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.