Outsourcing your IT requirements to the Philippines

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3W IT Consulting and IT ContractingIndustry White Paper

Outsourcing your IT requirementsto the Philippines

IT Consulting | IT Contracting


2/12IT Consulting | IT Contracting

3W White Paper / January 2010

Outsourcing IT Contracting to the Philippines, a White Paper by 3W IT Consulting and Contracting

Offshore Outsourcingand the Nearshore RevolutionProduced by Bruce Mills, CEO of IT company 3W IT Consulting and IT Contracting Pty Ltd

1.1 INTRODUCTION

Bridge-building must surely be one of the most versatile metaphors in the English language. It applies equally well

to the IT resourcing and contracting industry, where Offshore Outsourcing enables companies to link and build a

bridge between a highly skilled, readily available IT workforce in one country, to meet their own IT requirements in

a local market that is experiencing high demand and short supply for IT skills (and all the problems associated with

such market dynamics).

Be it outsourcing, best-shoring or Nearshoring (essentially variations on a theme), this popular practice innitely

widens the talent pool that companies can tap into. And the practice of Nearshoring, where the workforce in a

neighbouring country is utilized (more on this later), can deliver benets above and beyond the broader outsourcing

models. A skilled IT workforce can be engaged by local companies on everything from short term project based

work, to ongoing IT maintenance and support. This requires little change to the management and infrastructure of

most companies. The rewards can be signicant, notwithstanding the substantial cost savings in manpower and

real estate provided by tapping into a market where the prices of both can be up to 70% less than in Australia.

In a truly global economy, where competitors can be next door, or half way around the world, outsourcing and

more specically Nearshoring allows companies to gain a greater ROI from their workforce by realizing economiesof scale not normally achieved with their own internal people. The ow on effects include; access to a labour market

that has skills not available locally, better control and management of a lower cost resource base, innite scaleability

of the business, ability to turn the Nearshore workforce on and off as dictated by the local business climate or if

there is no longer a need for the workforce (such is the case in many IT projects).

In todays global economy, companies cannot afford for outsourcing not to be included in their strategic plans,

and Nearshoring as demonstrated in this White Paper is an effective strategy that requires minimal investment for

companies in people, company culture and technology.

THE CLIENT IS WELCOME TO TRAVEL ACROSS THE BRIDGE ANDEXPLORE OPPORTUNITIES THAT OFFSHORING PROVIDES

In considering the bridge building analogy further, outsourcers such as 3W are able to efciently join together

local clients with international resources. Engaging in this solution allows the client to cross the bridge and reap

the benets outsourcing and Nearshoring delivers. And returning to their existing local labour model is as simple

as returning back across that bridge. As a Nearshore partner, 3W builds efcient bridges between the needs of

the clients and its nearshore expertise. This carries a simple guarantee. If the outcome does not meet the clients

expectations, the bridge is dismantled and 3W will help restore the clients previous status quo, including providing

any required locally sourced resources.

Nearshoring has the potential to help transform any entity into a globally competitive powerhouse, returning

shareholders improved prots and more importantly, better outcomes for their clients and customers.




1.2 NEARSHORING YOUR COMPANYS IT

Determining what IT functions or projects can be delivered in conjunction with a Nearshore partner is a decision

that depends entirely on each individual company. There is no blanket solution for all companies across all

industry sectors. And the decision and model engaged depends on the major benet each client is looking to

achieve by Nearshoring.

Some factors that need to be considered in the decision process include:

What is the main objective and benet sought by the company in nearshoring? Is it cost savings? Scaleability?

Reducing time to market? Overcoming physical real estate constraints? To name a few.

Are the IT functions/projects open to nearshoring considered to be critical or non-critical to the business, its

operation, competitiveness and ultimate ability to satisfy its own clients and customers?

Are there any management, cultural, structural or technological issues to be considered in the decision? How

ready is the Company to make this step?

How much control does the Company want to retain? Maximum control is delivered when the company

directly manages the nearshore workforce. This is like engaging local contractors, except the supplemental

workforce is not across the workstation, but a couple of thousand kilometers away. The opposite end of the

model is to hand all responsibility over the the Nearshore partner, sit back and wait for them to deliver.

These issues and objectives should be addressed at Executive Management levels in the company, ensuring

they are reected in the companys strategic vision. They should also be addressed at an operational

management level. After all, this management level will ultimately decide the success of any nearshoring

functions of the company.




1. FULLY ON-SITE TEAM

2. NEARSHORE AND ON-SITE LEAD TEAM

Nearshore resources in design, coding and testing.

The lead team remains on-site and can include:

Project Management Lead

Knowledge Transfer Lead

Quality Assurance Lead

3. FULLY NEARSHORE TEAMNearshore Lead Teams are trained on-site before

returning overseas to provide skills pertaining to:

Project Management

Knowledge Transfer

Quality Assurance

Staff augmentation is required at

client locations.

Consulting forms an integral role.

On-site studies are necessary.

Reduced customer interaction

is appropriate.

IP or Knowledge Transfer from the

customer is limited.

A well dened scope of tasks is outlined.

Procedures and policies are well dened.

Communication requirements between

departments are less intensive.

The nature of the work is repetitive.

Well suited to cases where:Engagement Models:

1.3 DELIVERY MODELS FOR NEARSHORING

Nearshoring can be applied to both IT applications and IT infrastructure, whether it be from a development or

deployment perspective, or support and maintenance.

Generally speaking, application development and infrastructure support utilising a Nearshore team has a

number of models that the company and partner can adopt.

For example, for applications development, the following table outlines some suggested engagement models

and their most suited application.




1.4 THE CURRENT OFFSHORE LANDSCAPE

Regardless of the various permutations of outsourcing, there any many countries around the world that

have well established industries for managing the IT requirements of companies across the globe. And like

all markets, there are dominant players, market innovators and new participants entering the market as

globalization drives ongoing evolution in this sector. The table below shows the major players in this industry

and their respective market share.

As outlined in Fig 1 below, India is the absolute market leader in the IT outsourcing market with a 38% share

of the global market. The sector is highly matured and has built its success on the back of supporting the IT

needs of corporations and governments across the USA. It has a national industry body, the Indian National

Association of Software Service Companies (NASCOM) and a focus from its tertiary education sector on

producing an ever increasing number of IT graduates to feed a seemingly insatiable local and international

IT market. But as with all maturing participants, the Indian IT outsourcing sector faces its own challenges;

supply and demand issues for skilled and battle hardened IT workers, rising standards of living that are

pushing IT salaries to approach equivalent levels to that in western countries, huge demands on infrastructure,

mismatched cultures to client countries and practices (both social and business), and communication skills in

a multilingual society. All these factors have impacted on Indias ability to maintain its operational and cost

competitiveness in a truly global market.

The rest of the market players including Russia, Mexico, Malaysia, Brazil hold single gure shares of the global

market and have their own challenges to overcome in meeting client expectations and standards. These

include (but are not limited to), infrastructure bottlenecks at a country level, cultural and business ethics

issues, human and workforce rights, communication skills with English often being a second language, alleged

corruption, lower standards of education, distance and time difference to clients etc.

For Australian companies there is a better alternative.

Fig. 1 - Table showing market share in the Global Offshore IT Landscape

COUNTRY MARKET SHARE

INDIA 38%

CHINA 6%

MEXICO 5%

IRELAND 5%

CANADA 5%

RUSSIA 4%

PHILIPPINES 4%

MALAYSIA 4%

SINGAPORE 4%




1.5 NEARSHORING WITH THE PHILIPPINES AS AN OPERATIONAL BASE

An outstanding alternative in the global outsourcing market, and a neighbour to Australia is the Philippines.

This country has a mature IT outsourcing industry with globally competitive service providers (also in Call Centre

and BPO outsourcing), a western tertiary education system based on the USA model producing high quality

IT graduates, infrastructure in its main outsourcing centres of Manila and Cebu that effectively supports the

industry, a population where English is a rst language, a cultural outlook that is similar to that of major western

countries such as Australia, and a geographic and time proximity that sits well with Australias working week.

Also, 90% of the population has a family member working and living in a developed country such as Australia,

so there is great afnity between the Philippines and more economically developed states.

All this adds up to a destination that is highly conducive to and effectively supports an IT Nearshoring industry

for the Australian market.

For more than a decade, the principals of 3W have recognized this potential and have arguably more experience

and success than any other service provider in Australia in supporting clients with their IT needs, by utilising

the skilled labour market in the Philippines.

1.6 GOVERNMENT SUPPORT

The Philippine Government has formed the Information Technology and E-Commerce Council [ITECC] in order

to promote itself as an attractive offshore outsourcing hub. In observing the success of the Indian software

services sector, the ITECC has proactively positioned their workforce to better provide the skills and services

which are in high demand. As a result of consultation between private enterprise and government, the ITECC

was pivotal in establishing the Information and Communications Technology [ICT] policy, which focusses on

the following four key initiatives:

Developing IT development zones within city planning;

Enhancing the Philippines information infrastructure;

Promoting services to potential clients; and

Providing a regulatory environment which is conducive to growth.

Legislating to ensure wages remain contained.

This nal point is most interesting in that it highlights the Philippine government attitude to the needs of theiroffshore partners, both in terms of tax policy and the returns on foreign investment.



1.7 INDUSTRY SUPPORT

Outsource Philippines (OP) assists companies such as 3W IT Consulting and Contracting in ensuring the

smooth transition to offshore services for their clients. It provides information to business as well as certication

within the ICT industry. The organisation also proactively monitors the quality of service delivered to members

of the association.

Virtually all Philippine software sector rms are located in Metro Manila. As the nations capital the proximity to

human resources is favourable and the telecommunications infrastructure is centralised in this area. Outsource

Philippines has its base in Manila. It acts as an information gateway to the predominant ICT activities of BPO,

call centering, transcription services, software development and maintenance.

1.8 RESOURCE AVAILABILITY

In the world market readily available resources are priced accordingly. The same can be said of the enormous

pool of IT talent available in the Philippines. Their universities continue to produce a vast number of highly

skilled graduates. Availability ensures overseas clients get precisely the resource that they need, regardless of

their IT requirement. And where such a requirement is highly customised, this workforce can be quickly trained

to perform a very specic task, adapted to suit the needs of the client.

There is great pride in the Philippines in their ability to cater to the diverse needs of overseas IT partners. Their

workforce remains one of the most skilled in the world. This reputation continues to attract quality graduates,

encouraging high achievers to strive toward the goal of working for members of the globalised economy.





1.9 COMMUNICATION SERVICES

The Philippines has good international radiotelephone and submarine cable services as well as a domestic satellite

system with 11 earth stations. Cellular communications now dominate the industry. These include combined xed-

line and mobile-cellular telephone density of about 80 telephones per 100 persons. A series of submarine cables

together provide connectivity to Asia, US, the Middle East, and Europe, with multiple international gateways. There

were a total of 283,607 internet hosts in 2009 as well as 5.618 million internet users.



1.10 PROVEN GLOBAL INDUSTRY

The outsourcing market in the Philippines, while holding a relatively small market share of the total global industry

(4%), is a well proven participant. IT Outsourcing, BPO Outsourcing and Call Centre Outsourcing are the major

sectors, with many Fortune 500 companies taking advantage of the unique benets available from outsourcing

in this country.

They include:

IT Outsourcing BPO Outsourcing Call Centre Outsourcing

Deutsche Bank HSBC Optus

Macquarie Bank Lufthansa Singtel

Morgan Stanley IBM Verizon

American Express Shell Teletech

QBE Siemens Convergys

ANZ Nestle

Accenture

Fujitsu

Ford Motor Corp

Intel


THE PHILLIPINES REMAINS

ONE OF THE WORLDS BEST

UNTAPPED RESOURCES OF

SKILLED IT TALENT




2.0 YOUR REQUIREMENTS

The benets of Nearshoring have been well canvassed in this document. Adequately meeting the needs of

your company also requires a clear objective on your behalf. In identifying your business objective there are

key questions you will need to answer. These include:

What components of workow could most easily be outsourced?

Where do inefciencies currently exist within our organisation?

Which department/s would most benet from an outsourced work process?

How would BPO savings be best utilised within your organisation?

How much time can be allocated to the effective implementation of BPO?

Who will provide the information interchange between the Nearshore partner and your organisation?

Who will be responsible for meeting targets and achieving objectives?

Once you have more or less identied answers to these issues, you will nd the process of outsourcing more

rewarding, and simpler to implement.




3.0 CROSSING THE BRIDGE WITH YOUR NEARSHORE PARTNER

3W IT Consulting and Contracting has established itself as a reliable partner for organisations looking to

reduce overheads while maintaining their IT service levels. Extensive research has demonstrated the benets

of the Philippines as a Nearshore destination for IT outsourcing. Cost-savings of up to 50% can be readilyachieved from the budgets of most companies, whether they be SMEs or large multinationals.

3.1 PROFESSIONAL AND DEPENDABLE OUTSOURCING SOLUTIONS

3W is well positioned to help companies explore the benets of taking advantage of the Nearshore revolution.

This could range from advice and input around feasibility and strategic t with a company, through to holding

their hand through their rst Nearshore engagement.


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IT Consulting | IT Contracting

Contact Us

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International Phone No: +61 7 3897 3009

Email: [email protected]

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Redcliffe QLD 4020

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North Sydney NSW 2060

Melbourne

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Level 27, 525 Collins Street

Melbourne VIC 3000

Philippines - Nearshore CentreLevel 8, Pryce Centre Building

1179 Don Chinos Roces Ave

Makati City, Philippines 1200

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Outsourcing your IT requirements to the Philippines