2 billion in procurement spend, the customer had a large internal Procurement department with limited success in identifying cost savings. To help accelerate process transformation, the customer requested GEP to develop and implement a strategic procurement framework that would transform the procurement function from a transaction-based model to a much more strategic, supportive high-value group that will consistently deliver high-cost savings and strong Return on investment. Through a robust procurement consulting process, GEP identified the critical issues that were hindering the customer's sourcing efforts: Poor procurement spend visibility across commodities, vendors, and business segments Inefficient, traditional RFP processes A contract management system that was expensive to maintain and limited in functionality High levels of maverick spending and 'off-po' invoicing Low/no use of e-catalogs for repetitive, simple purchases Solution from GEP: GEP developed a strategic procurement tool that will support phased implementation approach with world-class procurement capabilities and processes that support flexible, highly modular, SaaSbased e-procurement technology GEP Suite 5.0. The overall approach was to introduce new technology procurement modules in a phased approach to maximise the customers ROI. This sequential approach and the benefits that were achieved are described below: The first goal was to create spend visibility through the implementation of GEP's Spend platform to finally get a correct, enterprise-wide view of what they were spending. The customer had already purchased a leading spend management tool but was disappointed with the structure adopted for classification. The category classifications did not provide enough insights to identify real and actionable savings opportunities. 49

50 The GEP approach of spend management was to develop a structure and detailed spend classification that will focus on gaining a business perspective of spend versus the typical accounting view that hindered the real buying opportunities. From there GEP collected, cleansed and categorised procurement spend data from all operating teams.using the GEP Spend platform, the customer chose to replace its traditional tool with GEP Spend platform, and the results started showing. A procurement-focused spend classification to aid procurement teams to plan and execute initiatives such as strategic sourcing and procurement spend management Enhanced visibility and transparency into all of the procurement spend data across all business units and geographic locations Supplier and contract compliance management through detailed spend visibility at the production line item level Enhanced visibility with corporate linkages to rationalise supply-base and efficiently manage supplier relationships Collaborative feedback collection method to improve data quality Ability to plan and manage procurement spend programs Comprehensive results, multi-variant analysis with the capacity to drill-down up to production line item details Strategic Sourcing: Historically, the material sourcing process was manual.the RFP was floated by with scoring done on Excel sheets. This process was inefficient and unstable, and the data-driven was soon lost.the negotiation process adopted was through onsite discussion with suppliers. This was also true for commodities which were suitable for Reverse Auction. With the rapid improvements in the organisation, it became essential that a better way was required to manage the material sourcing process. The customer needed a customized tool to its users. GEP developed the GEP RFx/GEP Auction platform for the customers material sourcing teams and trained them. GEP also loaded commodity specific RFP templates into the customer's tool. 95 % of all new RFP's were floated through GEP tool Excellent review from the material Sourcing teams and suppliers on the functionality and ease of GEP tools Held over 40 auctions within the 1st year with average cost savings of 14% Greater stability through use of customised templates 50

51 7.4.4.Contract Lifecycle Management Before the development of the GEP Contract platform, the customer was using a tool where it was not possible to generate the company's material procurement policies for approvals. Moreover, the contract drafting with internal team members and suppliers were done through the traditional process.gep Contract module for the customers material sourcing and legal teams was helpful in making the contract life cycle much easier 51

52 8.0.Introduction to Procurement Outsourcing: Procurement function is always in a critical area when it comes to core competency. Supplier relationship is considered strategic, and the nature of the supplier relationship may be directly related to the buyer core competencies. Direct strategic Purchases, Supplier selection, and evaluation, will have a strong implication on profits (Zsidisin, 2003).Companies working with just in time and lean methodologies also view procurement integral to core competency so as to ensure better quality and competency.however, some companies are considering procurement as a non-core activity. As procurement function is getting labour intensive with a huge number of part items and hidden costs, Companies are now trying to outsource these activities to low-cost sourcing countries. The consulting firms have profited more with business process outsourcing rather than consulting in the past quarters (cips, 2003). Italian car maker Fiat in association with General Motors has created unified purchasing company for their procurement operations with two agreeing not to use any other procurement platform (Francesco Zirpoli, 2002).Except for supplier selection, Deutsche Bank has outsourced all its procurement activities to Accenture (Accenture, 2015).it is always wise to outsource the less expertise work to an expertise suppliers. It is due to this fact that companies are depending on the low-cost countries for procurement related business process activities. (Glenn Parry, 2006) suggests an initial consideration on how to outsource a procurement function which depends on the factors like client reactiveness, communication with suppliers and internal customers, adaptability of the transferred staff to that environment. It suggests to outsource the third party engineering commodity items which will bring good financial benefits to the organisation which will cut cost to a considerable amount. However, it also explains the loss of control over the supplier performance, cost and legal issues which are a foremost objection to the procurement outsourcing. There is also a significant possibility of the company left to opportunism leaving supplier to take advantage and increasing prices. 8.1.Procurement Outsourcing: Organisations has now outsourced their IT services and have tested and proved offshoring and outsourcing works. Currently, Organisations is focusing on outsourcing their business process that is more transactional and non-core in nature.technological advancements with the aid of the internet and cyber security have made it easy to manage business process throughout the globe. Now it has become a focus area for the senior executives to differentiate and core and non-core process within a business process and outsource to its managed services. Procurement outsourcing, a new area of business, accompanied by the more settled practices like Finance, Marketing, and Human Resources management has gathered a noteworthy consideration 52

53 because of its capability to do a bigger effect in an organisation. This chapter illustrates trends in procurement outsourcing and factors that affect this business spaces explaining its challenges and key advantages. Further, we share a perspective point on how organisations can approach procurement outsourcing and can bring value to the organisation. Procurement may be one of the less focused areas compared to traditional outsourcing. However organisations today are developing consciousness about this developing segment. However, the general misconception is because of these two variables: the profits of procurement outsourcing may be regularly compared with different types of traditional outsourcing and as a territory of decreased operational effectiveness.the concern that forming a center of procurement excellence or outsourcing procurement function, the company might lose the authority over contracting procedures and supplier relationships. Furthermore, it lessens the growth in procurement organisation. Current Economic situations have forced organisations to seek and improve their financial performance. Business process outsourcing has now become a key enabler for streamlining the business process and also supply chain performance.in the recent decade, Procurement Outsourcing is becoming increasingly accepted as an effective strategy for both cost and operational performance improvement. Companies have started to pursue procurement outsourcing by means of incremental approach to be on the safer side and to test and prove the concept works. Senior executives in Procurement have started to focus on Establishing a global procurement policy, process, and system Commodity management and business segment grouping Centralised strategic procurement centre with localised execution Procurement outsourcing as value addition Procurement Outsourcing is similar to a modern day industrial revolution where the company s focus on the key areas such as designing, development, and marketing outsourcing all the component manufacturing to the specialised supplier. Currently, technological innovations started vertically integrated to virtually integrated. In the earlier decades, Procurement operation that is seen as a cost centre has now been seen as a profit centre due to the innovations in the Procurement Process. Procurement outsourcing has given a new dimension to the process making organisations focus on tactical and strategic areas. According to (M.V.Manikandan, 2015) the focus areas of procurement organisations are IT Services enablement for procurement and sourcing 53

54 Focus on Strategic Procurement centre led initiatives A CPO led organisation created for executive level commitment Process standardisation with focus on individual sourcing strategies for individual commodities with respect to spend Special focus on negotiations and Supplier relationship Improved Procurement process using Lean Tools and Six-Sigma Increasing process Visibility across global operations Reorganising Supply base-focus on reduction of Supply base Globalised approach for Cost reduction Strategic Importance of the Procurement department in an organisation is rising due to its ability to improve cost and productivity. Organisations are currently spending nearly 60% of the revenue on procuring goods and services.any cost reduction acquired through negotiation and process reengineering will have an impact on company s profit. Procurement department has now become a to management entity focussing on elevated high performance 8.2.Impact of Technology in Procurement Outsourcing: Innovations in Enterprise resource planning tools and availability of global skills has improved the access for Supplier Database E-Sourcing and E-Procurement have given an entirely new approach to enhanced speed, compliance, monitoring and control over procurement process E-invoicing has enhanced the Supply chain finance visibility Technological enhancements and global skill regarding technology and business process have made organisations look at procurement differently. Leading organisations has now adopted to the recent technologies and standardised the procurement process. Technology has also created an opportunity for senior executives for reorganising the strategy for handling the procurement process. Leading organisations has now fragmented the procurement process and started to identify the core and non-core process for value addition. 54

55 Figure 7.Vertically integrated to virtually integrated (M.V.Manikandan, 2015) 8.3.Definition of Procurement Outsourcing: According to (M.V.Manikandan, 2015), Procurement Outsourcing is defined as a process wherein organisations take a sequential approach to moving some of their supply chain processes around source to pay to a specialist.organisations now try to identify the core and non-core activities in the procurement process and start outsourcing the non-core activities to a specialist. In the recent decade, Procurement outsourcing is classified according to the level of the procurement process that has been outsourced.full outsourcing is where the whole procurement process of the organisation is outsourced to low cost country location. In Incremental outsourcing, the procurement process is transferred depending on the savings and return on investment. This is one of the most commonly used approaches where the organisation takes a calculated risk for outsourcing their procurement function. This method is prevalent as the organisations have the advantage to access the service providers capabilities before outsourcing the entire operation. Finally, Hybrid outsourcing is a mixture where only a portion of the process is outsourced for the purpose of efficient knowledge sharing and process protection. 55

56 Figure 8 Incremental Approach (M.V.Manikandan, 2015) Organisations are now adopting procurement outsourcing as one of their key approaches to improving their procurement performance and process standardisation. Procurement outsourcing has added strategic value to other cost cutting processes. Procurement outsourcing has the capability to deliver 5x potential savings compared to others 8.4.Reasons for Procurement Outsourcing: Main reasons organisations have credited the procurement BPO is their ability to provide Cost reduction and value creation. These two factors play a major role in today s changing economic environment. Procurement outsourcing well suits for companies facing mounting competitive pressure. Organisations with procurement organisation overburdened by huge capital investment may find a solution through Procurement outsourcing Companies can use the cost reduction in several ways.new Innovations can be utilised within the procurement process by self-funding with the savings achieved through procurement outsourcing For e.g. an outsourced commodity management process for particular commodity with an annual spend of 200 million dollars with a savings potential of 10% ($ 20 million) can be used for organisation s initiative of E-Invoicing tool Implementation within the company. This strategy works well for companies that have a huge inbound flow of materials and an unstable process despite huge investments of money and time and for commodities that have stable prices in the market for a considerable amount of time.according to (capgemini.com, 2010) For certain commodities procurement adds no value by doing it itself by outsourcing, you can save money and still deliver the kind of performance that the business expects and needs. 56

57 8.5.Drivers for procurement outsourcing: Procurement Outsourcing Spend vs. Complexity model: According to (M.V.Manikandan, 2015)the procurement outsourcing process from commodity management and process & technology perspective can be analysed by means of below Spend and Complexity model. Each of the areas is analysed according to the core and non-core process associated with procurement outsourcing. Figure 9. Spend vs Complexity model (M.V.Manikandan, 2015) The above analysis clearly depicts the opportunity to move from vertically integrated supply chain to virtually integrated supply chain with 50 % opportunities which are non-core activities. 8.6.Challenges and advantages of Procurement Outsourcing-Indian Market Perspective: Procurement Budget Challenges: Salary level is an important factor why western countries prefer India. Most companies prefer India for their wages.according to (BRIAN FABO, 2015) the median gross salary of India on today s date is rupees per hour(which is less than 4 dollars an hour).the figures are expected to increase 57

58 due to the increase in inflation rate and oil prices but still India will provide excellent cost benefits compared to other western countries. Hence, the salary level will be one of the important factors for evaluating India in the coming years especially in this sector as it requires huge workforce Figure 10 Median Gross Hourly Wage in India (BRIAN FABO, 2015) Procurement Organisations have many constraints regarding delivery capability and lack of resources. In a time of increasing demand, Chief Procurement Officers (CPOs) are often forced to accomplish more with less. Budgetary requirements are also making CPOs look for lower cost solutions such as procurement outsourcing. According to (infosysbpo.com, 2014), Many CPOs have often miscalculated the degree of change management that are required to transform the structure of their teams from the traditional site based buying to one of remote outsources procurement processes. Currently, There is an increasing awareness of how a service provider can provide a better path towards outsourcing. Lastly, in medium-sized companies, senior executives have struggled to obtain funding to reinvent their procurement technology. Most of them have achieved this advantage only through an outsourcing service provider. As stated above low salary wages in India will be a solution to this problem Service Provider Innovation: According to (deloitte.com, 2016)33% of global service providers do not support their innovation.most of the Service Providers in India have made significant investments in their procurement technologies, enhancing their capabilities in increased sophisticated areas such as spend analytics, new procurement innovations like knowledge process outsourcing, contract drafting, risk analytics and value engineering. Some of the services providers have also extended their procurement outsourcing services into supply chain management services such as logistics and inventory management. Service Providers have significant improvements by recruiting superior talents with commodity expertise to improve and sharpen their sourcing services. Lastly, some of the service providers have reinvented their technology platforms to offer better procurement outsourcing solutions which include improved service delivery performance. According to the case study 7.2, Infosys has made a considerable investment in Procurement tools which Phillips can have 58

59 access. Further, Infosys- India is also standardising the process further to achieve better robust automation Figure 11.Issues with Service Providers (Deloitte, 2016) Market: As stated before, Market capacity has increased with new services with higher competitiveness. The entry of new global service providers has always been a challenge to Indian service providers and outsourcing models (Mike, 2013), and has improved the degree of service provider interest to recreate a procurement outsourcing solution that will fit the exact requirements of the customer. Larger Procurement service contracts give more flexible benefits to customers; many customers are looking for ways to improvise the efficiency of their internal organisations. In the current market condition service providers has given a broad range of outsourcing services in terms of spend categorisation, process, and geographical means. This will definitely evolve as one of the main challenges for Indian procurement BPO s in future Economic Improvement: According to (Deloitte, 2016)Cost reduction is the most important priority for the CPO s to sustain business growth in the slowing market. Cost Reduction in procurement sourcing can be achieved and improvised by commodity insights and market visibility. Procurement services providers have an idea of common category markets on an ongoing basis just because they work with a broad range of clients. They can provide real-time insight into market price points paving the way to continuous refinements with the aid of procurement tools and processes specific to each market. Procurement outsourcing, in general, provides a reduction in operational costs of 15-20% by centralisation and standardising the process and human resource resizing. Outsourcing to low-wage countries like India will always give a positive impact on cost reduction. According to Case Study 7.2, Phillips saved millions of dollars by outsourcing the procurement function to Infosys. Infosys, on the other hand, achieved considerable profit by re-engineering the process to India 59

60 Figure 12.Focus of CPO's on Cost (Deloitte, 2016) Service and Capability Improvement: Procurement organisations are often unsupported and controlled by bureaucratic business executives in departments like finance and marketing which make it harder for a new service or product getting implemented. Procurement outsourcing has always been a solution to this supporting new product and service development with the aid of aligned set of bigger service contracts. These services are now measuring the quality of the process both internal and for the client. A parameter like cycle times, satisfaction and key performance indicators are regularly measured to satisfy the project needs. Some procurement BPO s provide their customers with eprocurement tools like erfx, einvoicing, and E-procurement which client cannot achieve internally.according to the case study 7.1, Merging with Infosys, India helped Rio Tinto to streamline the process. Within few weeks of operations, Infosys was able to rectify the issues occurred due to blocked invoices with its previous experiences Human resource: According to (Deloitte, 2016)62% percent of the CPO s responded that their team does not have the proper skill and capabilities to deliver their procurement strategy which was 57% in 2014.A survey also states that the CPO s are not interested in hiring new talents and some of the companies have the training budget of less than 1%.According to (Deloitte, 2016), Lucy Harding said The continued increase in skill gap is worrying.this gap has been getting wider since we began the survey, at the same time as an investment in training is declining.this is a huge missed opportunity for a procurement function since the board room door has never more open to the profession. The skill gap in many cases is around broader business acumen rather than technical procurement competence.the next generation of CPO s will need to demonstrate a high degree of learning agility to tune into the mood of their business stalk holders. If the procurement function fails to invest in 60

61 such areas of development, companies will increasingly populate the procurement organisation from other sectors across the supply chain and beyond as they become disappointed with the talent available to them.collectively, steps need to be taken now to attract, train and retain the next generation of leaders for which the benefits will only come through in the medium term.it will be very disappointing if the results of the 2016 survey continue to show the gap widening and a similarly low level of investment in training. The access to qualified Human Resource is one of the primary reason that has made India one of the pioneers in the field of business outsourcing. India offers a vast pool of skilled labours with excellent English skills and technical expertise. Every year, millions of engineering students pass out of engineering colleges in various sectors. In addition to that, there are several vocational and post graduate colleges providing skill based training in one particular sector.additionally, the Indian training framework in schools gives students a solid knowledge of arithmetic and science which has further improved the reactiveness making them fit for IT, Engineering and business related jobs. Ultimately this is one of the major contributing factors why India has been chosen as the destination for IT and BPO outsourcing. However procurement outsourcing being a new field this function is getting a shortage of skilled workforce due to the lack of graduate programs and skill based learning centre.according to (Krishnan, 2016) interview respondent Every company is using its enterprise resource planning tools whenever a new resource is hired it gets some time for them to adapt to the system. Figure 13.Talent status on Procurement Organisation (Deloitte, 2016) Languages: Centuries of British colonisation and the domination of English language in the media and communication has contributed to widespread use and knowledge of English in India. This is a 61

62 valuable tool and is often considered to be India s strength in dealing with foreign cultures mostly in a business environment. Nearly 90% of the college graduates are proficient in English, and this is one of the big differences in comparison with other Asian countries like China, where they lack English skills. Unlike other countries, multinational companies have an added advantage as they can focus on other technical areas rather than teaching English.however this clear communication has also created a problem when working with other cultures. According to (Magdirila, 2013), Indian people have a unique accent which other cultures find it hard to understand. Cross-cultural communications is an essential element when it comes to procurement outsourcing as it involves several negotiations for a single procurement transaction. Multi-national companies in India can try to outsource projects according to language capability that will bring value to both parties.further, to be in the race, it has to build multilingual resource network.in Hewlett-Packard s Wroclaw center at a total of 26 languages are spoken and is capable of serving European, African, and Middle Eastern operations (Helyar, 2012). (Michael McDaniel, 2016) Quoted that Indian have a good fluency but the sensitivity of the language changes in comparison to America and Europeans.In America, it is YES or NO Concept but in Asian countries like India Yes means YES only when it s said without hesitation. We sometimes find hard to interpret Infrastructure: According to Case study,7.4 GEP India supported the customer with better procurement technology. Service provider developed and implemented a technology platform for strategic procurement framework that transformed the procurement function from a transaction-based model to a much more strategic, supportive high-value group that consistently delivered high-cost savings and strong Return on Investment.Indian technological framework has made India one of the top outsourcing destination. Different Factors including innovation parks creation, telecom arrangement advancement, and tax breaks, have brought about large development and change in the business sector mostly into the outsourcing sector. In the telecom area, the Indian government has taken a few initiatives to liberalise the telecom policy, and the privatising telecom administrations have given multinational companies a huge advantage. The government is also investing in internet based technologies to empower the IT Sector much better. According to (Deloitte, 2016) nearly 40% of the CPO s doesn t have a clear digital strategy. Digitalisation is essential for any Procurement outsourcing function to work from the remote successfully.according to (trade.gov, 2016)there is a going to be huge investments on cloud services market in India which will almost reach 2 billion by the end of this decade. Further, the IT developments in India will be supporting hand for the procurement technology in the years to come According to (forbes.com, 2005) Dan Scheinman, senior vice president of Cisco Systems said We originally came to India for the low cost. We stayed because of the quality, and now we are investing because of the innovation.he also added that the 62

63 country is producing an incredible number of engineers who are building some of the world s most advanced networks and applications, Figure 14.Infrastructure status (Deloitte, 2016) Government Policies: Indian government recognized IT/ITES one of the potential areas and made it a top priority in the earlier stage. Hence the government drafted policies and initiatives to attract the multinational companies which would bring maximum benefit to the companies. Particularly in the beginning of nineties the 108 action plan by the national IT task force has enhanced the security and accessibility of the multinational corporations (it-taskforce.nic.in, 2000).this was further strengthened by the Information Technology Act in 2000 which gave multinational corporations a legal framework to electronic filing of documents and contracts (aicte-india, 2000). Investments made by the government in Tidal parks also made a positive impact on the Indian IT sector. The government also supported the software and ITES companies especially the ones started in India with funds required for developing the business (sidbiventure, 2000).The funds helped the companies to grow both in the domestic and international market. In the current scenario, region specific IT/ITES policies have created to attract the investments in a particular area (Gujarat, 2016).This has increased a sense of competition among the Indian states making them liberalise their IT/ITES policy (politainment, 2016).Currently, Government is currently supporting start-ups which include IT/ITES start-up as well (Harsimran Julka, 2016).These government policies and initiatives will create a positive environment for the IT/ITES Industry in the years to come which include procurement outsourcing as well Productivity: According to (Suman Modwel, 2010),there is an overall increase in the productivity of the BPO sector despite labour resources and capital were constant for a particular amount of time.a survey was conducted between a big six firms including three big companies from Bangalore by using total factor 63

64 productivity approach looking at the output trends, working capital, and labour wages.the survey showed positive feedback with increasing overall productivity. Further, the Indian BPO Companies hire only qualified colleges with the prerequisite skills needed for the industry is one of the main reason for the productivity improvement.finally low salary level and the adaptability to work 24/7 makes an Indian resource more cost effective compared to other western countries. (Deloitte, 2016) also, states that the Asia Pacific region has a team effectiveness of 81% in which India is a major contributor. (Michael McDaniel, 2016) Also said that Indian are highly qualified and productive compared to other nationalities. They have some excellent skills in clerical work associated with procurement e.g. Purchase order process, NDA process, etc. Figure 15.Team Effectiveness across the globe (Deloitte, 2016) Culture: Cultural factor is one of the serious factors that has to be considered before procurement outsourcing. Unique Indian culture is always a disadvantage for business process outsourcing partnership. Though they share same English language for corporate communication, the way they understand and interpret much different from other cultures (Morgan Hartley, 2012).Moreover, also India is a land of different culture and language with each cultural class have certain differentiation which is impacted in the business environment as well.further Indian culture does not permit women to work in the night. It is one of a prerequisite as far as procurement BPO s concern.according to (ihdindia, 2014)Indian women are disadvantaged in labour market and has the lower share in the Indian job market due to the cultural factors. Further, the way Indian view negotiations are different.according to (Kobayashi-Hillary, 2005) Western business people are beginning to understand that in India the negotiation concept is seen as a win-lose situation as against the western concept of a win-win situation. However, they find that Indians are flexible. They will accept losses if that means future gains. Indians focus on developing relationships, rather than just completing a deal quickly and efficiently. This will have a considerable effect on negotiations related to procurement. (Michael McDaniel, 2016) Also stated that Customer Intimacy is a key to a better relationship in procurement. Indian way of bargaining makes them poor negotiators. 64

65 Risk management: Consideration of risk in procurement is increasing. According to (Deloitte, 2016),25% respondents expressed their concern for geopolitical risk associated with procurement. With civil, Struggle and diseases, procurement risk has undoubtedly increased to a considerable level. According to (Deloitte, 2016)Ian Stewart said What stood out for me is the acknowledgment of geopolitical risk amongst CPOs. this aligns with sentiment across other C-level executives, and recognises what we do feel are heightened levels of geopolitical uncertainty. Figure 16.Global Risk management status (Deloitte, 2016) Risk management is one of the important key areas to be considered for procurement outsourcing in India. The geopolitical risk associated with India is minimum but on the other hand threats related to information technology and corporate management in increasing.according to (IRS, 2014)Corruption, Bribery and Corporate frauds top the India Risk Survey which includes frauds in IT/ITES sector. According to (ey.com, 2011) Two employees of a Bangalore-based technology company were sacked for allegedly showing preference to certain vendors/service providers and demanding favours from certain other vendors instead of the timely processing of their invoices/bills and the renewal of contracts. Adding to the corporate frauds, Information and cyber insecurity in IT/ITES sector also leads the risk graph in India which will be one of the major threats for procurement outsourcing in future 65

66 Figure 17.India's Overall Risk management status (IRS, 2014) Figure 18.Risk Ranking-IT/ITES (IRS, 2014) Time zone difference: The equatorial presence gives India a geographic advantage over western spots in time zone differences. Time difference between India and US is 12 hours. This gives India a geographical advantage to work on projects on a 24/7 basis. One of the interview respondent (Krishnan, 2016)said our company operates in two shift I take care of the night shift and buyer from American site take the day. We run MRP twice a day and create purchase orders.time zone difference makes us align the process without overlapping. (Michael McDaniel, 2016)also confirmed that they do not face any issue with Time zone differences in India. However, Time zone difference does not give a significant advantage to European countries. The difference between Europe and India is 4 hours. However, in certain times its helps in better alignment of the tasks with the parent organisation. 66

67 Compliance management: In Procurement outsourcing, Compliance management plays a vital role as it incurs a huge amount of money. Compliance management can be defined as a holistic, connected methodology designed to protect and enhance business value by fostering a regulatory risk-aware culture (risk.thomsonreuters.com, 2014).Regulatory enforcements in India has suddenly catapulted the need for compliance teams to the top of the board. According to (deloitte.com, 2015),62% of the organisations in India has a chief compliance officer which is an excellent sign in comparison with the 70% of the global organisations.in the meantime, 24% of the respondents said there is no technology installed for to capture the conflict management in comparison with 16% of international counterparts. (Michael McDaniel, 2016) stated that Indians are known their Integrity, yes they comply with our Procurement policies. According to Case Study,7.3 GEP India was able to develop and implement new policies and platforms to enhance the compliance management process Figure 19.Status of Indian Compliance management (deloitte.com, 2015) 67

68 9.0.Conclusion: The main theme of the thesis is to determine the advantages and challenges of procurement outsourcing to India and comparison of main advantages compared to other developing countries. This study briefly described the growth and some associated problems of the procurement outsourcing segment industry. Procurement outsourcing industry has now been viewed as the primary engine of the outsourcing of other supply chain functions related to procurement.it all started with the indirect procurement outsourcing that paved the way for other functions related to logistics and production. Other developing countries such as, Malaysia, Indonesia, China, Mexico, Brazil and others may be trying their best to recreate India's phenomenal success in procurement outsourcing sector, but as stated above, only limited success has been achieved for now. India is a land of manufacturing firms. Procurement professionals in India have a clear vision what happens inside a manufacturing industry. This help them to understand the purchasing process very easily. However, this is not the case with nations like the Philippines where they lack manufacturing operation. The outsourcing firms have a higher transition period with these countries when compared with India.This is the case with recent innovative technologies as well.for e.g. Tech giant IBM IS now focusing on the Indian market for its artificial cognitive platform WATSON considering factors such as skilled talent pool and updated technology (PTI, 2016). According to (Maltaverne, 2016),the future of procurement is going to be cognitive with artificial intelligence playing a major role. (Clinton, 2016) states the artificial intelligence will play a fundamental role in, managing supply chain risks, identifying new markets, tracking exchange rate volatility and finding the best value without compromising on quality. This is one of the reason these countries are finding it difficult to match India's success story. With Indian IT/ITES companies are now stepping up investments in procurement outsourcing, there is a huge benefit for the existing service providers to leverage their global expertise and help Indian organizations to strategic advantage. India s technological infrastructure development platform is expected to transform to the next level in years to come, driven by the government s massive investment on over USD 1 billion in investments ( ) on infrastructure development. According to (Sengupta, 2016)GST implementation has forced Indian companies to invest in enterprise resource tools as it affects the tax rate. This will benefit procurement outsourcing indirectly in way that it will increase the skilled ERP procurement professionals in Indian business ecosystem IT/ITES service providers have understood that the capabilities and factors that made them market leaders in the past.the shift is taking place, and the firms are restructuring existing capabilities, developing new ones, strengthening their relationships with upstream partners. As mentioned in the Case Study 7.2, Infosys India created an effective recruitment model to control attrition which was 68

69 used in other streams of IT/ITES industry.in the later stage, it was incorporated with procurement outsourcing as well India has already established itself as a pioneer in IT/ITES and hence extending to innovations like procurement outsourcing will not be a significant hurdle. Becoming a global leader in Procurement outsourcing will help India in developing a centre for excellence in global supply chain management.as stated above, India s strength lies in its large pool of skilled workforce available at low cost. The employability factor of a vast number of graduates produced from our system is also an issue which requires attention. Both issues of quality and quantity of technical workers need to be looked into. Care should be taken to provide holistic education, which imparts proper values, analytical skills, and learning. Specialization courses at postgraduate level for these areas should be developed. From the industry side, proper steps should be taken for retention of talented knowledge workers. The impact of market changes on Procurement Outsourcing should also be assessed periodically as economic stability, and infrastructure is developing in many underdeveloped countries. India has a global advantage in IT/ITES outsourcing. Care should be taken so that our global advantage is not reduced. If the above-discussed challenges addressed in the proper manner, India will retain its supremacy with its human capital and emerge as a world leader in procurement outsourcing The first step, therefore, is to take non-core procurement processes to smaller towns/suburban regions in a substantial manner, where a significant proportion of the population lives. For the industry point of view also, smaller towns are cost-effective and have better developmental potential. Policy makers, therefore, should facilitate the development of smaller towns as procurement BPO hubs through technology parks, infrastructure, etc. Rural BPOs have motivated the entrepreneurial spirit of many in India and surely created a buzz in the outsourcing industry. A second important recommendation would be to train the IT/ITES employees in different languages and culture. This will be helpful in gaining new businesses especially from the European regions. The challenges mentioned above can be carefully addressed to make greater developments in procurement outsourcing in India 69

70 References 123employee.com, employee.com. [Online] Available at: accenture.com, accenture.com. [Online] Available at: w /us- en/_acnmedia/accenture/conversion-assets/dotcom/documents/global/pdf/technology_2/accenture- Retai-BPO-Book.pdf Accenture, Accenture. [Online] Available at: aicte-india, [Online] Available at: ameykantak, [Online] Available at: apranjeestates.com, apranjeestates.com. [Online] Available at: atkearney.com, On+the+Eve+of+Disruption. [Online] Available at: atkearney, The Rising Stars in IT Outsourcing. [Online] Available at: d1-3d84-4a12-a5be-e0162b3fa73c Bhimrao Ghodeswar, J. V., Business process outsourcing:an approach to gain access to world-class capabilities. BRIAN FABO, B. V. K. J., /Monster-Salary-Index-Jan2015.pdf. [Online]. capgemini.com, [Online] Available at: Managing_Indirect_Spend.pdf ceopedia.org, ceopedia.org. [Online] Available at: ceopedia.org, ceopedia.org. [Online] Available at: 70

71 Chamberland, D., IS IT CORE OR STRATEGIC? OUTSOURCING AS A STRATEGIC MANAGEMENT TOOL. IS IT CORE OR STRATEGIC? OUTSOURCING AS A STRATEGIC MANAGEMENT TOOL. cia.gov, [Online]. cips, cips. [Online] Available at: Clinton, N., spendmatters.com. [Online] Available at: data.gov.in, [Online]. dazeinfo.com, [Online]. deloitte.com, www2.deloitte.com. [Online] Available at: deloitte.com, [Online] Available at: hhttps://www2.deloitte.com/content/dam/deloitte/nl/documents/operations/deloitte-nls&o-global-outsourcing-survey.pdf Deloitte, Deloitte's 2014 Global Outsourcing and Insourcing Survey. [Online] Available at: Deloitte, [Online] Available at: dot.gov.in, dot.gov.in. [Online] Available at: entrepreneur.com, entrepreneur.com. [Online] Available at: ey.com, [Online] Available at: FILE/Fraud_risks_in_IT_ITeS.pdf forbes.com, [Online] Available at: Francesco Zirpoli, M. C., The nature of Buyer-supplier relationships in co-design activities. 71

72 G.Balatchandirane, [Online] Available at: Glenn Parry, M. J.-M. G., Outsourcing engineering commodity procurement. goldmansachs.com, [Online]. Gujarat, G. o., [Online] Available at: 0ITeS%20Policy%20( ).pdf Harsimran Julka, M. C., [Online] Available at: Helyar, J., [Online] Available at: [Online] Available at: ihdindia, [Online] Available at: indianexpress, indianexpress. [Online] Available at: infosysbpo.com, [Online] Available at: infosysbpo.com, infosysbpo.com. [Online] Available at: infosysbpo.com, [Online] Available at: IRS, [Online]. it-taskforce.nic.in, [Online] Available at: John K.Halvey, B. M. M., Business process Outsourcing. s.l.:s.n. 72

73 Kobayashi-Hillary, M., Outsourcing to India,The Offshore advantage. s.l.:s.n. Kowalczyk, D., study.com. [Online] Available at: Krishnan, K., [Intervista] (October 2016). Krstić Bojan, E. K., BUSINESS PROCESS OUTSOURCING As a tool for Improving enterprise efficiency. M.S. Sandeep, M. R., Social innovations in outsourcing: An empirical investigation of impact sourcing companies in India. M.V.Manikandan, Wipro BPO. [Online] Available at: Magdirila, P., [Online] Available at: makeinindia.com, [Online] Available at: Maltaverne, B., Hello Computer: The Future of Procurement is Cognitive. [Online] Available at: Michael McDaniel, S. M. D. A. B., [Intervista] (13 October 2016). Mike, [Online] Available at: Mittal, R., [Online] Available at: MWWZ html money.cnn.com, [Online]. Morgan Hartley, C. W., [Online] Available at: nasscom.in, nasscom.in. [Online] Available at: Nasscom, Nasscom. [Online] Available at: 73

74 nibusinessinfo.co.uk, nibusinessinfo.co.uk. [Online] Available at: optimusinfo.com, optimusinfo.com. [Online] Available at: optimusinfo.com, optimusinfo.com. [Online] Available at: outsource2india.com, outsource2india.com. [Online] Available at: outsource2india.com, outsource2india.com. [Online] Available at: outsource2india.com, outsource2india.com. [Online] Available at: outsource2india.com, outsource2india.com. [Online] Available at: outsource2india.com, outsource2india.com. [Online] Available at: Panda, A. K., Business process outsourcing:a strategic review on Indian perspective. Pokharel, S., cnn.com. [Online] Available at: politainment, [Online]. Praveen, S., Knowledge Process Outsourcing (KPO) India. s.l.:s.n. PTI, India is a very important market for Watson: IBM. [Online] Available at: pwc.in, pwc.in. Issue Rai, S., techrepublic.com. [Online] Available at: research-methodology.net, [Online]. risk.thomsonreuters.com, risk.thomsonreuters.com. [Online] Available at: 74

75 roseindia.net, roseindia.net. [Online] Available at: Rowley, J., Using Case Studies in Research. Using Case Studies in Research. Sengupta, S. D. &. D., GST may force Indian companies to upgrade IT infrastructure. [Online] Available at: sidbiventure, [Online] Available at: Simona D Antone, J. B. S., When purchasing professional services supports innovation. Stanley J. Paliwoda, S. S., Globalisation through the kaleidoscope. streetdirectory.com, streetdirectory.com. [Online] Available at: Suman Modwel, T. J., Productivity of India s Offshore Outsourcing Sector:Business-based Evidence. tamilnadugim.com, tamilnadugim.com. [Online] Available at: TechNavio, researchandmarkets. [Online] Available at: s tholons.com, tholons.com. [Online] Available at: tholons.com, tholons.com. [Online] Available at: timesofindia.indiatimes.com, timesofindia.indiatimes.com. [Online] Available at: GDP/articleshow/ cms timesofindia.indiatimes.com, timesofindia.indiatimes.com. [Online] Available at: trade.gov, [Online]. tradingeconomics.com, tradingeconomics.com. [Online]. 75

76 un.org, [Online]. VENKATRAMAN, L. L. A. N., Determinants of Information Technology Outsourcing: A Cross-Sectional Analysis. webel-india, webel-india. [Online] Available at: worldometers.info, worldometers.info. [Online] [Online] Available at: [Online] Available at: [Online] Available at: [Online] Available at: Zainal, Z., Case study as a research method. Case study as a research method. Zsidisin, G. A., Managerial preceptions of Supply Risk. Journal of Supply Chain Management; Winter 2003; 39, 1; ProQuest Central. 76

77 Appendix 1.0 List of Figures: Figure 1.India path to 2050 (goldmansachs.com, 2003) Figure 2.Comparison of India, China and Mexico (atkearney, 2014) Figure 3.Comparison of Malaysia, Philippines and Poland (atkearney, 2014) Figure 4.PEST Analysis to determine the Challenges and Advantages of PO in India Figure 5.Governance model created between Phillips and Infosys Figure 6.Phillips Transformation Journey Figure 7.Vertically integrated to virtually integrated (M.V.Manikandan, 2015) Figure 8 Incremental Approach (M.V.Manikandan, 2015) Figure 9. Spend vs Complexity model (M.V.Manikandan, 2015) Figure 10 Median Gross Hourly Wage in India (BRIAN FABO, 2015) Figure 11.Issues with Service Providers (Deloitte, 2016) Figure 12.Focus of CPO's on Cost (Deloitte, 2016) Figure 13.Talent status on Procurement Organisation (Deloitte, 2016) Figure 14.Infrastructure status (Deloitte, 2016) Figure 15.Team Effectiveness across the globe (Deloitte, 2016) Figure 16.Global Risk management status (Deloitte, 2016) Figure 17.India's Overall Risk management status (IRS, 2014) Figure 18.Risk Ranking-IT/ITES (IRS, 2014) Figure 19.Status of Indian Compliance management (deloitte.com, 2015) Figure 20.Global Shared Services Location Index (atkearney.com, 2016) Figure 21.Performance matrix of different countries in IT/ITES Figure 22.Performance matrix of Indian Cities in IT/ITES Figure 23.CPI Scores of different locations (Infosys)

78 Appendix 2.0 Figure 20.Global Shared Services Location Index (atkearney.com, 2016) 78

79 Appendix 3.0 Figure 21.Performance matrix of different countries in IT/ITES Appendix 4.0 Figure 22.Performance matrix of Indian Cities in IT/ITES 79

80 Appendix 5.0 Figure 23.CPI Scores of different locations (Infosys) 80