MIT-AITI Entrepreneurship

Lecture 4: Offshore Outsourcing

Lessons

The new trend: Offshore Outsourcing What led to offshore outsourcing How outsourcing is affecting businesses Outsourcing in the future Case Study: A look at Wipro Systems

Outsourcing

The practice of one company allowing/contracting another company to do parts of its business

For example: A computer manufacturer contracts another

company to handle all its repairs and customer services

Offshore outsourcing

Companies in America and Europe are giving contracts to companies in developing countries to handle some aspects of their business

The Western companies benefits by taking advantage of cheap labor in the developing world

Offshore outsourcing has created millions of jobs for people in the developing world

The Outsourcing trend

Globalization and technological advancement has given rise to a global economy that allows workers from all over the world to compete for jobs, therefore, the offshore outsourcing trend emerged.

Offshore outsourcing has mainly focused on:– IT related work – mostly to India– Manufacturing operations – mostly to China

Outsourcing in India

Acquired the majority of the IT outsourcing industry by early entry into the industry

Has a large number of highly educated, English speaking computer programmers

Has the necessary infrastructure for outsourcing on a big scale

In 2003, India’s outsourcing industry was worth over $12 Billion

Indian companies

Wipro systems, a billion dollar company is a leader in India’s outsourcing industry

Other companies are InfoSys and Tata Computer Services (TCS)

The industry is expected to continue to grow at 30% annually (Forrester)

Outsourcing in other countries

Many other countries are trying to take advantage of the outsourcing trend.

English speaking countries with large number of educated computer programmers and good communication infrastructure can take advantage of the outsourcing trend

Eastern European countries, Israel, Ghana and South Africa are very keen on joining the industry

Rise of outsourcing

Globalization means that companies have to compete globally and so do the workers

Technological advancement means that it is easy for people in different parts of the world to communicate cheaply and efficiently

Aging population in Europe and America means that the a new workforce is needed

Rise of Offshore outsourcing

Globalization means many people are familiar with the American and European culture

Higher level of education among people in the developing world.

Wages in the developing world are much lower Outsourcing is beneficial to both the US

companies and workers in developing countries

Outsourcing trends

IT industry – low and high paying jobs Low cost manufacturing Care of the aging populations in the US and

Europe - medical, vacations, care of the elderly, entertainment etc.

Blue collar jobs in the US are being outsourced to immigrants from Mexico and other developing countries

Outsourcing in the future

Since globalization is increasing, outsourcing is only going to increase and be more widely developed

Countries that will benefit from this industry will be those who identify opportunities quickly and get involved early

Companies/Countries that establish themselves as a place of excellence will get customers

Offshore outsourcing is the wave of the future

Wipro Systems

India’s largest technology company in terms of market capitalization

In 2003 it had revenues of about $1.4 billion

Once upon a time in ’65 …

Azim Premji was an undergraduate in Stanford University

His father died 1 year later and he had to returnto India to handle the family business, Western India Vegetable Product.

The challenge was to diversify the company.

Azim Premji in charge

He diversified the company from being a cooking oil company to:

Manufacturing light bulbs with General Electric

Making other products such as soap In 1977, he changed the name of the

company to Wipro Products Ltd and then to Wipro Technologies

Wipro Technologies begins

In 1979, the Indian government kicked IBM out of India

Azim Premji saw the opportunity and started an information technology division

He went into computer manufacturing, software development and computer maintenance services

Many people wondered what he was doing

Wipro Technologies growth

Wipro made software packages and sold them to US companies

Cheap operating costs in Bangalore, India gave Wipro huge profit margins

Wipro growth factors

Focus on innovation and excellence Hard work works – Azim is a workaholic Management principles based on equality

and human values Refusal to give bribes and intent on honesty

from all his employees Azim’s frugal approach with his money

The frugal billionaire

Azim Premji drives a 6 year old Ford He is a workaholic and lives near his company so he

can check in anytime Always flies economy class and eats in cheap

restaurants He didn’t promote his sons to be head of the

company because he felt they were not qualified for the position

He is a Moslem and set up the Mahatma Ghandi Foundation in India

A great example to the third world

Wipro Systems - Founder

Mr. Azim Premji

India’s richest man with a $6 billion fortune

Assignment

Write a detailed 2 page paper as part of your group (one paper per group) on how you can use the resources available to you to begin an outsourcing company.

This assignment should be done by together by the whole group as a team.

Resources

Visit www.wipro.com and have a look at what the company is about.

Read the complete story of Azim Premji