Global Outsourcing Helps Service Sector Firms - By: Dr. Joe Greco

Global outsourcing has many benefits with cost reduction a frequent catalyst that causes firms to examine offshore options. This introspection encourages many firms to first look at their manufacturing locations and processes. While most types of manufacturing can be outsourced offshore, service and software industries have also benefited from offshore outsourcing.

One example of a non-manufacturing company to benefit from outsourcing is HireRight, Inc., a privately-held employment screening vendor headquartered in Irvine, California. They have been able to obtain greater output at a lower cost, thus significantly improving their financial position.

They are one of the largest Internet-based independent screening providers focusing on employment background screening. This includes drug and health screening, along with employment and educational verifications as required by the customer for large and mid-size organizations. Their customers have offices around the globe including major markets in North America, Europe, Asia-Pacific and the Middle East, and selected markets in South America and Africa.

The main obstacles that needed to be addressed revolve around language and communication, expectations of contracted work, and cultural differences, yet they have made outsourcing a significant part of their production solutions and is currently enjoying partnerships with Estonia, Russia and India.

They has a subsidiary in Estonia which does product testing and design. Moscow, Russia also produces modular components of the proprietary software to be used. For both locations, components of the software which are sensitive or security related are only produced or put together in the U.S. Therefore, intellectual property is also kept within United States borders.

India is where most of the outsourcing occurs, since they do the bulk of the background research. The selected vendor employs approximately 150 employees dedicated specifically to HireRight, so there is priority placed on the timeliness and quality of the work. The type of work outsourced to India is considered entry-level (and compensated as such) in the U.S., but the employees in India are college-educated. All calls that need to be placed for further verification are routed back to the U.S. and made by the U.S.-based employees. This helps minimize any language biases and poor communication between employers and applicants.

A huge bonus for the firm and their subcontractor is that the Indian CEO has experience with U.S. business and economy which helps all parties to understand the issues. Even so, occasionally problems have come up relating to production output quality and/or speed. This requires renewed communication efforts and renegotiated contracts, to keep output quotas and quality standards in place. Sometimes, a penalty clause is written in to help emphasize their expectations. Communication is a key factor in making outsourcing work.

Other issues with India have a great deal to do with the Indian culture. High turnover has been a problem with their subcontractor because most of the employees are women. This is related to the Indian culture where women live with their families until they are married and then they rarely work. Adding to this issue, the subcontractor works U.S. business hours, which is basically the middle-of-the-night in India. Indian families are uncomfortable with their daughters, wives, and mothers commuting during those hours

They believe that that reason why most of their competitors do not outsource is due to the fear of the unfamiliar. This could be the perceived lack of control, cultural issues, fear of what customers will think, fear of the unknown, and the cost of starting up an outsourcing program. Another reason that some companies don’t consider outsourcing relates to loyalty to the American worker. They fee that the American unemployment rate is at an all time low and any displaced workers would certainly find work in the fast-growing retail sector.

This is a good example of a company that has found great benefits in global outsourcing. Not only are they able to meet their customers’ needs of quality service a very competitive price, these outsourcing partnerships are allowing them to conduct business and sell in over 200 countries.

About the Author

Dr. Joe Greco is Director for the Center for the Study of Emerging Markets (CSEM) located in Fullerton, California. As part of the College of Business and Economics at California State University, Fullerton, CSEM was established to promote the flow of global information and technology between the academic and business communities. In particular, CSEM studies offshore outsourcing and it economic and cultural impact on US based emerging markets. You may contact Dr. Joe Greco at 714-278-2375 or http://www.csem@fullerton.edu

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