Business|Adults|Pre-Int|11. Outsourcing and offshoring

1. Ruth and Eileen Miller grew up in a family where making clothes was common. Their mother regularly made clothes for herself and her two daughters. The two girls were able to design and make their own outfits by the time they were teenagers. Now they run ‘Waratah’, a clothing company based in Sydney.

2. The Waratah label started to establish itself in the mid-1990s. At first, the Miller sisters used a number of outside manufacturers to produce their clothes. In 1995, however, they decided to bring the production in-house. ‘We found the outside suppliers very difficult to manage,’ says Eileen. ‘They were often unreliable and we always had problems with getting clothes to our customers on time. We needed more control, so we decided to do the manufacturing ourselves.’

3. In fact, the switch to in-house production led to its own set of problems. It was hard to find new staff, and labour costs were rising. Because of this, the Miller sisters found it impossible to raise productivity beyond a certain level.

4. In 2003, the sisters decided to adopt a different system and closed down the manufacturing section of the business. Now, designing and making up samples takes place in Sydney, but the company outsources its production to other countries. At first, they used manufacturers in India, but now they also outsource to China where they are developing new production methods. ‘We still do all the main work in Sydney,’ says Eileen, ‘but offshoring has brought down our staff costs. Having the production labour abroad can be complicated, but the quality is excellent.’

5. The company already exports some of its clothing to the Middle East and now they are looking to promote the brand in new markets. The Waratah garment sizing especially suits Indonesian markets, so that will be their next target. They are also considering going into partnership with another established manufacturer.

So, Tony, what services does your advertising agency outsource?
Well, cleaning for a start. We contract a private cleaning service to clean our offices because the building is so big.
Aah. That wouldn’t work for us. You see the machines in the factory need to be cleaned by professionals, so we employ our own cleaners.
Really? And how about maintenance?
We outsourced this until the last year, but now we employ three technicians. We need experts to look after the machines.
Right. We outsource to a maintenance company.
Do you?
Yes, it costs us less to contract a private company than to employ our own maintenance people.
Mmm. What about IT? Who looks after your computers?
We’ve got our own IT department because the programs are so specialized. How about you?
No, we outsource to a local IT company. We haven’t got enough computers to need our own technicians.
How about human resources?
We’ve only got about 50 employees, so we’ve got an agency which finds new staff for us when we need them. I suppose you employ your own staff?
Absolutely. The HR department is quiet big, so it can do all the employing itself. We outsource the training, though, because there’s so much of it.
We outsource training too, because we don’t need it very often.
What else? I know, the canteen. Have you got your own cooks?
No, the catering is outsourced to another company because only a few employees use the service. And you?
Oh, yes, we outsource, too, so that we get a better service. Talking of food, I’m hungry. Do you fancy going out for lunch?

	Advertising agency	Reason	Pharmaceutical company	Reason
Cleaning	Yes	building is so big	No	machines need to be cleaned by professionals
Maintenance	Yes	costs less	No	need experts to look after the machines
IT	No	programs are so specialized	Yes	don’t have many computers
Human Resources	No	HR department is quite big	Yes	only 50 employees
Training	Yes	so much training has to be outsourced	Yes	don’t need this very often
Food and catering	Yes	get a better service	Yes	only a few employees use the service

So, Tony, what services does your advertising agency outsource?
Well, cleaning for a start. We contract a private cleaning service to clean our offices because the building is so big.
Aah. That wouldn’t work for us. You see the machines in the factory need to be cleaned by professionals, so we employ our own cleaners.
Really? And how about maintenance?
We outsourced this until the last year, but now we employ three technicians. We need experts to look after the machines.
Right. We outsource to a maintenance company.
Do you?
Yes, it costs us less to contract a private company than to employ our own maintenance people.
Mmm. What about IT? Who looks after your computers?
We’ve got our own IT department because the programs are so specialized. How about you?
No, we outsource to a local IT company. We haven’t got enough computers to need our own technicians.
How about human resources?
We’ve only got about 50 employees, so we’ve got an agency which finds new staff for us when we need them. I suppose you employ your own staff?
Absolutely. The HR department is quiet big, so it can do all the employing itself. We outsource the training, though, because there’s so much of it.
We outsource training too, because we don’t need it very often.
What else? I know, the canteen. Have you got your own cooks?
No, the catering is outsourced to another company because only a few employees use the service. And you?
Oh, yes, we outsource, too, so that we get a better service. Talking of food, I’m hungry. Do you fancy going out for lunch?

	Advertising agency	Reason	Pharmaceutical company	Reason
Cleaning	Yes	building is so big	No	machines need to be cleaned by professionals
Maintenance	Yes	costs less	No	need experts to look after the machines
IT	No	programs are so specialized	Yes	don’t have many computers
Human Resources	No	HR department is quite big	Yes	only 50 employees
Training	Yes	so much training has to be outsourced	Yes	don’t need this very often
Food and catering	Yes	get a better service	Yes	only a few employees use the service

Outsourcing on the increase International financial firms are on a course to increase by five times the number of jobs they move overseas. This is according to a new report from the accounting company Deloitte Touche Tohmatsu. This shift to outsourcing, or offshoring, will help cut staffing costs. Some companies will see up to seven percent of their global staff working in offshore bases. Two million financial services jobs in IT, HR and call centers will be based offshore by 2010. The good news for investors is the tripling of savings from $5 billion to $16 billion. Outsourcing has the true potential for huge cost savings.

Deloitte said outsourcing is mistakenly being used as a short-term strategy because many companies experience a sharp fall in cost savings after several years. The report stressed that: «Offshoring is not a straightforward cost savings tactic. Many organizations experience ‘offshore fatigue'». The advice from Deloitte director Chris Gentle was to think long term and not to «dabble». He said: «Financial institutions that make a half-hearted attempt at offshoring are exposed to all of the risk, while enjoying only some of the benefits. The message is clear: «Stay home if you’re not committed».

• bookkeeping
• opportunity
• demonstration
• software

• Dear (name),
• Thank you for …
• We are interested in …
• We would also like to …
• Will this be OK for you?
• Yours sincerely,
• Yours faithfully,

Sample answer

Dear Mr. Dawson,

Thank you for your letter.
We are very interested in a demonstration at our workplace of your new bookkeeping software Accounting Magic because we are trying to reduce the number of bookkeepers in our company to a minimum of just a head accountant. We would also like to discuss the opportunity of outsourced accountants on July 1st.
Will this be good for you?
We are looking forward to receiving an answer.

Yours sincerely,

(name)