Firms stay competitive by outsourcing
Firms stay competitive by outsourcing
The Nation, Asia News Network, Bangkok
It is a relatively a new game in town. The pace has gathered. Some Thai bankers are alarmed, and so too are policy-makers in charge of national competitiveness. Thailand is again one step behind in the global knowledge and services economy.
There is growing evidence of multinational companies, with branches in Bangkok and elsewhere around the world, consolidating their back-office operations by outsourcing them either to India or Australia with a great deal of success.
The back-office work is an everyday corporate thing. It can range from accounting, documentation, financial claims processing and payroll processing to credit-card scrutiny and auditing.
The medium is the English language. The means is telecommunications, which in terms of cost are hitting new lows every other day. The mantra of outsourcing is being embraced by companies fighting to keep costs down. And it is a chance for India to show it is more than just the lower-end call center which has formed the early wave of the business.
And we should be worried?
Yes; some Thai bankers and business executives point to the previous cost competitiveness of international banks or international credit-card companies such as Citibank and American Express, which have huge back-office operations in India. This endeavor has now extended to companies such as GE Capital, which is running Central Department Store credit-card operations (which it owns) out of Australia.
Bank of Ayudhya has also outsourced its credit-card business back-office operation to GE Capital's Australia branch with its latest know-how in auditing, monitoring and scrutinizing credit- card applications and processing.
Some bankers plan to take up the issue with the Bank of Thailand. Their worry is that the value-added services that have previously been "local" and done by Thais are under threat. Jobs are being lost or not being created despite the boom in consumer spending. But some bankers are not so concerned.
"There is little we can do. They [the outsourcing posts] are also offering services at competitive costs," said one.
And outsourcing is a business that is set to grow and become more competitive as the cost per unit consequently continues to fall.
Back-office outsourcing savings can have a big impact on a company's earnings as business administration can account for up to 20 percent of costs, Ramesh Vangal, chairman of start-up BPO firm Scandent Networks, told Reuters.
General Electric, which already has a 10,000-plus-staff back- office outsourcing set-up in India, is also reportedly expanding.
Others setting up or expanding include container shipping company P&O Nedlloyd, Dutch groups ABN Amro NV and ING, Agilent Technologies, Cap Gemini Ernst and Young and American Express.
The Thai government has recently cut corporate income tax for international firms to set up regional headquarters in Bangkok and provide international services.
Some firms have started to respond, such as Associated Press, which moved its regional copy-editing center from Tokyo.
Some manufacturers, such as American Standard Co, are mulling a regional R&D center in Bangkok to take advantage of the new tax. But these are not expected to create a significant number of local jobs.
The government is now looking to spend a pool of funds left unused from the Bt58-billion central spending budget in fashion design, branding and marketing of products from small and medium- sized companies.
The national versus global competitive rat race continues.