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Outsourcing:
Asia cashes in
By Tony Sitathan
SINGAPORE - Mention the word "outsourcing" to a management consultant, and
chances are that his or her eyes will light up. Nowhere is that truer than in
Asia.
When David Kennedy, a former management consultant with PriceWaterHouse
Coopers, came to Asia from the United Kingdom, he was surprised at the size of
outsourcing contracts from large corporations, which in the past was unheard
of. "This trend is very much similar in the UK, where large banks, finance
houses, trading companies, brokerage firms and manufacturing companies are all
looking at the outsourcing avenue once they realize that doing everything
in-house is a thing of the past," he said.
Rolf Jester, chief analyst for information-technology (IT) services for
Gartner, an international research and consulting group headquartered in the
United States, predicts that the current outsourcing market in Asia is worth
about US$4.7 billion. Estimates are that it will grow to $8.3 billion by 2006,
with a compound annual growth rate of 18.5 percent. Jester also says that most
of them in Asia are outsourcing their data centers, network services as well as
help-desk services. The main motivation for outsourcing is to trim IT budgets
and to focus more on their core competencies, whether in services or in
delivering products to their customers.
So when the Development Bank of Singapore (DBS) decided to outsource its IT
operations, it signed a 10-year, $687 million outsourcing contract with IBM
Corp. According to several IT providers, the cost savings would be about 15-25
percent of the costs of services being outsourced, translating into more than
$28.5 million within the first three-year period. "The cost saving is
substantial, and that would in effect make DBS more cost-competitive
operationally, especially in these lean and mean times," said Kennedy. IT
operations alone now account for 15 percent of DBS's total expenses.
Several other Singaporean banks plan to follow DBS's lead, including the United
Overseas Bank and Overseas Chinese Banking Corp. Keppel and Tat Lee Bank are
also poised to outsource some of their key IT services contracts. JP Morgan has
similar plans to sign a seven-year contract with IBM, worth in excess of $5
billion, while GE Medical Systems Asia has also indicated that it intends to
outsource its entire IT operations in the Asia-Pacific region to HP Services
with intentions to build an IT services hub in China.
IT networking and communications tools are not the only things being outsourced
by large corporations. When Toshiba Corp and Matsushita Electric Industrial Co
decided to work together to establish a liquid crystal display (LCD) plant
worth more than $1 billion, producing advanced flat panel displays (AFPD), in
Singapore it turned to a little-known company called Opentech Networking Pte
Ltd.
The AFPD plant is considered the biggest thin-film transistor LCD factory to be
located outside of Japan and the world's biggest production plant. These
thin-film LCDs are found in notebook computers, desktop computer monitors,
portable DVD (digital video disc) players and color televisions. There are
plans to produce 180,000 LCD screens a month and up to 330,000 LCD screens in
two years' time (see
Singapore bucks electronics slump, December 24, 2002).
"When Toshiba first came to Singapore to study the possibilities of setting up
their manufacturing plant, they had failed to realize the intensity of setting
up a completely new advanced tech plant away from Japan," recalled Manish
Sharma, the strategic sales director of Opentech. "We were fortunate that they
listened patiently to us and we in turn managed to deliver the programs of
setting up the plant on time. We met strict deadlines and the plant opened up
late last year within its scheduled time without missing out on its initial
production deadline."
By working with Opentech on outsourcing the entire operations of setting up the
plant from scratch, it was estimated that more than 90 percent of Toshiba's
time was saved in planning the operations and several million dollars in
savings was passed on to Toshiba. It was a massive exercise to relocate
technology as well as people from the United States and Japan to Singapore.
But it was a lesson well learned by Opentech, as it gained some domain
knowledge as well as the ability to replicate its success with other similar
industries and clients. "Meeting tight deadlines was a challenge and the entire
planning and organizing team had to work around the clock with as many as 30
vendors from building-maintenance contractors, air-con installers, specialized
machine installers as well as even finding the right people to manage the
canteens in the plant," remarked Manish. "There were also cultural and
environmental differences that had to be ironed out before the successful
implementation of the manufacturing plant from scratch in Singapore."
Outsourcing of project-management fee-based contracts is also a very lucrative
market in Asia. It has been estimated to range between $9 billion and $12.5
billion before 2005, according to a recent study by Axiom Consulting, an IT-
and engineering-based consultancy in Hong Kong. And with more manufacturing
companies coming to Asia from the United States, Europe and Japan, there seems
to be lots of opportunity for companies like Opentech.
"When you look at the high-tech sector you see several parallels with the West
evolving in Asia," noted Mitch Lee, senior IT analyst with Axiom Consulting.
"Due to the obvious economies of scale and the fact that Asia has cheaper labor
and mineral resources, you see a flight of tech companies outsourcing their
manufacturing operations and either going into joint-venture partnerships with
companies in China, Thailand, Malaysia and Singapore or even nominating other
OEM [original equipment manufacturing] companies in manufacturing for them."
Asia is set to benefit from this outsourcing trend and companies such as
Opentech are set to trailblaze in Asia, provided they have the right manpower
and resources in place.
(©2003 Asia Times Online Co, Ltd. All rights reserved. Please contact
content@atimes.com for information on our sales and syndication
policies.)
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