There's More to Outsourcing than Meets the Eye

A buddy sent me an email about an interesting discussion on outsourcing. It asked the question “Is outsourcing exploitation?”. It is not the first time to hear the question. I raised that question too as a young freelancer. As you know freelancing has a certain appeal to it. You are in complete control of your time, your finances – you are your own boss. you are responsible for your own success, and failure.

So how do we increase the odds so it tilts in YOUR favor?

As more  companies embrace globalization (i.e. multi-country sourcing, multiple global markets), Filipino freelancers can generate substantial revenues and create more jobs for themselves and others. But, they have to understand the big picture. Otherwise, they will be blown out of the map and totally clueless on what hit them. The Filipinos have the option to philosophize about outsourcing, while its neighbors reap the benefits of the value chain – again.  Globalization is here to stay – and global competition is no longer about brands – but between supply chains. The economy with the best managed supply chains will emerge on top of the pack. Compete or be blown out of the map. Understanding the value chain – and how it relates to outsourcing will help understand the bigger business model to which outsourcing belongs.

Filipinos are debating whether outsourcing is exploitation or not. I say this is the wrong kind of debate to have. Rather, I suggest the Philippines get its acto together and learn how to manage the value chain and compete. You don’t gain market share by whining – you gain market share by changing your paradigm.

Where it all began – The Value Chain

When it comes to these kind of stuff – I’d rather take you to “the source” instead of having me paraphrase it and have stuff get lost in translation.

So here goes.

These sites provide a very good explanation of the value chain and how it relates to outsourcing

The value chain, also known as value chain analysis, is a concept from business management that was first described and popularized by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance

Concept

A value chain is a chain of activities for a firm operating in a specific industry. The business unit is the appropriate level for construction of a value chain, not the divisional level or corporate level. Products pass through all activities of the chain in order, and at each activity the product gains some value. The chain of activities gives the products more added value than the sum of added values of all activities. It is important not to mix the concept of the value chain with the costs occurring throughout the activities. A diamond cutter can be used as an example of the difference. The cutting activity may have a low cost, but the activity adds much of the value to the end product, since a rough diamond is significantly less valuable than a cut diamond. Typically, the described value chain and the documentation of processes, assessment and auditing of adherence to the process routines are at the core of the quality certification of the business, e.g. ISO 9001.
Activities

The value chain categorizes the generic value-adding activities of an organization. The “primary activities” include: inbound logistics, operations (production), outbound logistics, marketing and sales (demand), and services (maintenance). The “support activities” include: administrative infrastructure management, human resource management, technology (R&D), and procurement. The costs and value drivers are identified for each value activity.

Here’s another explanation on The Value Chain (from learnmarketing.net)

Value chain analysis

Michael Porter in 1985 introduced in his book ‘ The Competitive Advantage’ the concept of the Value Chain. He suggested that activities within the organisation add value to the service and products that the organisation produces, and all these activities should be run at optimum level if the organisation is to gain any real competitive advantage. If they are run efficiently the value obtained should exceed the costs of running them i.e. customers should return to the organisation and transact freely and willingly. Michael Porter suggested that the organisation is split into ‘primary activities’ and ‘support activities’.

Primary activities

Inbound logistics : Refers to goods being obtained from the organisations suppliers ready to be used for producing the end product.

Operations : The raw materials and goods obtained are manufactured into the final product. Value is added to the product at this stage as it moves through the production line.

Outbound logistics : Once the products have been manufactured they are ready to be distributed to distribution centres, wholesalers, retailers or customers.

Marketing and Sales: Marketing must make sure that the product is targeted towards the correct customer group. The marketing mix is used to establish an effective strategy, any competitive advantage is clearly communicated to the target group by the use of the promotional mix.

Services: After the product/service has been sold what support services does the organisation have to offer. This may come in the form of after sales training, guarantees and warranties.

With the above activities, any or a combination of them, maybe essential for the firm to develop the competitive advantage which Porter talks about in his book.

Support Activities

The support activities assist the primary activities in helping the organisation achieve its competitive advantage. They include:

Procurement: This department must source raw materials for the organisation and obtain the best price for doing so. For the price they must obtain the best possible quality

Technology development: The use of technology to obtain a competitive advantage within the organisation. This is very important in today’s technological driven environment. Technology can be used in production to reduce cost thus add value, or in research and development to develop new products, or via the use of the internet so customers have access to online facilities.

Human resource management: The organisation will have to recruit, train and develop the correct people for the organisation if they are to succeed in their objectives. Staff will have to be motivated and paid the ‘market rate’ if they are to stay with the organisation and add value to it over their duration of employment. Within the service sector eg airlines it is the ‘staff’ who may offer the competitive advantage that is needed within the field.

Firm infrastructure: Every organisations needs to ensure that their finances, legal structure and management structure works efficiently and helps drive the organisation forward.

As you can see the value chain encompasses the whole organisation and looks at how primary and support activities can work together effectively and efficiently to help gain the organisation a superior competitive advantage.

Companies are Outsourcing Processes which are not Core Competencies to Create Competitive Advantage

Where does outsourcing fit in? If any of these primary and support activities are not a core strength of the company – it should outsource the process. Would you spend money on internal HR people for the purpose of keeping track of ever changing labor legislation  – or would you rather outsource it to a company which provides the same service at a lower cost than if you were to run the operation yourself. This means you can take money out of your HR operation – and shift it to your core competency – and create more value for your investment. This my friends is a phenomenon that is already taking place. And it all happened because you and I – yes, you and I, the customer wanted products that..cost less, have excellent quality, available when you need, at the price you are willing to pay for.

What this implies is that as globalization becomes the norm – companies that have a strong understanding of outsourcing will reap the benefits. For example, a Filipino company with strength in payroll processing can be an outsourced payroll department to a company based in Houston. Or a Filipino company specializing in  HR  can be an outsourced HR department of a company based in Delaware.

The earlier we Filipinos understand that – the better.  More outsourcing means more revenues. But only if we Filipinos step up to the plate can we gain more market share.  It boils down to outperforming the competition – and reap the rewards.

Exploitation? or a Flawed Pricing Strategy?

In competition – we Filipinos usually go for a price-based strategy – thus going into a pricing war and everybody loses – that’s because we are looking at the activity from a purely transactional point of view – a one shot deal.

In a pricing war – we Pinoys naturally go for the easiest differentiation strategy – via price. But so is everyone else.  So we end up having a price war, when we do get the job, we have trimmed our margins to get the job – and as the project evolves – we wind up operating at a loss.  Then, we  feel “exploited”. We quoted a low price to undercut the competition, naturally the client will go for it.

We get the job but – we are losing money just to do the job because we adopted a volume pricing strategy when we should have priced based on value . Now, wasn’t that being a dumbass?

The Art of the Value Proposition

You dont’want a price war much less engage in a transactional relationship. Iif you are going to negotiate an outsourcing deal – you have to promote your value as a partner. For example, don’t just say you are better because you are cheaper. Say that – I might be more expensive but – I meet deadlines when you want them – 95% batting average.

Then load it up with all the “extras” that distinguish you from the rest. This creates a value for your customer. If the other side is offering lower prices – there’s probably a reason for that. He does crappy work and is offering a low price as an incentive. Don’t take that route don’t undersell yourself. I took that route before and got badly burned.

Go for a value proposition instead – you will not regret it. Do not compete based on price in this industry – compete based on value. Give a value proposition instead of a pricing quote – and you increase your chances. Don’t just be another vendor/service provider being played off with other vendors – present yourself as a partner.

[iframe: src=”http://en.wikipedia.org/wiki/Value_proposition” width=”100%” height=”400″ scrolling=”yes” frameborder=”1″]

[iframe: src=”http://marketing.about.com/od/marketingplanandstrategy/a/valueprop.htm” width=”100%” height=”400″ scrolling=”yes” frameborder=”1″]

[iframe: src=”http://en.wikipedia.org/wiki/Customer_value_proposition” width=”100%” height=”400″ scrolling=”yes” frameborder=”1″]

Resist the temptation to collude – Instead compete based on value

Oftentimes, the freelancer thinks that if he reaches out to other freelancers and they agree to fix the price – somehow they will get a better deal. No it will not.  That’s doomed to fail – the nature of the market is that there will always be someone who will undercut the prevailing rate due to a competitive advantage which they will leverage to gain market share.

For example:

–  Freelancer A – topnotch design skills (photoshop + flash + dreamweaver) – minimal marketing and  pricing skills

–  Freelancer B – medium design skills (photoshop + flash + dreamweaver) – topnotch pricing and marketing skills + operations management skills

Freelancer A can get by with four or five projects in a year; Freelancer B will probably have 10 or 15 or projects. Freelancer B will have possibly smaller margins than freelancer A on a per project basis. But overall Freelancer B has greater revenue at the end of the year – and has spread his risk by having more customers.

Give it 2-3 years, Freelancer A will be complaining about “exploitation” and Freelancer b will be worshiping outsourcing.

Know thy Customer and Know Thyself and Thou shalt Generate Revenue

AP colleague BenK pointed  that one should consider the market side of the equation as well; the price-based strategy of the supply side is perpetuated because the customer side is strongly price-based as well. In doing so, one can undertake Customer Profitability analysis.

In a sense, everyone is trying to drive down cost. The question to ask is whether the customer is looking at this as transaction-based – which becomes a one-shot deal. Or whether the customer is looking for an outsourcing partner – which means the outsourcing activity isn’t just a one-time transaction but a long-term partnership.

In the context of web freelancing – this implies that the customer recognizes content generation is not their core competency – and therefore have outsourced it so they can focus on their core strength – most likely, marketing and distribution. Chances are, they have outsourced manufacturing. -This allow the company to shift capital  from assets that were previously “sleeping” or underutilized – and turn this into working capital – thereby increasing revenue.

A customer  knows what he wants. The job of the freelancer is to identify and probe what the customer needs, reconcile this what the customer “wants” – and seek to nurture the sale so the customer transitions from being a one-shot deal into a strategic partner. But first – he must size up the customer. Is it worth doing business with a specific customer – or not?  Customer Profitability analysis will allow you to size up the client before going further down the road.


Amitkumarthaku’s Blog provides a very concise description of the qualifying process:

The relationship matrix method is based on the relationship life cycle theory that can be used to determine what priorities should be given in managing customer relationships. To ensure long-term profitability and value creation, a company should focus on building a strong and lasting relationship for continuous growth in terms of value and profit.

It has 2 dimensions: Potential profitability of customer and opportunities for adding value. The basic idea behind the matrix is that the customer having highest potential profitability and which gives the highest opportunities for adding value the better it is for the company.

Placing profitability/opportunities in the matrix results in 4 approaches in the qualifying prospects for relationship building of a company:

1. Build a Strong and lasting relationship (=high profitability, high opportunity for adding value).

– use large amounts of cash and are leaders in the business so they should also generate large amounts of cash.

-Opportunity for adding values is very high. If needed any attempt   should be made to acquire or retain the customer, because the rewards will be a very high if a relationship is maintained.

2. Focus on loyalty-building program (=high profitability, low opportunity for adding value).

– Profits and cash generation should be high, and because of the low potential for adding values and growth, investments would be.

3. Use a non customized approach (= low profitability, High opportunity for adding value).

– have the worst relationship characteristics of all, because low potential profitability and high opportunity for adding values.

-avoid and minimize the number of such relationships with a company.

4. Seek better opportunities elsewhere. (=low growth, low market share).

– beware of any new plans for value building.

– Efforts should be made to get out of the relationship as these companies will simply absorb great amounts of time and effort

If the customer ends up in the low end of the customer profitablity matrix – we don’t participate because doing so will lead to a loss,  we are better off looking somewhere else.

Another thing, when the market is so fierce – I’d really start to adopt a niche/segment strategy  and look at other market segments where I get more buck for my time.

Recommended Videos

Michael Porter

The Value Chain

Transportation Department Outsourcing

3rd Party Logistics – Building the Global Supply Chain

Playlist on th Value Chain

http://www.youtube.com/watch?v=7wL6x1BSlw8&feature=PlayList&p=5D192C05982E1D51&playnext_from=PL&playnext=1&index=33

****

Morale of the Story

Before crying exploitation – ask yourself first –

what are others doing which I am not doing that allows them to quote low prices while maintaining value.

Fail to ask the question – and your business fails. Don’t blame outsourcing – blame yourself.

Better yet, get over the blame, move on and reinvent your company – adopt a new business model, new strategies, new ways of thinking, compete smartly – and watch your revenue grow.

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59 comments

  1. ulong pare · ·

    … daaaaaang

    … let’s break it down to the nitty gritty…

    … currently, the global economy depends and survives along the six sigma paradigm…

    … the basic lean six-sigma practitioners prosper…

    … when flips hear about six-sigma thingy, the reaction was to kneel and pray, consult kaksucker padre damaso to exorcise… kasi, six-sigma daw eh evil…. :mrgreen:

    … hay naku flips, puro kayo gung gongs…

  2. AHAHAHA… amen

  3. ulong pare · ·

    … daaaang

    … flip’s kukotes are all about fcukyaw oooopsie pacquiao – boksing… bata – billiards… iyut-katrina halili tsismis… ‘merkan idol losers, etchastera, etc…

    … the pearl of the orient seas aka my lupang hinarang oooopsie hinirang has ‘sang tambaks na geniuses (‘cept me) to turn her into a switzerland of the lost tribe… 😳

  4. although .. some flip basureros i gather were outsourced by Blackwater?

    it kinda prompted retired master hooya godfather to look back at his days as SR in Phil Army. his contemporaries are now generals – all the title, not much benefits really. and all the headaches

    meanwhile pa fishing fishing at pa tennis na lang si master hooya… pa tour tour around the world.. paminsminsan – nililinis ang kanyang sniper rifle.. 😆

  5. Hyden Toro · ·

    😀 In business; there is a saying:” He who controls the Gold, makes the rule”. Why do foreign companies outsource? It is because they pay less in labor. They profit more. You make U.S $10 an hour in the U.S.; doing the work. Filipinos are paid U.S. $5 a day on the same work. Same result of production. You don’t even deal to provide Health Benefits, retirements, etc… for your employees. You don’t have to deal with troublesome Labor Unions. That demand a lot in order to continue their work for you. Outsourced labors are easily expendable. You can terminate people without much ado.

    Let me illustrate this condition: so that I make myself clearer to my fellow bloggers. If you go abroad, and work as a Tsimay or a Tsimoy. No matter how good you sweep the floor; cook their food; etc…They will just pay you U.S. $100-$200 a month. If you invent things; some novelty products or systems. You name your price. You can use outsourced Filipino cheap labor to manufacture the novelty product. More profit for you.

  6. ulong pare · ·

    … daaaang

    … master hooya aka hi-end japayuki hooked up with the highest bidder… which is unc sammy… mas malaki ang ….. (sweldo) at saka fresh ang corned beef and spam… 😳

    … flipland’s screaming eaglets oooopsie eagles of PAF is sisiw when compared to the real thang…

    … it’s kinda hard to soar/fly like an eagle when i was surrounded with a bunch of gung gongs oooopsie turkeys… :mrgreen:

    … nowadays, a nap under my mango tree, sexy gurlz to scratch my b… (back), is heaven…

    … ay sus ginoo, flips puro kayo gung gongs… :mrgreen:

  7. ulong pare · ·

    … daaaang

    … flip gung gong’s mentality: NAKAPAG-ABROAD NAMAN… INGGIT KA LANG! … :mrgreen:

    … the left-behind flips, allah eh, ‘alang class… kasi, hindi nakapag-abroad…

    … bwi hi hi hi hi hi pwi…

    … flips, puro kayo gung gongs!

  8. One reason I’m still here in the Ph is because of the telecommuting arrangement. A friend told me to look for jobs over the Net, because there’s gold there. The Filipino can stay at home, and look for jobs they can do here. I’ve been a writer like that for a while, aside from being a former Google Answers Researcher.

    But here’s a case which really showed how messed up outsourcing made it for us here. That friend of mine was bidding for a translating or transcribing job on a telecommute job board. Candidates from other countries were posting $25, $20 or even $16 an hour. My friend thought he’d get the job with $12. Then he went to sleep.

    His P.I. curse when he checked the result in the morning was so crisp. Lo and behold, someone else got the job… for $3. My friend traced the poster of that offer, saying that it was from Butuan City. That poster was probably one of those guys from an outsourcing company, and this guy followed his company’s salary… which was crap. At that low price, talo siya.

    Here’s where BongV’s right. Puro price ang labanan… as a result other Filipinos get pulled down in price. It’s so crappy.

  9. Hyden:

    In this specific case, manufacturing is not their core competency – therefore they outsourced manufacturing.

    However, they had a tight understanding of the market, had access to it, knew the distribution and sales channel to use – their core competency.

  10. ChinoF:

    The guy from Butuan who quoted $3 will be in for some really tough times – the customer will have very tight requirents.

    The customer in turn will have some performance failures – you pay peanuts, you get monkeys.

  11. ulong pare · ·

    … daaaang

    … it’s capitalism at its best…

    … tsekwaland is the world’s factory because of slave pricing they offer to companies…

    … tsekwaland can afford pennies for their employees… tsekwas who question the labor practices are shot at tianamen square… one billion strong workabees… a thousand killed a day is a drop in the sea of yellow slanted eyes… :mrgreen:

  12. Quoting low prices while maintaining value in outsourcing is primarily due to lower overhead. A web design firm in america needs to charge $20,000+ to pay it’s employees, the rent, ect. Where as a freelance web designer may only need to charge $5,000+ to pay for his/her overhead. Finally a freelance web designer in the philippines may only need to charge $200+ to pay for his/her overhead.

    It’s a lot more complicated than what you stated in your post (though your post was ridiculously long), you have to step back and take a more broad look at things.

    I’m also an author on a blog for the philippines, i’ll drop you a link to the article relating to this once it’s live.

  13. Like my friend said… isang malaking tanga. Half-assed himself and dragged a whole of others with him.

  14. Chris:

    It’s all about competitive advantage – you can gain an advantage through cost, or through value. And it depends on the industry.

    Case in point – truck dispatch. I’m sure a truck dispatcher in the Philippines will cost less. But why will it source it to a traffic dispatcher in the Philippines who has limited access about the intricacies of moving freight within the continental US. if based on cost alone – that would have been outsourced to India or the Philippines for that matter. Obviously it has not been outsourced – because there is a lot of value-added services in operating a US 3PL.

    you can have lower cost – but you can have frequent performance failures – in the long run you wind up losing the business.

    So, no – it’s not just overhead. the ridiculously long post is just a drop in the bucket given the overall context of the global value chain.

    Another example, you operate a retail shop in the West coast. You are tasked to find a sourcing agent for a widget. You find someone in Timbuktu who makes the widget at $0.10 a piece. On the other side, you have a Mexican firm who will do the widget for $0.20.

    you think you are so smart so you go for timbuktu. only to increase your transportation cost from Timbuktu to the West Coast. In comparison, you just truck your widgets from Mexico to California.

    that’s how the K-marts of the world are made. and that’s how Walmat, utilizes its value chain to bring the cost down.

    you as web designer – are just one part of a chain – you are there for reasons of cost or value or both.

    no – it’s not about the outsourcing cost- it’s about the TOTAL LANDED COST as you move the product from supplier to factory to customer – from one end of the supply chain (the supplier) to the factory (that’s your firm), to the warehouse (outsourced), to the distribution center (outsourced), outsourced CSR.

  15. Chris,

    China is cheaper – why choose the Philippines instead of China?

    You can pay the Chinese in pennies – but it wouldn’t mean much if you both can’t communicate effectively.

  16. I agree with you on many points. I just felt it necessary to point out that overhead is a major contributor to WHY, outsourcing is successful, and even an option, it’s the REASON for outsourcing in the first place. In a recent article i wrote, It was encouraging filipinos to freelance rather than working abroad in the same industry (for the industries that allow location-free freelancing).

  17. I’ve personally outsourced to china before, because you’re right it is cheaper haha. Also just FYI your site is throwing some Javascript errors in Safari 5 (didn’t look if they occurred in other browsers as well)

  18. not a biggie.

    a high over overhead (compared to industry benchmarks) usually indicates an inefficient process, technology, or person – which can be uncovered by root cause analysis or the Ask Why five times methodology. Now the process can be a core competency or not.

    as an application of strategy based on the value chain model -the company owner has the option of optimizing the process of his core competency to to deliver a value advantage or if this is not his core competency – to outsource. this process is already happening and will expand as the late adopters/laggards join the early adopters. ergo, there is going to be a groundswell of outsourcing opportunities that Filipinos need to be aware of.

    imho, freelance is just a transition either to a full-time job, or to expanding your own full-time business. Some however have adopted a strategy of nurturing the pipeline so that one projects transitions in as another project transitions out – thereby creating a permanent “temp”. the freelancer can even get more freelancers into a cooperative group practice so they can leverage economies of scale and drive efficiencies up.

    i however, would prefer to work abroad – i get to see the market first hand, access it, work with, know the players. know the drivers, and have a higher closure rate and more sustainable operations. My core competency in this case is marketing. I then just outsource the web design to the Philippines.

    I also like working abroad because the company I work for offers a lot of benefits – health care/dental/medical/vision plan + 401k. I also get a lot of company-paid training. I get to network – I am right where the action is. And it gives me a unique insiders perspective that is not known to the general public. The priviledged information gives me a strategic and competitive advantage. It allows me to see trends take place, before they hit Philippine shores. By the time it hits the Philippines, I am quite well prepared for its arrival. In doing so, I have the advantages of category creators and early adopters.

    Most of all I like working abroad because I see new cultures, new ways of doing things, new trends – stuff that takes an eternity to get to the Philippines.

  19. omg. china is unbelievable. minimum wage of $2 per day – for manual labor.

    so many people too – you can hire 1000 one day, fire 1000 at the end of the day, hire a new batch of 1000 the following day.
    the downside of course is – quality control. boils down really to what a company values.

  20. ulong pare · ·

    … daaaang

    … major american companies relocated to china for the very same reason…

    … low cost labor, no enviromentalist/tree huggers to challenge every move, no labor/bargaining unions to deal with, and ‘sang tambaks na manual/factory laborers that can be fired and hired in a moments notice….

    … with ‘sang tambaks na bilyong tsekwas to feed, politburos will take any viable jobs/services for a penny…

    … the investment bankers/hedgers/money launderers’ roi is just immense..

    … who cares about ‘merka’s jobless rate?… i’m get my dividends double up every time tech gadgets are introduced in the marker… :mrgreen:

    … yoooOOOOoo hooOOOOoo… buy “MADE IN CHINA” ipad/ipod/i naku… flips puro kayo gung gongs… 😳

  21. ulong pare · ·

    … daaaang….

    … ‘insan naman naman namannnnn…

    … “Most of all I like working abroad because I see new cultures, new ways of doing things, new trends – stuff that takes an eternity to get to the Philippines…”

    … ay sus ginoo, kunyari ka pa… gusto mo lang maka tikim ng tunay na blondie where the curtains match the drape… not the flip-type bottled blondie… eskinol whitened skin and nose clipped… :mrgreen:

  22. there was no drapes 😳 😆

  23. hyden – welcome by the way. haven’t seen you since the FV days. 😀

  24. That’s the common emo-response to getting the short end of the stick. “Exploitation” daw. The dollar figure placed on a unit of Pinoy labour merely reflects the value it adds to the finished product. The Philippine component in most value/supply chains is usually labour added value. And the low-value sort of labour. The outsourcer from the First World usually provides the design added value component which forms much of the end-(retail) price of the product.

    Labour is just like any other commodity natural resource. How valuable a resource it is depends on how much intellect gets baked into it. Whereas Pinoys turned their timber resources into mere raw lumber exports, companies like Ikea used these resources as input into building billion-dollar brands that sold products made of materials sourced from the Third World — just like Intel’s chips are produced in Third World factories and Starbucks coffee is made from coffee beans grown in farms worked by indentured labour in the primitive corners of the world. It takes brains to turn wood into those marvels of mass-produced furniture Ikea sells and hi-school-graduate labour into chip assemblers.

    Why then didn’t Pinoys build an Ikea empire to turn their forest resources into world-class products before they were exported? Simple, because exporting trees as unprocessed logs takes less thinking — a reality consistent with Da Pinoy’s world-renowned aversion to THINKING.

  25. Vietnam is half of China.

  26. ay lugi, $3 lang? Paktay.

    Then, if other outsourcing companies heard a word that a guy in the Philippines can be paid in $3, they will join the bandwagon and start pricing/paying jobs on that level. Lugi nanaman ang iba na nag hahanap ng competent pay. Tsk

  27. what if you contacted someone from butuan and outsource it it to them instead – still at $3.
    they pay you a commission for – your core competency is marketing – match the butuan price by getting someone from butuan.

    then you add more value – say.. 💡 higher site bandwidth, bigger storage, hosting bundle, monthly maintenance package, 24/7 hotline – chances are – you are already paying for these and these are underutilized – in effect that’s like an inventory cost – your money is sleeping.

    you add it on to your value proposition – voila – – you match the $3 design work, and you have extra revenue from a hosting service that you were already paying for in the first place. in doing so – you achieve the following: 💡 1) you meet the $3 design rate; 2) you keep your customer ; 3) you create more value. makes sense?

  28. Anonylol · ·

    >”… tsekwaland can afford pennies for their employees… tsekwas who question the labor practices are shot at tianamen square… one billion strong workabees… a thousand killed a day is a drop in the sea of yellow slanted eyes…”

    We don’t shoot them!

    Bullets are expensive!

  29. Exploitation is a nice sounding name from the babe mouth of solons who easily find a way to grandstand.

    I remember Teddy Casino raising the issue of comparative salary between a US worker and a Pinoy call center worker which he raised concern about the seeming exploitation based on wage disparity alone.

  30. I think the huge infrastructure projects of PGMA paved the way to the outsourcing business in the Philippines.
    Way back in 2000, many European companies outsourced their production and logistics in China to avoid the strict environmental guidelines of the European Union.

    I had the chance to work with Laerdal in Norway (a leading medical technology firm), and Philippines was at top of the list as a possible location because of the fluency in English language but China was chosen because of the existing infrastructures. Eight years after, the company moved out from China due to plagiarism. The production is now back in Stavanger, Norway.

    Yes, the Filipinos can compete in this BPO game but we have to show integrity and credibility, so to maintain long-time business partnerships.

  31. There is actually some grain of truth about exploitation thought it is correctable

    Take for instance, big US companies relocated their manufacturing in China for couple of reasons: cheap labour and they can’t compete if they chose to stay at home.

    Then China manufactures the products sold to first world countries at the expense of their environment. With their less stringent environmental protection laws, massive manufacturing residue are generated to their backyard.

  32. a very nice article, reminds of college days subject.hehehe

  33. its a matter of perspective – to someone who does not have a job – someone’s “exploitation” is a job opportunity that pays for his bills. we are not entitled to anything at all.

  34. the cost of living is different too, the cost of running an office building is different too, the labor regulations are different too. the last thing you need are more suits from a highly litiguous society that eats up your margins. bottom line – adopt or go bankrupt.

  35. anonylol – you are BAD my friend… LOL

  36. mel, which infrastructure projects are these exactly and how did these affect the growth of the outsourcing business in the Philippines?

    That was in 2000, it’s now 2010. Is it still because of infrastructure or is it because of the labor force – activities that can be outsourced to the Philippines are limited and have low-value-added. It’s mostly CSR. Whereas, China is a sourcing base for manufacturing, India is a sourcing base for professional services (radiology, microbiology, R&D, engineering, software development) – the portfolios of the core competencies are more diverse than the Philippines.

  37. It actually appealing to listeners as if Teddy surmised we Filipinos are the chosen ones over the other competitive destinations because we can offer better, hence we need something in return.

  38. hate to burst Teddy’s bubble – he has a Chinese/Indian counterpart who thinks the same way – ( put nationality) are the chosen ones over the other competitive destinations because we can offer better, hence we need something in return

  39. Medical tourism is high value. They reportedly earn around 80million (if my memory served me right) last year alone. Among the leading hospital is St. Luke in Makati(?).

  40. Laerdal company was eyeing Guimaras Island. I understand from the Philippine delegation that there were some industries planned on the island including a cement factory but infrastructures are not yet well-attended to. Modern airports and seaports alone cannot boost the economy. Good roads must be built also.

    I think we are a bit late training our labor force? I cannot judge the situation today in the Philippines if it is limited or low-value-added but as far as I know, India has started sending and training their professionals to the USA and Europe as early as 2000 and that most of them returned to India as experts. China’s presence in European Trade Fairs and Business Conferences was stunning.

  41. Guimaras is primed for exported Mango production. I don’t think other industries are welcome there that can possible threaten the agri lands.

  42. I think Noynoy should incorporate this into few of the textbooks in elementary and high school how to encourage students to learn English – a must for Philippines outsourcing competitiveness.

  43. Yeah, during the business presentation, the Philippine delegation cited the areas of the mango plantations. (By the way, Guimaras Mangoes have their inside stories, too. The island cannot cope up with the higher demands and there are tricky ways to “produce” mangoes with the almost the same or better qualities than those from the island but will not elaborate on that – DTI might “spank”
    me. :mrgreen: ) but there was a big industry plan there, with possible funding from a Swiss Bank but it did not push through.

  44. Certainly true J.B. in the I.T. world.

  45. Hung Hang · ·

    BongV,

    I like your old photo better.

  46. Seems our outsourcing industry in the country is based on national arrogance, and not just pride. “We’re better in this, we’re better in that.” Then the bubble suddenly gets burst. Reminds me of the E-Motion scandal BenK posted. Yeah, may happen in all countries, but it shouldn’t be an excuse to ignore our own national arrogance – tend probably chance of turning it into corruption. Exploitation my foot.

  47. Hyden Toro · ·

    I’ve been busy earning a living. I have to eat and feed my family. I feel at home here than at FV.
    The FV site have mostly Noynoy Aquino apologists. Bloggers must tell the truth. Not wearing yellow tinted glasses, to have jaundiced view of the Philippines. Extolling the goodness of EDSA, to get Noynoy Aquino elected. This is to cover his incompetence.

    Recent article at FV: “Noynoy Aquino, a modern Liberal”. The imbecile does not even know his ideology, much more where to start to tackle his job.

  48. Hyden Toro · ·

    I don’t agree it’s not our compentency. We can learn. Anybody can learn, if we put our mind into it.

  49. Modern liberal, huh? Liberal with propaganda, liberal with cigarettes, liberal with his sister ordering him around, liberal in opposing the previous admin, liberal in… 😛

  50. “tend probably chance of turning it” – Argh, premature send. Should be “tends to foul up our image once we fail (again, E-Motion). Also, highly probably chance of us turning it into corruption. Exploitation…”

  51. “adapt or perish.”

    like you…rather than getting lost in translation, i will go to the source.

    http://blog.managingautomation.com/channel/2010/04/mass-customization-we-hardly-knew-you/

    Mass Customization, We Hardly Knew You

    By CHRIS CHIAPPINELLI | Published: APRIL 28, 2010

    For years, Dell’s supply chain prowess drew the ire and esteem of manufacturers worldwide, as the made-to-order leader ably delivered customized computers and accessories to eager and loyal customers, muscling its way to an enviable market share in the process.

    Let’s observe a moment of silence for this supply chain pièce de résistance.

    Last month, Dell announced that, well, it just wasn’t working out anymore. The operations and supply chain needed to feed the formerly high-flying business model had grown too complex and too pricey.
    In what amounts to a eulogy for a once-coveted business model, Dell’s director of investor relations, Robert Williams, wrote:

    In the past, we utilized a single, direct configure-to-order model and we gave our customers a cascade of options to choose from when configuring a product specifically for their needs. This was, and still is, a great model for custom configuration where our customers value and will pay for this service, but it has become too complex and costly for significant portions of consumer and some portions of our commercial businesses.

    Dell’s new strategy is called Client Reinvention. Under its directives, the company is keeping a wary eye on its cost of goods sold (COGS), a tough-love metric that often erodes the notion that every customer is a valuable one. Williams went on to explain:

    Cost savings will come from further reduction in product complexity, larger bulk orders to contract manufacturers, strategic component buys, and use of lower-cost shipping lanes. For example, one year ago, Dell had never shipped a finished good to a customer via ocean freight. We have now started to move a small percentage of our product to a low-touch, fixed configuration, ocean ship model and you will see more orders going over the water going forward.

  52. HalleluyahHymen · ·

    There are four related theories in economics that we can link up with reference to the concept of “outsourcing”.

    1. Competitive advantage
    2. Comparative advantage
    3. Absolute advantage
    4. Pareto rule of optimality

    Depending on the mode of argument, first three applies to competitors while the fourth applies to the firm’s internal perception on productivity.

    Outsourcing in layman’s parlance is simply employing a service provider for a specific function of a firm. For ages the firms have been outsourcing minor functions such as fix-ups of machines and their office space utilities from lighting to toilet bowls. Any function within a firm provided by employees and outside service provider are services rendered to the firm… simply to make it function in it’s day to day operations. A firm doesn’t hire an in-house plumber, a garbage collector or an electrician. By logic, it is practically cost inefficient. All logical explanation of cost efficiency is just pointing to PROFITABILITY… NO MORE NO LESS.

    As an industry grow, each functionality requires x amount of man and y amount of machines… as it grows specialization is eminent. It’s like the behavior of medicine and the medical professionals. It is the pragmatic movement of the grand order of things…

    Going back through the main article’s context whether outsourcing is exploitation or not, IMHO, it is a stupid argument in the first place. The normal behavior of the firm is to PROFIT… through exploitation or any means thereof. Call centers in the Philippines for example is one major BPO industry here so are the other assembly line manufacturing companies. EXPLOITATION OR NOT… IT BRINGS EMPLOYMENT AND FOOD ON THE TABLE… Only a person who doesn’t have a clear perspective of what is the natural behavior of any firm will go through the most minute detail of the morals and the dogmas.

  53. @ hymen bading : soooo enlightening your 😈 😈 input ( yawn …yawn)

  54. HalleluyahHymen · ·

    One liner moron…

  55. ulong pare · ·

    … daaang

    … i called my provider today… a familiar voice… accent soooo sexy, reminiscent of my days spent in houses of ill repute … looking for something to fill the void…

    … now, i discovered free phone sex… didn’t cost me a nickel… at it’s legit…. customer service provider at its best… 😳

  56. until you get a call from agents of DIRECTLINE Philippines 😛

  57. […] Indeed there is more to soccer than meets the eye – there’s more to outsourcing than meets the eye. […]

  58. […] can compete in the global market – after all there’s more to outsourcing than meets the eye and of course, you can break the myth of “Filipinos can’t compete” – […]

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