Outsourcing: the salvation for carriers?
By Mark Evans, Financial Post
A new study says telecom carriers can reduce their operating costs by as much as US$14.5-billion by sending high-tech and other business functions offshore to countries such as India, China and Canada.
The study by Deloitte Touche Tohmatsu, which interviewed executives from 42 telecom firms around the world, is more evidence of the growing interest in outsourcing. With thousands of jobs leaving high-cost countries such as the United States, outsourcing has become as much of a political issue as an economic one.
Phil Asmundson, a deputy managing partner with Deloitte, said offshore outsourcing has not been widely used by telecom carriers, mostly due to opposition from unions, concerns about a political and public image backlash, and the tendency among carriers to control all parts of their businesses.
Mr. Asmundson said, however, said it will be difficult for carriers to ignore the economic benefits of employing offshore operations.
“We think offshoring can be quite substantial and the survey's respondents agreed with that,” he said. “They agreed that 10% of their operating spending — US$57-billion — can be offshored by 2008. If you use typical cost-savings extrapolations of 25%, you would get US$14.5-billion in potential savings.”
While many carriers may not have carefully examined offshore operations, they are intimately aware of the importance of cost-savings programs.
Bell Canada, for example, has implemented an extensive cost-reduction and productivity improvement strategy since Michael Sabia took over as president and chief executive of parent BCE Inc. in 2002. Telus Corp., meanwhile, has gone through a restructuring that has eliminated more than 6,500 jobs.
Cost-cutting has become a way of life for many carriers because there is little revenue growth. A major culprit is the launch of lower-cost Internet-based services that have started to cannibalize older, high-margin services.
The growing interest in offshore opportunities could be good news for Canada, which already has a large call-centre industry. Deloitte ranks Canada as a second-tier country, which means it has “moderate” offshore capability owing to its lower wages, educated workforce and use of English. Other tier-two countries include China and Ireland.
India, which is the dominant offshore supplier to the communications industry, is the only tier-one country because of its highly educated workforce and low wages.
Other countries on the horizon include tier-three “up and comers” such as Israel and Estonia. The tier-four neophytes include Bangladesh and Vietnam.
Deloitte found that wages in India for high-tech positions are US$5,000 to US$12,000 a year, while wages in China are roughly US$3,000 to US$8,000. In Canada, salaries are in the US$25,000 to US$50,000 range. And in the United States, the salary range is US$60,000 to US$90,000.
