May 12th, 2006

Thinking about Outsourcing


Catch up Boon Kok for dinner last night. Had a long and interesting chat with him on various ICT topics wrt Malaysia, mostly me trying to pick his brain :-)

So we talk about outsourcing, something that is currently promoted by Pak Lah. We arrived to a conclusion that China is growing at such a rapid pace that they are going to be net importer of ICT products and services, like they did to oil and steel. This is unlike India which is still a net exporter but their fees are rapidly equalizing with the rest of the worlds. While Singapore may focus on the higher end of the value-chain, the mid-tier deals is the niche Malaysia is looking at.

It is also apparently to us many people still dont really understanding outsourcing.

1. Outsourcing is not sub-contracting.

Outsourcing is taking an internal coporate function and pay an external company to handle them. If it is a one-off deal, it is just sub-contracting. Outsourcing implies an on-going operational function.

2. You should only outsource internal corporate function that you know (or do) well.

You shouldn’t outsource functions that you dont know how to do, especially if you dont even know how to measure it. Ironically, many people do the opposite, ie outsource things they dont know about. They thought the third party may knows it better. Such deals often fall apart when there is a mismatch in expectations or desired outcome, expected when you don’t even know what you want in the first place.

If you don’t know how to do something, build that know-how internally first by hiring. Engage a consultant if need to be but don’t outsource.

Oh, while outsourcing traditional trives on cost-arbitraging, ie “I can do it cheaper than you do it”, I think the game is starting to change. Cost is still a factor of course, but companies are beginning to measure quality and performance of the outsource work. This is the reason we seeing some of the reversal in outsourcing deals. So for Malaysia to focus on outsourcing, skill and talent in the workforce will become important.

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