Entrepreneur Association of Tokyo
"The Micro-Multinational Corporation"
How outsourcing and offshoring can be a viable strategy for small and medium sized businesses.

2006 07 11
In the foreseeable future, it is clear that the global marketplace will continue to deepen and expand with the burgeoning economies and skills development of countries like India, China and Russia. Meanwhile, it will increasingly become an accepted fact that it is not economically sensible to hire high-wage Japanese workers to do jobs involving basic programming, tech support, quality assurance and testing.

While globalization will continue to cause ripples in the IT industry, the waves can be viewed not as damaging, but as opportunities. In reference to the internet, we are constantly told the world is getting smaller, at our fingertips even. Great results at a low cost, is it too good to be true? Is outsourcing the answer or is it more trouble than its worth? Tim Romero, a successful entrepreneur and founder of Wizaz K.K., raises some points to consider and shares his experiences on outsourcing strategies at the July 11, EA seminar at the City Club of Tokyo.

Can outsourcing benefit my business?

Outsourcing and off shoring by definition can be divided into three main streams:
Task orientated – when a task it is to be completed under a fixed schedule for a set price.
Process – Function of a business e.g. Sales division, Customer service centers.
Subsidiaries –A part of your company has a branch overseas, for example, some Japanese
owned companies have a division based in India or China.

The process function is by far the trickiest to maintain and control because you would be handing over a whole function of your business offsite. Some potential issues that may arise is there is a conflict of interest between the outsourcing management team and you – this must be eliminated, a way to combat this is to have one of ‘your people’ on site abroad as they work directly for you, they can oversee progress and can report back.

Romero stresses that a detailed business procedures manual is essential before even considering outsourcing. It will save unnecessary headaches and takes out a lot of guesswork if there are strict guidelines to be followed. These procedures manuals should contain metrics and standards, they would spell out what exactly is required by the outsourcing team and should be made available to everyone. Romero recognizes there are some circumstances when setting metrics may be limited such as in the Research and Development industries but to reiterate “if you don’t have process manuals –don’t outsource’.

Consistently meeting and communicating with the outsourced team is imperative to the success of the project. Use teleconferencing tools, ‘your people’ or you personally should go visit the site and vice versa, have extended business trips and over communicate everything –both written and verbally. This ensures minor details are not misunderstood or missed entirely.

Q&A
Seminar attendees had an opportunity to ask Tim Romero for further advice and any other insights he had regarding his own experiences with outsourcing how should entrepreneurs proceed. The following were the main points raised:

If you have metrics and processes down you will be ‘ahead of the game.’

Russia and India are great at following processes set by clients and the labor costs are gradually increasing. Labor costs will certainly not be on par with Japan any time soon. However, there is a large amount of additional documentation and administration required when outsourcing. There is also a certain amount of inefficiency inherent in outsourcing. When these additional costs are added to the labor costs, it will soon be on par with doing business in Japan. Even though the cost of labor itself will remain much cheaper.

Software development – have tenders ‘set’

For ongoing offshore projects reduce employee headcount for tax purposes.

Japan has been successful in the past with off shoring in particular in the manufacturing industry when the exact processes were defined. In software development if there are terrible processes to begin with, they carry on into the project, ‘garbage in garbage out.’

Agencies are out to ‘sell’ you ready-made teams. Be aware (wary) of this.

Future of outsourcing:
Task orientated – Will explode in the future as the internet helps make finding suitable contractors easier.

Subsidiaries –Manufacturing plants, factories and branches are increasingly being established in countries like China and India, this trend is set to continue.

Process – weakest of the three mainly as it is the hardest to get right, the salary gap is closing and within ten years, they will be on par with USA and Japan wages and even if the salaries are lower for the time being it is not worth the time and effort in some cases.

Why should we outsource? Things to consider:
Management time
Trade offs
Be specific to each situation and business needs
Outsourcing is viable and extremely successful, sometimes a necessity, but it involves a lot of work.

Criteria for outsourcing vendor:
Must have processes in place
Hiring and interviewing procedures –what are they?
Look at the individual people – is it a solid company with a good track record?
Does this company have project management software?

Wizaz K.K

Sigmund is a software product developed to make simple business decisions mimicking human judgment by taking binary data, making ‘feature maps’ then categorizing the information accordingly. Using keyword filtering, Sigmund contextualizes the data to sort and match information. It has been proven to be 99% accurate –more accurate than humans are. For more information on Sigmund or Wizaz K.K go to www.wizaz.co.jp