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Scrutiny
  
Understanding outsourcing biz
Europe lags the United States in reaping from the booming outsourcing business
21/02/2008

Outsourcing as a global phenomenon is not new; it has been going on for long. But it was not until 1990s when outsourcing has come more into limelight. Traditionally West had always been considered as developed and the largest outsourcing market. But the paradox is that even within developed world, surprisingly the wealthiest continent, Europe, has really not been successful in becoming a major outsourcing market the way the US has become and take full advantage of this booming industry. Europe remained more like a primitive market.

The US and its corporations have been successful in adopting the fast changing business trends and emergence of outsourcing, whereas European Union as a continent has still remained aloof from reaping off benefit of outsourcing inspite of having the pride and greatest tradition of innovation and excellence in business and commerce giving global competitive edge to companies in various industries like banking, insurance, telecoms, automobiles and many others.

The latest Quarterly Index from TPI, an international sourcing advisory firm, revealed that the EU represents 49%of the value of major outsourcing contracts awarded worldwide, whereas the United States is standing at 44%. But fact is major outsourcers in the EU remained confined within the continent for the same purpose rather than focusing cheaper destinations like India, China and thinking beyond the continent. For example, Western Europe is more dependent on East European countries like Czech Republic, Russia, Ukraine, Poland, Belarus & the Baltic. Well, though experts claim that political stability, government commitment to the industry, highly skilled labour force and minimal socio-cultural differences were main reasons for over-dependence on the eastern continent.
But that is little exaggeration. Over-emphasise on these, has actually hid its inexcusable failures like labour inflexibility, lack of cultural openness, over-cautiousness on national identity. Leading countries like Germany, France have very rigid and conservative laws regarding employment and layoffs. There is a need to realise and learn from the US for its open, diverse culture, a land for all. Many Asian companies are not comfortable initiating businesses in those countries. However, the UK, is exception.

The matter of the fact is the EU has not imposed any protectionist laws but as the maxim says, “delay in restructure is delay in regeneration,” slow pace of restructuring and policy adoption incurs huge cost to these economies. A research by McKinsey Global Institute revealed that each dollar of corporate spending that US companies outsource to India or China, it generates as much as $1.14 whereas with the present stiffness in laws, slow pace of adopting policies and keeping the labour re-employment rate as low as 40% Germany brings back merely €0.80 for every euro of corporate spending but if it can match with the US and raise re-employment rate as high as 70%, Germany can actually end up creating €1.05 in every euro corporate spending for German economy.

To put things in perspective, it is EU’s failure not to cope up with the changing phase. Its success is in re-orienting its laws, business practices, thinking et al to live in globalisation and extracting maximum profits from it. If the EU, as a country streamlines rules and policies with the changing business climate, it might get a chance to reap rich harvests from ‘global village’ before it gets too late.

By:- B&E
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