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  • BACK OFFICE OPERATIONS

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    Back Office Operations

     

     
     
    © International Trade Centre, International Trade Forum - Issue 3/2000

    Accounting is among the services that can be outsourced.

    This article is the first in a two-part series about the growing opportunities to provide back office services to international firms, public-sector agencies and non-profit organizations. Adapted from ITC's new publication, Offshore Back Office Operations: Supplying Support Services to Global Markets, these articles are designed to raise awareness about the market opportunities for developing countries and share successful strategies and best practices.

    Question: What could an insurance claims adjuster in Barbados, a medical transcriptionist in India, an e-commerce customer service representative in the Philippines, a telemarketer in Mauritius, and a call centre agent in Jamaica have in common?

    Answer: Offshore back office operations

    What began in the 1980s as a relatively modest attempt to save costs through offshore data processing has matured into a way of doing business that offers significant opportunities for governments and service firms in developing and transitional economies.

    As globalization and contracting out increase, new opportunities are emerging to take advantage of this continually expanding trend. An increasing number of developing and transition countries are becoming involved, with at least one or two already functioning back office operations. However, such operations may not be part of an overall development strategy and may, in fact, be unknown to government trade and investment officers. There is high potential to explore new prospects for economic development in this area.

    What are "back office operations"?

    Back office operations are the off-site delivery of a range of non-core service functions, including routine administration tasks, customer service and technical support. Offshore back office operations involve the ongoing use of an outsourcing base in another country.

    Specific types of services

    Providers of back office operations manage an activity or function on a turnkey basis for their clients. Any aspect of service operations that involves high-volume transactions is a candidate for back office delivery:

    • Abstracting and indexing
    • Call centres
    • Data capture and processing
    • Data warehousing
    • Electronic publishing
    • Legal transcription
    • Litigation support
    • Mailing list management
    • Medical records management
    • Medical transcription
    • Remote secretarial services
    • Technical writing
    • Telemarketing
    • Teleservices
    • Web site design and management


    The range of administrative and customer support services provided through offshore back office operations is growing rapidly (by at least 15%-20% annually) as corporations in developed countries strive to reduce fixed overheads by contracting out routine functions. Given the information technology support available, any service that does not require face-to-face contact with customers can be provided in an offshore 'back office' because it is 'footloose' (not bound to a particular location).

    Projections for rapid growth

    On the basis of the Organisation for Economic Co-operation and Development (OECD) projections, including demand for Year 2000 computer code conversion, the global market for long-distance services which could have been provided by developing countries was estimated at about US$ 438 billion in 1998, or at least 15% of non-OECD total exports. Similar estimates by the World Bank suggest that developing countries may be able to double their 1997 exports of commercial services, which were valued at US$ 398.8 billion. With the growth in exports of business support services from developing countries averaging 14.3% annually between 1990 and 1997, back office revenues for 2002 are projected to be in the range of US$ 778 billion.

    Why is it growing so fast?

    More and more businesses are subscribing to back office services. This is because there are important strategic benefits to be realized for businesses subscribing to back office services. These include:

    • ability to focus on the company's core business;
    • reduce operating costs;
    • improve processes;
    • better use of capital; and
    • fuel revenue growth.


    Trends in outsourcing

    Over the past 25 years, the types of service activities being outsourced have changed considerably. As one traces the history of back office operations, one can see the convergence of several trends affecting which activities get outsourced:

    • Minimizing input production costs. Long before current digital technologies were in use, United States corporations were shipping hard-copy documents and tapes abroad and receiving the data back in electronic form. The initial contribution of digital technologies was to provide the infrastructure for internal data support services (i.e. information processing) to be 'shipped' faster and less expensively from one production location to another.

    • De-linking the front end. As global tele-communications costs began to drop and the quality of the global telecommunications infrastructure improved, companies started to move their toll-free reception numbers offshore. Locations like Jamaica invested in teleports to attract reservations and general reception contracts to augment basic data-processing contracts.

    • Accessing specialized skills. By the late 1980s, organizations had begun contracting out (or outsourcing) specialized functions that were not part of their core business. Moving that outsourced activity abroad was an easy next step, justified by the ability to remain focused on core business. The availability of more cost-efficient telecommunications supported corporate decisions to search globally for the technical skills they needed and so optimize their use of talent.

    • Customer service outsourcing. The growth of the Internet and online connectivity made possible the provision of technical support and problem resolution for customers from remote locations. Call centre activity began to accelerate.

    • Business process outsourcing. As corporations started to focus primarily or exclusively on their core business, entire support processes began to be outsourced (i.e. business process outsourcing). Some of the earliest examples were payroll processing and credit card processing.

    • Administrative support to global networks. With consolidation on the increase, global networks needed to rationalize their support services. For example, airlines, hotel chains, tour operators, travel agencies and car rental agencies are all striving to create a global brand through partnerships that provide a seamless ser-vice, supported by pooled purchasing and marketing functions.

    As a result of these trends, only managerial responsibilities, core processes and the operational review process are routinely kept within an organization. The 1999 Outsourcing Trends Report estimates that soon 50% of an executive's budget will cover outsourced activities, and the ability to leverage outsourcing relationships will be an important element of managerial success. The report also documents the overall shift from a preoccupation with cost savings to strategy as the primary reason for outsourcing support activities.

    There have also been changes in the structuring of outsourced activities. When back office operations were initially created as captives (or subsidiaries) of parent companies, they were treated as cost centres but have since evolved to profit centres.

    Country- and region-specific activities

    While the movement to back office operations originally involved going offshore in order to lower labour costs, most countries now have at least one firm providing back office operations. As demand growth shifts to higher value-added customer service functions, developing countries are facing increasing competition from developed countries which are able to offset higher wage structures with specialized skills and significantly lower telecommunications costs.

    Following is a brief overview of country- and region-specific activities:

    United States

    Because of the size of the United States' economy and its concentration of multinationals, a number of smaller American communities are now actively soliciting back office business in order to create jobs. In some instances, the back office work is then subcontracted to overseas partners (e.g. in India).

    European Union

    After the United States, the European Union (EU) has the most active market for back office operations - primarily call centres, which are growing at the rate of 40% a year.

    The number of European agent positions is expected to rise by over 38% by 2002. Ranked third globally as an inbound service agency and fifteenth as an outbound service provider, Atesia SPA leads Italy's call centre activity. Germany is one of the leaders in creating web-enabled call centres; it had 38% of European call centres in 1998 as against the United Kingdom's 22%.

    Call centre activity is growing in Belgium, Denmark, Northern Ireland, Norway and Scotland. However, Ireland, the Netherlands and Sweden are the main contenders, along with France and the United Kingdom, for call centre business. Ireland has leveraged its success as an international financial service centre to expand into call centres, touting its young, multilingual, well-educated workforce and its lower telecommunications cost. The Netherlands has claimed the broadest base of linguistic talent and has created 50 fully wired business parks around the country with state-of-the-art telecommunications support. Sweden has not only developed a strong technical infrastructure but also a human infrastructure - the 'call centre community' - of associated resources, including university courses on call centre management.

    Australia and New Zealand

    Australia has been positioning itself as the call centre capital for the Asia-Pacific region. As of 1997, Australia had an estimated 70% of the call centre market in Asia and the Pacific (according to Telstra, the country's telecommunications company). By the end of 1998, Australia had created 4,000 jobs and generated US$ 1.3 billion in revenues through help-desk call centres; it had close to 100% growth in 1999. Australia's position, however, is now being challenged by New Zealand, where labour costs are 20% lower.

    Canada

    Canada's growth in back office operations was initially stimulated to create jobs in the country's lower-growth areas, and one province has begun marketing its central location successfully.

    The Caribbean

    Both Barbados and Jamaica have developed flourishing back office industries, primarily based on attracting corporate captives. The Dominican Republic is a more recent, successful entrant. Smaller eastern Caribbean economies are collaborating to promote their back office capabilities.

    Asia

    The two major suppliers of information processing services in Asia are India and the Philippines. Among the other areas with some back office activity, supported by teleports, are Hong Kong Special Administrative Region (China), the Republic of Korea, Malaysia, Pakistan, Singapore and Taiwan Province (China). China is offering lower-cost data entry and has just approved AT&T as the supplier of its first international call centre. Back office operations in Viet Nam, a low-cost market with a well-educated workforce, are just beginning.

    Latin America

    Back office operations in Latin America are still primarily captive operations of United States corporations. Exceptions include companies like EDM International, which processes more than 300 million documents a year in Mexico.

    The major challenge to the growth of back office operations in Latin America has been the development and deregulation of telecommunications infrastructures. However, countries like Argentina, Brazil, Ecuador, Mexico and Peru now have teleports that could be leveraged. Brazil's New Work Station Telemarketing is one of the top ten call centres globally. Costa Rica's private free trade zone, Metro, is actively promoting call centre investment, and Uruguay is offering data processing services to foreign companies. With regard to business process outsourcing, centres of excellence are established in Colombia and Venezuela in support of international oil and gas companies.

    Economies in transition

    Telecommunications infrastructure remains a challenge in many economies in transition. Individual call centres or software outsourcing operations have been reported in Albania, Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, the Russian Federation, Slovakia and Ukraine.

    Africa and the Middle East

    Again, telecommunications infrastructure is a challenge through much of these regions. Outsourcing activities are focused in export free zones, as in Mauritius and the United Arab Emirates. Gateway Ventures Ltd has been piloting data processing in Zimbabwe. Call centres are beginning to develop in South Africa.

    The 'go/no go' decision

    Most countries are likely to have firms already offering back office services. Launching a national initiative and attracting back office opportunities, however, takes persistence and dedicated resources. After considering the economic development potential and challenges to be faced, a decision will need to be taken about whether to move forward or not. For more information, contact ITC for a copy of the book. It features a self-assessment tool to help countries with their decision-making.




    Back office operations: research

    Countries and firms need to know which factors and strategies can help them succeed in this business. However, the relevant information is scattered across numerous web sites or is given in expensive or proprietary reports.

    The most difficult information to obtain was that on developing and transition economies already engaged in back office operations. One would think that such expertise would be prominently displayed on national web sites and be known to investment officers abroad, but that was not the case. Of the 93 developing and transition countries/areas researched for the publication, 53 were found to have active back office operations. However, only 12 of these (22%) had information available on a national web site on back office services - under titles such as call centres, information processing, information services, software development and teleservices - and only five (9%) had foreign investment officers who were aware of the back office activity.

    This means both that potential clients may have difficulty locating all options for consideration and that it is hard to assess the competition accurately. The table on the next page shows countries/areas where at least one provider of back office services to international clients has been reported. Where a national web site promotes such capabilities, it has been listed.

    This article was prepared by Doreen Conrad, Head, ITC Trade In Services Unit, on the basis of the book Offshore Back Office Operations: Supplying Support Services to Global Markets by Dorothy Riddle.