Global Sourcing has become a hot topic among businesses all over the world, but it can be confusing for the uninitiated. Basically defined as the movement of work to optimal cost labor markets, the practice of sourcing talent beyond national borders is transforming the way leading companies are optimizing their business and HR functions today.

Over the last five years we have seen a rapid increase in the number of Fortune 500 companies that are looking overseas in their quest for talent, and are capitalizing on the opportunities and improved productivity levels that “offshoring” can bring. And while cost is obviously a factor in this decision, interestingly, a recent Hewitt survey of companies that are actively offshoring work identified several other key drivers behind global sourcing strategies.

Improved Productivity Levels

Many companies report improved productivity levels following the implementation of a global sourcing strategy. The reasons are two-fold. Not only does offshoring allow one key group or company to concentrate on certain tasks and bring their own efficiencies to the table, it also frees up the time of employees, allowing them to focus on core competencies and growing the business.

Increased Flexibility and Speed

Offshoring presents many opportunities to reduce cycle time and expand or downsize projects on a real-time basis. These organizational models allow companies to accomplish tasks more quickly and in a more business-driven, flexible manner. Most companies using a global sourcing model adopt a ‘follow-the-sun’ work pattern that engages teams in different time zones, enabling them to offer 24-hour service, seven days a week. Dell Computers, Microsoft, several airlines and many telecom companies follow this model to better serve their customers.

Access to New Markets and Customers

Global sourcing also allows for closer proximity and access to emerging markets in regions such as Asia Pacific and Eastern Europe. Setting up offshore facilities in these markets creates additional channels of interaction with local customers, competitors, and governmental bodies, which can lead to new business opportunities in those markets. For example, a number of companies that have set up their back office operations in India are also considering starting their own India business operations as their understanding of the local market increases.

Access to the Global Talent Pool

The best and brightest people are just as likely to be found in Asia or Eastern Europe as they are in the U.S., perhaps even more so when it comes to science and technology. In the current environment, these highly skilled and well-educated workers are paid at levels that may be considerably lower than their U.S. counterparts with similar credentials. For instance, an equity researcher on Wall Street will earn around US$10,000 per month, while the same level of skill is available for US$5,000 per month in Singapore.

Countries such as China, India, Malaysia, and the Philippines produce a surplus of qualified college graduates each year. For these newly minted graduates, a job in a reputable organization is appealing given its more generous pay and respectable status relative to other jobs. This may be in sharp contrast to the situation in Singapore, where operational back office work may not be viewed as desirable by workers with similar qualifications.

Acquiring Experience

Global sourcing brings the expertise of the external team to the table, utilizing its knowledge and leveraging off its experience. Therefore companies can offer a better quality of service because they can leverage the best practices of their local vendor.

Keeping up with the Competition

There are also competitive and cost management reasons for global sourcing. Many executives know that if their competitors are looking offshore to find technology or process support for drastically lower costs, they must follow suit. If their competitors are finding the skills they require through an offshore outsourcing firm, they must do the same. This is facilitated by new information technologies such as the Internet and voice-over IP, among other new enterprise applications.

Too often, organizations merely focus on pure cost-cutting objectives in the decision to offshore. Successful global sourcing does not follow any one prescribed methodology, and there are key decisions to be made along the way, each of which can guide the outcome and ultimate success of the operation. Hewitt sees the 10 essential factors to consider as follows:

• Business Case
• Which Processes and Functions to Move Offshore
• Evaluation of Offshore Locations
• Operating Model
• Effective Management of Change
• Global Talent Management
• Performance Metrics and Service Level Agreements
• Confidentiality, Legal, Tax and Regulatory Issues
• Risk Management
• Scalability

In the next issue of Singapore HR Insights, we will explore each of these 10 essential factors.

To learn more on how Global Sourcing can create a competitive advantage for your organization, please contact Tan Yee Deng.