Findings from research studies indicate that there has been a significant growth in ofshoring in the past few years due to advancement in IT and transportation network. Contracting the activities of business enterprise to a foreign provider has been in practice for several decades. The practice has realized significant gains in recent times. It has been propagated by various factors such as advanced technology, competitive and monetary pressures to reduce operational cost and improve productivity. Substantial economic impacts have been attained due to the development and increased dissemination of IT. The developments have increased the potential of offshore activities by opening new markets nationally and globally. The study indicates that Nordic firms outsource their ICT service to third-party handlers from nations like India. Nordic firms embrace outsourcing due to the need to improve efficiency, reduce cost, and access specific expertise and knowledge. Despite the benefits, if outsourcing there is several risks associated with the practice such as creation of uncertainty, loss of knowledge and control, and dependence on external service provider. The impact of the risks can be managed through appropriate mitigation measure.
Key words:
offshoring, outsourcing, Nordic firms, third-party handlers, ICT services, risks and benefits of outsourcing.
Outsourcing of Accounting Department from Sweden To India
I. Introduction
There is an increased number of findings on the rapid expansion and growth of offshoring. Most importantly are the estimations that were brought forth by Forrester. Although this deliverable fails to outline a summary of the various types of summaries, most of the previous studies centered on offshoring tend to appear to outline an indication of an increment in the extent of internationalization (Houseman, Kurz, Lengermann, and Mandel 2011, p. 112). Regardless of the high number of accounts on the subject, there are a lot of difficulties associated with getting a clearer depiction of the offshore outsourcing effects on particular subjects.
Contracting out any given business enterprise's activities to a foreign provider has however been practiced for decades now. Hence, offshoring is not such a new idea per se. Nevertheless, it has gone into a relatively new stage as it rapidly gains significance in the recent memory (Kirkegaard 2008, p. 374). This alteration in the structure has continued for a period of time now and is basically attributed to interplay of three key factors: advancements in technology, competitive and monetary pressures to have the operational costs reduced and ensure improvement in the productivity, and institutional advancements that favor trade liberalization (Dossani and Kenney 2007, p. 775).
Technological advancements have led to a considerable reduction in the costs of transportation, but more significantly, development and increased dissemination of IT have brought with it substantial economic impacts. This is visible through transforming of processes of work, structures in the organizations coupled with the way we carry out our communication (Aspray, Mayadas, and Vardi 2006, p. 6) Majority of the economy have experienced digitization which has made it easier for businesses to carry out their activities in wholly new and modern ways, as well as in relatively larger distances. The end result has been opened potentials of trade in a number of services considered not-tradable from the traditional perspective and stirred an expansion in the potential in activities of offshore facilitation through an opening of newer markets both globally and nationally (Bhagwati, Panagariya, and Srinivasan 2004, p. 98).
The significance of the study
Offshoring of services became rampant during the 80s and 90s when tasks having relations to consumer services could be contracted out, but has continued to experience a rapid expansion and now spans to engineering, and other related tasks that require highly capable human capital (Kirkegaard 2008, p. 378). As a result of the high level of services sector present the Western economies, and expanding range on the workflow that showcases offshore potential, the amount of job opportunities that have a potential of being affected by the particular channel is of a substance. Hence, this subject has gained a substantial political charging with time (Jensen 2009, p. 184).
The terminology “offshoring” always have a closer association with “outsourcing” nevertheless, neither of them infers the other (Olsen 2006, p. 5). Whereas outsourcing makes a reference to jobs and business processes being relocated to some external provider without considering the location of the provider, offshoring refers to relocating jobs and procedures to any given foreign county without first disguising where the provider is located (Houseman et al. 2011, p. 116). Therefore, outsourcing is inclusive of relocations of jobs both within and amidst countries, like the case of this deliverable where a computer department is being outsourced from Sweden to India. Further, the term offshore outsourcing only makes a reference to relocating jobs or business processes to some external and internationally based provider (Abramovsky and Griffith 2006, p. 596).
Research questions
I. Why do companies in Nordics/Novartis outsource the job to other countries?
II. What are the benefits of outsourcing?
III. What are the risks associated with outsourcing?
IV. How do the Nordic countries/Novartis adapt to the new way of working with outsourcing?
Research objectives
Establish the reasons why Nordics Companies outsource jobs.
Determine the benefits associated with outsourcing.
Establish the risk Nordic companies may face when outsourcing.
Establish adaptation strategies to the new way of working with outsourcing.
II. Research proposal
Proposed research topic
Outsourcing of financial tasks to a third party company. Why do companies outsource their business and what is the financial benefit of outsourcing? Will the traditional position disappear from the Nordic countries in the long run?
Background
Outsourcing highlights a clear potential route to reduction in the prices and an increment in the flexibility, giving allowance to the firms to engage in a conversion of fixed costs into a number of expenses and pull up their respective economies of scope. Due to the recent studies, savings that are of short-term have maintained their dominance as the reason driving both the processes of domestic outsourcing and offshoring (Bhagwati, Panagariya, and Srinivasan 2004, p. 100). Nevertheless, ramifications regarding outsourcing spans beyond the swift reduction in prices. Outsourcing has effects on the management and performance of an organization on the day to day basis, besides implicating its strategic alignment. Decisions pertaining to outsourcing have the clear effect on the cost structure of any given business, but may as well impact competition position of the business in a long-term basis and restructure the risks' nature that the organization has to manage (Houseman et al. 2011, p. 118). Offshore outsourcing outlines a presentation of a number of domestically unavailable opportunities. For instance, due to the low cost of labor in India, prompted an airline to outsource auditing of accounts payable and recovered approximately USD 75 million that was in delinquent accounts. Notably, outsourcing helps an organization have a chance of becoming better, as it enables the company to derive more services that are of the state of the art and those which it has the ability to afford internally. The reason above is the most commonly stated as the major driving force behind outsourcing of IT (Kirkegaard 2008, p. 382).
There is much that accompanies outsourcing than just saving money. Offshore outsourcing leads to the creation of both recent opportunities and hazards that are unrecognizable, which have the ability to limit the prospects of any given firm. The costs on a long-term basis for these unexpected consequences have great potential of overshadowing costs savings. Therefore, any concerned organization must pay close attention to decisions of outsourcing which includes all of the consequences that may potentially be seen on a long-term basis (Bhagwati, Panagariya, and Srinivasan 2004, p. 112).
For many years outsourcing has been used in several forms/businesses. Many global companies have centralized their financial tasks and created "hubs" in low paid countries such as India, East Europe (Novartis). Outsourcing has become a more common way for companies to handle their business. The outsourcing by organizations of all sizes is increasing across the world and especially in Europe (Ellram, Tate, and Billington 2008, p. 149). This makes jobs to disappear from countries with high income such as in the Nordic countries. How will this impact the way we do business and will it affect our future chose of education? Will the traditional position disappear in the long run? Must companies adapt to the globalization and wait in it for the Nordic countries? In this deliverable, an exploration of why organizations make the choice of offshoring outsourced professional services. Secondly, there will also be an attempted understanding of the way organizations are managing associated costs and risks relating to outsourcing of the professional services (Mataloni 2004, p. 57). I have a couple of years of experience from working with payroll and finance and I see that more and more companies are outsourcing more to third-party contractors. The result has made me interested in writing about this topic. I have been working with big companies and my job has always been together with a third party contractor. With this research, I want to outline the benefits of outsourcing and see how the Nordic countries will be affecting especially Sweden.
Scope
I want to investigate the benefit of outsourcing and what will it mean to the companies not stationed in “low paid” countries. I will mainly be focused on Novartis Nordics and the benefit of outsourcing to India. Novartis Nordic is approximately 1.5% of the total Novartis business. Nordics are a very small entity comparing with other Novartis entities. Is it really worth it for the Nordic to outsource?
Questions I want to have answers on are:
Why do companies in Nordics/Novartis outsource the job to other countries? Benefit?
How will the Nordic countries/Novartis adapt to the new way of working with outsourcing?
What is the cost reduce? Is it a cost reduction?
The study is important as more and more companies chose to outsource and I think that this will be the future for many companies in the Nordics. Can Novartis Nordics benefit of outsourcing when it is so small comparing to Novartis globally?
Theoretical Framework
To remain competitive in the rapidly expanding economic environment, decisions for offshoring a company are forced by factors relating to production costs, distribution and organization productivity. For example, in case offshoring gives an organization and ability to relocate its slightly ineffective processes of production to an external provider at a reduced cost, and more efficient capabilities of production (Dossani and Kenney 2003, p. 21). The outcome enables the firm to have a focus on areas that it possesses comparative advantage and engage in newly created business activities. Outsourcing also has effects on enhancing productivity at an aggregate level. It normally has a close association with the Schumpeter's theory relating to creative destructions. A series of empirical studies have offered support for its encouraging results pertaining to productivity. Other related studies have brought forth theories to help with examining the possibility of enhanced effects on productivity caused by spill-over of knowledge and the abilities of the firm to have a focus of key competencies through outsourcing of activities that relatively inefficient (Houseman et al. 2011, p. 122).
When viewed from the point of view of an economy, there are a number of things that have to either be outsourced with a basis on the cost and associated risk with operations both internally and externally. To my study, I will in first hand read books, journals. I will also use the company I work with today as we have outsourced some of our tasks to an outsourcing partner in India (Genpact). The books and the journals will give me a perspective on senior management thinking. I will base my theoretical framework from a deduction perspective and also the qualitative research. In the deductive procedure is based researcher from theories that are already established in order to then apply them in reality. Focusing on material that is already out there. By finding good journal and books I will come to a conclusion. I think that this way of conducting information will be the best for me as I know that it is a lot of information out there, I just need to find good journal and books.
The qualitative approach was chosen mainly because I did not consider the quantitative approach appropriate in with their focus solely on standardized questions and answers would limit my research study. With a qualitative approach left room for interpretation and a deeper understanding of the subject is possible. I wanted to focus on verbal formulations instead of quantifying the collection of information and therefore it was natural to embrace the qualitative research method. A qualitative study was conducted using the suggested depth interviews and case studies (Patel and Davidson, 2003). I will use open questions in my interviews so that I can interpret in my way. I have an easy access to data from my company and think that it will benefit me with my research compare with other students that have to build a relationship with the company first before they can access information.
I will be able to bounce ideas with my colleagues and also our outsourcing partner Genpact. In order to be able to have semi-structured interviews, I need to have good knowledge and an understanding of the topic which I have after many years of working with outsourcing. That is mainly why I have chosen this theoretical framework. Most of my interviews with my colleagues will be held at the office where both parts can feel comfortable and when I interview Genpact it will be by phone which I use today in my daily work. This will help me “break the ice” and come to the interview question quite fast and have a good conversation. This will lead to my benign able to ask more developed questions.
III. Methodology
The research is centered on carrying out both of exploratory and confirmatory. Besides, the main desire for the research was to make it an open-ended the chance of carrying out exploration and creation of a new theory which has explanation and values that can be easily managed and has relations to outsourcing services offered by professionals. To my study, I will in first hand read books, journals. I will also use the company I work with today as we have outsourced some of our tasks to an outsourcing partner in India (Genpact). The books and the journals will give me a perspective on senior management thinking and why a company decides to outsource to 3rd party contractors. Books and journals will tell me more about the reason why companies outsource but not what actually is the outcome (Flick 2015, p. 14). I will involve my company to get a picture of how the is managed and potential benefits/downside with outsourcing. I will conduct small-scale interviews at my company and also discuss it with our outsourcing partner. This will give me my company’s perspective and also the perspective from the other side. I will also use my experience in this report because I have five years of experience from working with outsourcing companies based in India.
Data collection
The data will be the key to my study. I will read a different kind of books to get different sources and perspectives. Together with the books and journals I will also see the issue/report from a company perspective and see if what the books are writing about is the same as in reality. My subject is a quite old and very used subject, and I hope there is much information out there for me to use. I will interview some of my colleagues both in my company and also some colleagues from the outsourcing partner (Genpact). I have also worked quite long time with outsourcing and I will use my knowledge and experience, what have I learned during this years. The cultural differences are huge between the Nordic mentality and the Indian mentality. It is critical that I stay open minded to my Indian colleagues and explain to them the purpose of my research.
Ethical issues
The ethical requirement that defines engagement in a qualitative research study will be followed. The study will proceed after getting approval from the ethical review board. The researcher will focus on upholding the ethical principles that include respect and autonomy, doing good, avoiding harm, ensuring independence and impartiality of research. Measure will be taken to avoid deceptive practices, ensure anonymity and confidentiality. The data obtained from the research will be kept secure and only used for intended purpose. Participation will be based on voluntary informed consent. The selected participants will only be interviewed after signing consent forms. The research will not have any significant risks and benefits to the participants. The main benefit of the research is the outcome that is crucial in policy development and a basis for further research. The privacy and confidentiality of information will be maintained. I have to be careful when interviewing my Indian colleagues. I know that there are cultural differences between the Nordic mindset and the Indian. My interview question will be created so that the ethical norms are followed. My report will not include personal views, only based on facts and information. One ethical issue that I can face is that it will be difficult to obtain the salary cost for the employees working in India. I have to base my research on the actual cost that Genpact invoices Novartis.
Data analysis techniques
There are a number of techniques that can be put to use when analyzing the data at hand. For instance, one of the activities in this section will be carried out an exploration of the factors that are motivating the process of outsourcing. To acquire in-depth understanding of the way a desire relating to cost-saving interacts with other factors, the study required the subjects to provide an explanation as to why companies make decisions of outsourcing their services (Flick 2015, p. 20). Further, I would go forth to seek the benefits, which were primarily identified by the participants. With a consistency to the popular belief, much emphasis was put that price savings were the key reason as to why most companies normally engage in offshore outsourcing. Nevertheless, a majority of organizations always have the belief that quality parity and improvements of processes were of necessity when considering offshore outsourcing.
As my topic is a much-explored area I think there will be a lot of information that I can use. Outsourcing has been used for many years and I think that I only need to get the information. I will analyze the data I find in books and journal and compare it with my company and our outsourcing partner. As I already have quite much information and know the outsourcing structure due to past experience, and with help of my “open interview question” I will use my own knowledge to analyze the interviews and come to a conclusion. I will compare the information from the books and journal with the information I get from my interviews and see if I see patterns and similarities.
The contribution this study will make
I hope that this study gives me and the one who reads it an understanding of why a company chooses to outsource to an outsourcing company in India. Will the outsourcing of financial tasks be a benefit for the company? I hope that I can get a clearer picture when it comes to outsourcing. I hope that I can identify the issue with outsourcing and also the benefits. Is it only the cost reduces that matters? Will I be able to get the motive of why companies outsource to India? How will the quality be maintained to the same standard as the companies have?
Proposed Research Topic
Outsourcing of financial tasks to a 3rd party company. Why do companies outsource their business and what is the financial benefit of outsourcing? Will the traditional position disappear from the Nordic countries in the long run?
IV. Literature review
Due to the attention levels demanded by offshore outsourcing in the current media, there seems to have been little thorough research on the economic outcome that accompanies it (Peak, Windsor, and James 2002, p. 14). Majority of the studies have always had just a focus on issues pertaining to the labor market, which remains substantial even with the expansion in the research on the given subject. Directly investigating outsourcing and its implications for the productivity of a firm are quite limited. Under considerable assumptions, nevertheless, one has the ability of drawing indirect linkages amidst the ability to produce and intensity of skill, and to due to the importance of this subject in a general standpoint of the general literature reading outsourcing and its impacts of labor markets, a number of results from the very studies ill briefly be analyzed in this deliverable.
Regardless of the fact that empirical literature relating to offshoring relates to productivity or issues having relations to labor markets, a majority of the studies just appear to be covering manufacturing industries. Besides, most of the studies tend to have a focus on how manufacturing processes are relocated while turning a blind eye towards the services’ relocation. Due to the sudden surge in the significance of offshoring of services, particularly within the service sector, it is saddening that deep understanding relating to impacts on productivity are mainly based on evidence from manufacturing companies. Majority of the studies tend to be micro oriented and impacts of productivity pertaining to an establishment in the computer department will be the focus of this analysis. To help with compensation for the absence of information on the provided services, a brief survey will be carried out. Nevertheless, as a result of the available limitations, the survey covered in this deliverable will be capable of only giving a small picture of the particular subject. The result just shows the evidence of the available pieces of evidence, which still have acute limitations than what is actually desired.
Further, when a survey is conducted on the magnitude and current trend regarding offshore-outsourcing relating to loss of jobs, a total amount of money invested, and the types of involved business activities, the following conclusions are deduced. A number of both private and governmental enterprises have brought forth statistics relating to outsourcing, loss of jobs, and a number of foreign investments. According to the report brought forth by the U.S Bureau of Labor, in 2000 alone, 0.1 million jobs were lost, which was then expected to go up to 0.59 million by 2005 and reached 3.32 million by the turn of 2015. In the Estimations are that between 3.4-3.4 million will be moved to overseas countries by the turn of 2015, which adds up to about 230,000 jobs on the annual basis, compared to the American workforce of an approximated 138.3 million (Index 2011, p. 18). The trend is so worrying and hence calls on the company to greatly take proper considerations in its bid to have its accounting department moved from Sweden to India (Joshi and Mudigonda 2008, p. 220). However, the best factor with outsourcing is that it will enable the organization with the privilege of reducing its operational costs.
On the other hand, India has come out as one of the leading countries in terms of Business Processing Outsourcing (BPO), employing approximately 110,000 individuals and in return accruing monetary profits of USD 1.5 billion between 2001 and 2002 (Duganier 2005, p. 2002). As a country, India forms one of the largest call centers across the globe, a clear indication that the accounting department will enjoy success if it’s outsourced to the country. An approximated 80 percent of the leading 500 companies have carried at least one outsourcing of their functions to India. In the process, substantial growth of revenue has been witnessed too, with 2003 witnessing a growth in revenue by USD 3.6 million. With the increment in IT research and surge in advisory companies, the organization has given a forecast of the revenues of the Indian BPO to get to USD 30.8 billion by the turn of 2020. Employment growth in India is also expected to experience a dramatic growth, with the National Association of Software and Services Companies providing estimates that the general employment in the ITES sector will go up from the current 160,000 to about 3.3 million by the turn of 2019 (Sampathkumar and Pradeep 2017, p. 45).
According to the study carried out by the McKinsey Global Institute (MAI), Foreign Direct Investment into India has resulted in the creation of in the excess of USD 20 billion annually. Majority of the revenue comes from software and industry in charge of outsourcing which has provided in the excess of 500,000 employment to people carrying out jobs for foreign companies. Bangalore, Delhi, Kolkata, and Mumbai are some of the major outsourcing cities in India (Clemens and Kremer 2016, p.55). Hence, these should form the greatest backbone for the company in its bid to outsource its accounting department to India. The future is bright too because slowly foreign companies have started spreading their roots into all parts of the country. Besides, India is gradually becoming a predominant player as one of the leading offshore providers for business operations. The offshoring sector being dominated by IT services.
V. Research strategy
Outsourcing is not a new topic, and sometimes referred to as “make-or-buy” assessment. Outsourcing is viewed as the way organizations may decide to have its costs and reserves reduced, while still having to focus on that which they do best. For a period spanning beyond two decades, organizations have always been cautioned to be more careful while working around the area of outsourcing. The advice has always been to be more careful and not to outsource strategic items, or key competency, and to conduct judicious management of relationships pertaining to outsourcing. Recently, market analysts have made emphasis on the necessity of providing improved controls and observing of outsourced associations. Managers must also show the clear understanding of actual, price of a structure of that which they are making the decision to outsource; being aware that when they make a comparison to their given cost structure may have no validity. However, though there is a rise in the number of the given cautions, the desire to outsource has still remained very strong and is fast expanding.
Outsourcing is separated from what is known as retention of work-in-house. Majority of the previous studies have always been focused on manufacturing outsourcing. Historically, manufacturing outsourcing has become more prevalent, and has got increased attention during the 80s and 90s where there tend to be more worries on the fact that industrialized states have continued to compromise future competition through “hollowing out” their respective processes of manufacturing by outsourcing. In recent memory, much attention has been given to the races of outsourcing the services. Offshore outsourcing of services has been made possible due to the presence of cheaper and trusted information and technologies of telecommunication. Majority of the discussion that has been held on offshore outsourcing of professional services has been centered on as earlier mentioned; this research is geared towards analyzing Novartis Nordics and the benefit of outsourcing to India. Novartis Nordic is approximately 1.5% of the total Novartis business.
Survey
A number of surveys and studies that have been carried out over the last couple of years have sown an increment in the trend and much emphasis on the process of offshore-outsourcing to help with securing cost advantages. For instance, the research carried out by Deloitte gives an estimation that the top 100 leading companies globally in the financial sector that have the market cap exceeding USD 10 billion will tend to offshore USD 2.1 billion of the cost they use for operations in 2005. Saunders et al (2016) mentions that surveys are usually associated with deductive reasoning where the goal of the research is to answer “what” “who” “where”, “how much and “how many” questions. Surveys are usually used for descriptive or exploratory research and are most often used with a quantitative approach which means that it is cheap in terms for resources and is also perceived as authoritative by people in general (Saunders et al 2016). The drawbacks of the surveys are the number of questions that fit in a questionnaire in order for the respondents to accept taking part if questionnaires are used as the type of data collection. Also, the room for making mistakes and doing it badly is the other negative factor when doing surveys. The biggest upside using the survey strategy is the limiting of typical researcher biases as the surveys are sent out without any influence of the researcher. Finally, surveys are harder to use properly as potential respondents are flooded these days which means it’s harder to get through the media noise and raise enough answers to gain any good statistical evidence supporting the research question.
Further, a questionnaire for an online survey was carried out. The unit used for analysis was for the companies that are SME. The information related to SMEs, like addresses, emails and then the numbers of contact were obtained from the companies’ online portal. A total of 1500 organizations that have email addresses were chosen with the help of a systematic method from the info portal of the SMEs of the registered companies by then. The number surveyed represented about 10% of the SMEs present in the nation.
Action research
Action researched was defined by Kurt Lewin in 1946 and is an iterative process which is designed to develop solutions to real organizational problems (Saunders et al 2016, p.14). Action research is built in iterative cycles. According to Boden, Greenwood, Hall, Levin, Marshall, Wright, and Bradbury (2015, p. 281), “Action Research Spiral” contains the following actions, “diagnosing”, “planning action”, “taking action” and “evaluating action”. Once the cycle is complete the next cycle begins taking the results from the first and putting them through the next iteration. According to Levin and Greenwood, the number of iterations is three. The main advantage of action research is that it’s a quick and easy method for the researcher to use and an easy way for a researcher to gain knowledge. The biggest disadvantage is the lack of repeatability as action research is based on iterative cycles which make each cycle different from the previous thus making it extremely hard to recreate an experiment in the same way it was originally conducted.
Case Study
A case study is an in-depth inquiry real-life phenomenon or topic. It can either be a company, a group, a manager, a process or an event and can be divided into either a single case or a multi-case study. Understanding the context is fundamental to any case study and also argues that the case study method can be used for both deductive and inductive approaches. The single case study is typically used for the extreme case or a unique case which might be observing a phenomenon no one has looked at before. The multi-case study, on the other hand, looks at multiple cases and focuses on looking at whether findings can be replicated across cases (Saunders et al 2016, p. 17). The main disadvant
