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Compelling Reasons for Considering Outsourcing to Vietnam

Companies are looking for ways to cut down their costs as the global marketplace gets more and more competitive. The most common ploy used by companies to control their cost-base is outsourcing their operations. For a long time, China and India have been dominating the business process outsourcing (BPO) activities due to the availability of low-cost labor, natural resources, and highly skilled technical workforce. However, companies are starting to face challenges in such locations due to rising labor costs, high attrition rate, and stringent regulations. In recent times, another destination has shot up as a lucrative alternative for companies looking to outsource their business operations. It may take you by surprise, but yes, Vietnam has been preferred sourcing destination for several companies now due to numerous reasons. A Gartner report in 2015 named Vietnam in the top tier of offshore services SE_Demo2locations, alongside China and India. The success story of Vietnam as a BPO destination has been marked by the $2 billion contribution to the country’s GDP in 2015. So why are companies looking to outsource their operations to Vietnam?

Availability of Technical Talent

The pool of technical talent available in Vietnam is growing at an outstanding rate. First of all, unlike India and China, the English language is not a problem for Vietnamese people as the majority of the schools are in English medium. Also, English is the most popular language in Vietnam after Vietnamese with focus on the proper accent. Such proficiency allows the workforce to excel in the IT industry, where the employees are exposed to foreign customers. However, the talent is not limited only to the knowledge of the language but also expands to technical expertise as well. For instance, the game Flappy Birds, which gathered millions of players within a year was created by a Vietnamese citizen. Additionally, Vietnam also has close to 40,000 IT students graduating each year, which provides ample supply of fresh talent. Over thousands of IT companies are already employing about 80,000 workers in the country. The major factor influencing these IT companies is the impressive literacy rate of 96%, with 80% of the graduates majoring in science.

Higher Retention Rates

The working culture in Vietnam vastly differs from other outsourcing hubs as loyalty is highly prized here. The level of commitment, loyalty, and focus seems to be strong amongst the employees due to attractive internal company culture. Vietnamese companies provide continuous employee development programs, maintains open door policy, and encourages an atmosphere with clubs and weekend parties. For instance, employee attrition rates in IT companies in Vietnam sits at a meager 6%-8% compared to rates exceeding 20% in India. Higher employee engagement, work-life balance, matching pay to performance, and superior benefit programs are among other reason for high retention rate in the country.

Modern Tech Infrastructure

Vietnam has already attracted top IT companies in the world like IBM, Intel, and Microsoft to set up their facilities in the country. The country has invested heavily in its 2020 IT Master Plan, which includes construction of tech parks such as Da Nang Hi-Tech Park, housing offices and factories for global IT companies. The government has passed multiple economic policies encouraging domestic and international entrepreneurs to start a business. In 2013, IBM selected the city of Da Nang to receive a IBM’s Smarter Cities Challenge Grant worth $50 million.

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Have Automation and AI put an End to the Era of Outsourcing Services?

The developed parts of the world have enjoyed lowered production cost and higher profits by outsourcing services from various operations like production and customer service. With countries such as China, India, and Bangladesh being the major outsourcing services hubs due to lower labor rates, companies have been able to lower their cost base considerably. On a similar note, automation and artificial intelligence (AI) have also significantly saved large chunks of the cost for the companies. As a result, many analysts and experts have predicted that the days of outsourcing services will be outnumbered soon enough, with automation and AI eating up numerous jobs. So does the rise of automation and AI bring down the curtain on outsourcing? In this article, we have explained the reasons for this question. 

How Automation and AI Impact Outsourcing Services?

Increasing Cost of Outsourcing Services

Although traditionally companies preferred outsourcing to save on labor costs, today the BPO’s charge higher fee for their services and add markups making those services expensive. Additionally, governments across the world also discourage companies from their outsourcing services and promote employment and production in home country instead. For instance, under the Obama administration, a $200 billion in tax relief and incentives law was put in place, which encouraged American companies to make an investment in their business and create new jobs. Other laws allowed businesses to write off all costs in new investment in equipment in the US.

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Loss of Control

When businesses outsource their operations, they contract the work to other company, which means sharing company details, information, and data. The company will be at the mercy of the BPO. Also, quality and service delivery from the BPOs may vary widely.

Supply Chain and Logistics Efficiency

Outsourcing services of manufacturing and production operations may seem lucrative at the beginning with all those cost savings opportunities. However, businesses may incur unanticipated costs such as hidden fees, import and export duties, shipping costs, haulage, freight costs, legislative costs, and additional taxes. Additionally, due to the complicated logistics network, the time-to-market is also significantrequest proposally increased. Consequently, businesses are looking to manufacture in the home country whenever possible by carrying out make-or-buy decisions.

Automation and AI

The most prominent factor that could signal the end of outsourcing services is the rising popularity of automation and AI. The technology is so advanced that it can eliminate the majority of human errors, and provide a quality output at a faster rate. Automation in manufacturing has been around for a long time. However, AI is threatening to replace service facing operations. For instance, with machine learning and cognitive computing abilities, companies can use chat-bots to solve customer queries and automatically reply to e-mails from the customer.

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Nearshoring in Pharma Industry – A Cost Reduction Strategy that is Often Overlooked

Stringent FDA requirements, increasing operating costs, shrinking R&D budgets, and patent issues are threatening to shrink the profits in the pharma industry. In a bid to boost their competitiveness and sustainability, top companies in the pharma industry are looking for various strategic measures to improve cost savings. Multiple cost reduction strategies are available to pharmaceutical companies including usage of big data, cross-company standardization, lean process improvement, and business process management. However, the majority of the companies in the pharma industries indulge in such cost-saving strategies. To gain a competitive advantage, top pharmaceutical companies are looking at nearshoring to bring efficiencies to their cost structure.SE_Demo2

Nearshoring is different from outsourcing or offshoring, as it often looks at nearby country or location to avoid logistical challenges posed by offshoring from a faraway location.

Country-Based Opportunities

It is evident that different countries will have various laws, labor laws, economy, and infrastructure. Pharma companies can optimize their cost base by nearshoring operations to a country which can favor that particular process. For instance, countries such as Poland and Bulgaria rank as top destination regarding tax incentives. In Bulgaria, government grants back up to 50% of the CIT due for investment in regions with high unemployment, in addition to tax deductions for hiring long-term unemployed, elderly, or handicapped person. Also, major pharma companies in Europe are trying to reduce their employee headcount in expensive cities like London, Geneva, and Zurich and nearshore operations to popular destinations such as Leeds, Prague, Tallin, and Montevideo.

Shared Laws

The pharmaceutical industry is highly regulated by the government as it directly correlates to public well-being. The strict requirement for adherence to quality can be maintained by nearshoring it to suitable destinations. However, outsourcing the process to countries like China and India may pose compliance issue regarding good manufacturing practices (GMP), which is a matter of concern for pharma sponsor. The US being the largest pharmaceutical manufacturer in the world, looks for nearshoring its operations to Japan as it illustrates a better understanding of regulatory and compliance requirements that are required to manufacture high-quality pharma product. The US also imports from nearby locations such as Ireland, the UK, France, and Canada, which accounts for 51% of their total imports for generic drugs.

Supply Chain Management

Pharma companies have to closely monitor the manufacturing process of drugs in order to ensure compliance. This can be possible if the destinations are close to the parent company. Nearshoring offers them the benefit of close supervision and in turn, facilitates communication so that they can reduce the time to market. Additionally, it also reduces chances of errors, grants more control and flexibility as companies have multiple transport and shipping options. Nearshoring also reduces the overall logistics and transport cost due to reduced distance between the parties.

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What’s Changing the Dynamics of the HR Software Market?

The world of business is striving for efficiency and speed with the help of software and automation. Most of the business sectors are boosting their efficiency with minimal human intervention and efficient software tools. Human resource is no different, as software is Request Free Samplemanaging record keeping and information processing task regarding HR. An advanced HR software is capable of processing complex datasets on the payroll, attendance, leaves, appraisals, performance, and recruitment to derive accurate insights.

Advancements in software capabilities have enabled companies to shift their focus from managing administrative tasks to explore strategic aspects of HR. To keep up with the pace of development within the HR software market, developers are incorporating new features and capabilities every day.

Here are some of the trends changing the dynamics of HR software market:

Emergence of Gig Economy

Companies are finding out new ways to keep HR costs down and increase productivity. They do so by hiring independent and temporary workers, contractors, and freelancers to complete a particular task. The problem with such a kind of sourcing is that the company must constantly look out for such workforce. The developers are also incorporating a data-driven real-time analysis approach for such on-demand sourcing needs; thus, driving innovation in the HR software market.

Adoption of Gamification

Gamification has been trending in several business functions as a means to improve productivity. It can be implemented in the HR software to achieve business goals by improving talent acquisition and management, retain valued employee, motivating employee, and mapping career path. For instance, gamification of employee training participation can ensure a high rate of engagement; thereby increasing effectiveness.

Increasing Complexity of Performance Management System

The performance management system today is far more complicated than it used to be. It has evolved from numeric targets to assessments using multiple parameters, goal-based assessment, and dynamic team assessment. Both buyers and suppliers are looking for a solution for transparent goal tracking, incorporation of online assessment tools, and pulse surveys as a feedback mechanism; thus, changing the HR software market landscape.

Suppliers are also focusing on incorporating the latest techniques and trends such as AI, machine learning, and gamification, which are resulting in major changes in the HR software market landscape. SpendEdge’s procurement report on HR software market identifies recent trends in the HR software market and offers key insights on major suppliers, supply market highlights, pricing insights, and procurement insights.

View our latest success story to know more about the benefits of HR software and its impact on an organization’s profitability.

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4PL Services – The New Formula for Better Supply Chain Planning

Fourth-party logistics, or 4PL, is gaining popularity due to the growing demand for suppliers who can handle logistics, as well as manage their supply chain. The 4PL service providers not only procure, store, and distribute supplies, but also handle its internal processes. By acting as an integrator, the service providers optimize the supply chain costs, provides better visibility on the various supply chain processes, and boost the overall productivity of the business. Usually, category managers consider factors like industry-specific expertise, the level of technology employed, as well as supply chain integration capabilities while choosing a 4PL service provider.

The foundation of a seamless supply chain planning

The five key aspects which form the foundation of a smooth supply chain planning are:

  1. Latest IT infrastructure
  2. Better strategy for planning and execution of logistics
  3. Industry-specific expertise
  4. Enhanced integration of supply chain capabilities
  5. Scope for customization

Post globalization, the length and complexity of supply chains have grown manifold. Buyers prefer service providers who not onlyget in touch track and report on the flow of goods and services but also capture real-time data with minimal disruptions in the network. All this is possible only if the suppliers have updated their infrastructure with the latest developments in the IT industry. The advanced technology used by 4PL service providers not only makes the entire flow of the supply chain seamless but also makes it easier for suppliers to connect across global networks and provides better management of information and improved reporting & end-to-end tracking.

Every logistics activity involves huge scale of coordination between distributors, manufacturers, and suppliers as well as the backward integration of information flow from customers to suppliers. Usually, supply chain managers face problems in decoding a large amount of information to coordinate logistics across geographies. 4PL companies enhance the functioning of the entire supply chain by overseeing distribution and warehousing functions as well as identification of best transport solutions.

SpendEdge’s take on the growing popularity of 4PL services

Outsourcing of logistics services has become quite common today. Buyers are looking for simple and cost-effective solutions for their businesses. Most 4PL service providers offer comprehensive portfolios, which smoothen the functioning of the entire supply chain and reduce the overall operational costs. At present, the automotive sector in the EMEA region as well as in the Americas is witnessing a high demand for 4PL services.

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SpendEdge Webinar on 26th and 27th July – Outsourcing HR Services & the Importance of Performance Based Supplier Engagements

One of the primary concerns of the Human Resources (HR) component of any corporate entity is to ensure the continuous and productive development of their in-house human resource base. Unfortunately, due to a jack-of-all-trades categorization, the average HR unit is overwhelmed with a plethora of crucial tasks and cannot dedicate the desired chunk of attention to such activities as talent administration, leadership development, and service improvement. Is growing the HR team a viable and long-term answer to this conundrum?

Maybe, but that’s also a costly and time intensive proposition. Outsourcing HR services on the other hand ensures that an experienced offshore HR unit is bought into the picture that ensures a two-pronged advantage to the organization- 1) Help the company contain costs, and manage risks, while still enjoying competent HR services, and 2) Free up the in-house HR outfit to concentrate on more employee development initiatives

Insights on HR Outsourcing & Supplier Ties Based on Performance

On the 26th & 27th of July 2017, SpendEdge, the globally renowned procurement intelligence advisory firm, is hosting an insightful discussion on ‘Outsourcing HR Services & the Importance of Performance Based Supplier Engagements’. This webinar, conducted by expert luminaries from SpendEdge’s Bangalore based sourcing team, will deal with the following key considerations-

  • How HR outsourcing can help in driving transformation within the organization
  • How to enhance employee engagement through process improvements
  • Analyzing the impact of automation and data analytics on talent acquisition
  • Exploring the role of strategic supplier relationships in facilitating efficient human resource administration
  • Rise of multi-country and centralized outsourcing models for improved profitability and productivity

The webinar is scheduled for 45 minutes and is focused on helping business leaders understand the importance of setting up strategic partnerships with suppliers for HR services from the perspective of cost containment, risk management and employee development. Thanks to the quality HR services on offer, businesses can expect a satisfied workforce that is simultaneously more productive and engaged.

Sign Up to Explore the benefits of Outsourcing HR Services

If you are Manager/Director – Centre of Excellence,  Category Manager – Outsourced Services, or an HR professional taking care of HR Shared Services/HR Strategy/HR Core Process and wish to align your business in the general direction of improved productivity, collaboration and elimination of wasted movements and redundant strategies, tune in via the following channels at the appointed hour.EMEANA

Expert Speakers Discuss Actionable Insights

Our speakers have years of domain expertise in sourcing and procurement. They are natural problem solvers and have a penchant for spotting resourceful market insights when it comes to organizations and their attempts to better manage their spending and supply chains. A brief introduction to them follows.

Sanya Sehgal works with the sourcing team in the Bangalore office of Infiniti Research. She has experience in working across sectors such as media, pharmaceutical, automotive, and industrial services in the areas of procurement benchmarking, strategic sourcing, and quantitative market modelling, etc.

Parikshit Ghoshal is a part of the sourcing advisory team in the Bangalore office of Infiniti Research. He has 9+ years of experience in working across sectors such as F&B, automotive, media, telecom, IT, life sciences, and heavy industries in areas of procurement advisory, strategic sourcing, competitive benchmarking and analysis, and quantitative market modelling.

See you there. Please do reach out to us if you seek more information or clarification.

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Innovation – The Y-Factor in Effective Procurement Strategy

To reach that charismatic point, where procurement is as natural as breathing, is a dream for many CPOs. With industry giants like IBM, Apple, and Unilever, resorting to crowd sourcing, it has become even more critical for procurement teams to devise procurement strategy to simplify the whole process. Outsourcing of innovation has become the rule of the day, and though on the one hand it does come across as a challenge – the inherent opportunities which outsourcing provides are quite interesting.

Can innovation and procurement go hand in hand?

One of the most under-explored areas in the procurement process is adoption of innovation in building the buying strategy. Perhaps this is because of the myth that procurement strategy and innovation are miles apart, and bringing them together is a rather strenuous job. While the fact remains that – innovation has always been a core element of every procurement plan. All that is needed is a clear-cut channeling of the in-house and outsourcing requirements.

Steps to achieve innovation centered procurement strategy

The goal of innovation centered procurement is to bring down the final cost to the company, by intelligently outsourcing work to the third parties. This can be diligently done by:

  1. Inculcating the ethos of procurement entrepreneurship in the team
  2. Assessment of the capacity to bring in innovation in the plan
  3. Drawing a clear road map for innovation centered procurement
  4. Working on capacity building for actions needed on effective procurement process

Most category managers will agree on the role of mindsets and behavior in improving the overall spend analysis management of the organization. Perhaps this explains the increased importance being given to imbibing innovation as a value among procurement analysts. Innovation is thus not an external element, rather something which the next generation of procurers need to inbuilt as a part of their strategic thinking.

SpendEdge – Procuring in the most innovative manner

Years of experience, backed with in-depth knowledge of our expert team of procurement analysts shows that innovation has always been an important part of every supplier spend analysis. And till date, every project handled by us is a testimony on how the challenges in the spend data can be easily overcome with innovative distribution of purchase cost.

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