Conditions ripen for global outsourcing

MULTINATIONAL companies are increasingly outsourcing across international borders. According to analysts, Slovakia is a good target for outsourcing, thanks to its highly qualified, low cost labour and its favourable business environment.

MULTINATIONAL companies are increasingly outsourcing across international borders. According to analysts, Slovakia is a good target for outsourcing, thanks to its highly qualified, low cost labour and its favourable business environment.

Outsourcing is increasingly necessary for large companies operating in developed countries that need to keep costs low to maintain their competitive edge.

Daniel Scheber, a manager at Accenture, one of the world's largest management and technology consulting firms. explains how economies of scale benefit suppliers and vendors:

"Economies of scale allow strategic outsourcing vendors to invest in the very best technology and to spread the cost over a number of customers, providing clients with access to the best personnel resources, technology and systems that would not otherwise be a wise investment for a single company," Scheber told The Slovak Spectator.

Relationships between an outsourcing company and their clients are often long-term, lasting 10 years or more.

Outsourcing is becoming more important for small firms as well, including those in Slovakia. Local companies that fall into the small- and medium-sized enterprise category are starting to outsource to increase quality and reduce costs, just like the big firms.

Outsourcing enables companies of all sizes to use world-class capabilities and technology, improve the processes via centralization and standardization, and free internal resources. When those services are based out of countries with low overhead, the benefits are even greater.

Just as Slovaks are interested in outsourcing, foreign companies are interested in setting up outsourcing facilities within Slovakia.

There is large market potential for outsourcing, specifically in regions with highly qualified, cheap labour. Multinational companies tend to use international outsourcing because they can get similar quality services for a lower price. Companies expanding into new markets are looking to cut costs as well.

Scheber says international outsourcing recorded a boom in the last decade. "The trend is supported by globalization, the interconnection of markets, advances in IT, the integration of countries in economic alliances (mainly in Europe), and removing barriers in commerce and mutual relations."

International outsourcing is an opportunity for those countries capable of offering what multinational companies are looking for. In this regard, Slovakia, is competing with its neighbours - V4 countries that attract outsourced activities.

According to Peter Škodný, a managing director at Accenture's Bratislava office, Slovakia has favourable costs compared to its neighbours, a good economic and tax environment, a quality telecommunications infrastructure, geographical proximity to most of European centres as well as highly educated labour, making it an ideal place for outsourcing centres.

International outsourcing is generally a win-win for both the host country as well as the client company: A company is able to secure its competitiveness while the country increases employment and attracts investments with higher added value.

However, from a long-term view, Slovakia should position itself as a provider of added value, since companies will be tempted to move outsourced activities to another country where conditions appear better.

"It is likely that in some types of outsourcing, there will be pressure to move outsourced processes to cities/countries with lower costs (especially labour). That is why it is important for countries - destinations for outsourced activities - to increase the share of added value on provided services," Scheber said.

According to Scheber, Slovakia should focus on higher added value activities, which means building centres with complex services where the low-cost labour factor would not be the only draw. He gave software solution development and IT maintenance as examples. According to Accenture, Slovakia is already becoming an important provider of financial services as well as information technologies. International outsourcing has its critics, however.

"We have witnessed a negative perception of international outsourcing and political efforts have been made to limit it. In the US in 2004, for example, outsourcing was a topic of discussion during the presidential elections. Sometimes there are other reasons [besides losing jobs at home] used against outsourcing: a risk losing control of the company's activities, for example," Scheber explained.

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