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    Back Office Operations(3)

     

     
     
    © International Trade Centre, International Trade Forum - Issue 1/2001 
     

    Consider back office operations in your national export development strategy. Developing countries can harness the current trend of outsourcing business operations to address key challenges in managing their economic development.

    This article is the second of two about the growing opportunities for developing and transition economies to provide back office services to international firms, public-sector agencies and non-profit organizations (see also Forum, issue 3-2000).

    Back office operations provide a range of corporate, non-core services, usually at a distance. Routine administrative tasks, customer service and technical support functions are examples of back office operations. (Back office operations are not the same as offshore operations, which establish business entities in tax-free export zones or offshore centres.)

    National export development 

    Consider integrating back office services in the services exporting section of your national export development plan. Among the advantages that back office operations provide:

    Value-added jobs and foreign exchange earnings. Business services provided to international clients often help raise living standards. International clients bring foreign exchange into the country to pay local employees, rents, business costs and living expenses of international employees who relocate to the country.

    Can encourage expansion of the sector. Demand for amenities that the foreign nationals expect forces local entrepreneurs to develop services that can then be used to attract further business.

    Stemming emigration. Jobs for educated young professionals will provide an income allowing them to build a life for themselves and their families in their own country.

    Transferable skills. Skills learned in this sector are transferable to other local sectors.

    Alternative employment options in rural areas. Business parks in rural areas can help to stem urban migration and keep rural communities intact.

    Surveys indicate that this is a sector with potential for developing countries. In nine developing and least developed countries surveyed by ITC in 1998, over 37,000 new jobs were created in one year alone. In the 1999 Outsourcing Trends Report by PricewaterhouseCoopers, 42% of corporate executives reported that their organizations were embracing business process outsourcing in order to make savings.

    The client perspective 

    What are potential clients looking for?

    Cost savings. Clients expect to save from 30%-40% on costs to offset the risks encountered in outsourcing operations. These savings are most often found in lower labour costs (typically 60% of total costs), rental costs and taxation concessions.

    Skilled, motivated workforce. Employ-ers look for educated employees who will be easy to train. Depending on the type of back office operation, employers also seek a workforce that is able to deliver a round-the-clock service, with shifts that cover a 24-hour period, every day of the year.

    Quality assurance. High-quality service is a prime motivator for the foreign investor. Registration to ISO quality standards by local firms is one way of demonstrating this.

    Competitive infrastructure. Infra-structure required for back office operations is primarily telecommunications, IT and power; secondarily, accommodation and transportation. Investing companies typically want to know that a reliable, high-speed telecommunications infrastructure is available to them at low cost. International communication circuits for data or telecommunications, back-up circuits and rapid response to any faults can be critical decision factors for potential clients.

    Accessibility. Clients do need to visit the locations where they establish back office operations. Regular, reliable air service is thus something they seek. As documents frequently have to be sent to and received from the sites, the country's ability to provide express mail or courier services is also important.

    National reputation. A firm's good reputation for providing services is an advantage; but if the country is new to this area of service provision, investing companies will look for a stable government, good labour relations and cooperative unions.

    Building your competitive niche 

    As more and more countries are looking to establish back office operations, the competitive niche of the country and the potential competitors need to be clearly defined. This process involves looking at your competition, what specific advantages exist in your country, the options you can use to promote your services, the type of ownership and legal structure that can be used by the country and the type of client to target.

    Research your competition 

    Review potential competitors' promotional materials including web sites, write-ups on their capabilities and their clients. Look at any awards they have received and why; visit their operations; and find out from intermediaries what servicing countries or firms they would recommend and why. This information can assist in both developing your own sector and understanding exactly what your competition is doing.

    Determine your competitive position 

    Your country probably has advantages in different areas which give you a competitive edge over other countries, and these are the things that you need to highlight. Not only will they assist in motivating companies to put their back office operation in your country but will, in some way, assist you in further targeting the correct companies.

    It is not only the direct strengths that can be used to promote your country, but the ancillary ones, such as time zones and quality of life for expatriates who may have to relocate to your country.

    Examine the standards and controls, skill sets and linguistic abilities of your workforce. Look at the education system and see what abilities are being created, not only in secondary education but in the tertiary system as well. These systems can be altered to enhance the type of skills needed.

    Set up structures and laws 

    Depending on the strategy that your country wants to take, from encouraging international investment on the one side to stimulating local suppliers on the other, you can develop various types of ownership structures. If international investment is what is sought, for example, then allow up to 100% foreign ownership. One potential downside is that the structure is highly mobile and may move if a better, less expensive alternative is found.

    Building the ability of local suppliers generates permanent employment opportunities. However, international users of back office operations may not be entirely comfortable outsourcing to an organization in which they have no ownership. Some balance between these two alternatives can be found and leveraged.

    Laws for back office services need to be pro-investment, and include incentives and exemptions from taxation on some services. Exemption from tax on long-distance telecommunications, inbound/outbound toll-free numbers and imports that are key for the business and IT infrastructure can increase the attractiveness of the country. Labour legislation may also need to be reviewed to ensure flexible working hours for operations that need to be run on a 24-hour basis.

    Building awareness 

    "Build a better mousetrap..." In today's world, with so many different offerings, this statement no longer holds true. For your country to succeed in the provision of back office services, potential international clients need to know what is available. Moreover, local business associations, trade promotion organizations and national government need to ensure that firms have national support. This means that promotion of back office operations needs to be targeted both to local and international audiences. Some local promotion, seen by international firms that are working locally, will help in the international promotional efforts.

    Establishing an advisory council 

    A way to increase coordinated support and minimize opposition is to gather members of different groups into an advisory council where tasks can be coordinated and challenges can be resolved.

    Several countries now operating successful back office operations realized early that they needed broad-based public- and private-sector support and so they created organizations that would, in part, work to ensure greater inter-agency coordination. For example, Mauritius created the Mauritius Offshore Business Activities Authority; Barbados developed the Barbados Investment and Development Corporation; and Ireland set up the International Financial Services Centre.

    National promotion measures 

    Once your national back office strategy is in place, develop a campaign to promote your national competitive advantages and the firms that can supply back office operations. Tools you should consider are web sites (your own and others), events (your own and others) and intermediary firms. Target audiences include international firms already in your country, trade and investment officers at home and abroad and expatriates.

    Develop web sites. As clients increasingly use the Internet to search for possible sites for back office operations, a national web site can be a cost-effective promotion tool.

    Regional web sites can also help you widen your international coverage. Look for sites that will carry articles on your country and its back office operations, as well as a link to your own national web site. Sites like Commonwealth On Line (http://www.tcol.co.uk) and The Caribbean Home Page Internet Directory (http://www.caribinfo.com) provide this type of information.

    Place articles in magazines and journals. You can promote your capabil-ities in trade-specific magazines and

    appropriate journals. Two examples are Site Selection (http://www.siteselection.com) or Expansion Management (http://www.sitelocators.com) which feature articles on different countries.

    Work through intermediary firms. Key intermediaries can also be used for promoting your back office operations sector. International accounting firms that may be present in your country often have a corporate sector that can assist with this.

    Attend relevant events. Attending international events to build personal contacts with potential clients can assist in closing a deal. The Outsourcing World Summit (http://www.outsourcing-events.com) is a good annual event that may help.

    Consider sponsorship. Sponsoring a local outsourcing event is a good way to increase international exposure.

    Mobilize expatriates. If your country has a large pool of well-placed expatriates in attractive client markets, approach selected entrepreneurs or influential officers in large corporations living abroad.

    Market to international firms in your country. International firms in your country may be able to make use of back office services you offer.

    Sensitize trade and investment officers abroad. Your international representatives are regularly approached on national trade and investment issues. If they are not informed of the services offered, they are likely to tell inquirers that nothing is happening.

    A regional model 

    Pooling resources at a regional level to attract investment is one option. The Organization of Eastern Caribbean States established the Eastern Caribbean Investment Promotion Service (ECIPS) to maximize their resources and to attract potential investors in several different back office operations areas. Based in Washington DC, the United States, the service targets potential organizations that could become interested in setting up offshore back office operations or that could shift an existing operation to an Eastern Caribbean country.

    ECIPS helps to organize local site visits of potential investors and provides feedback to local investment officers and business leaders, especially if the site visit did not result in investment. For more information on ECIPS, visit http://www.ecips.com.

    For more information 

    Contact ITC's publication office for a copy of Offshore Back Office Operations. See also ITC's web site on services exporting (http://www.intracen.org/servicexport/)

    This article was prepared by Ian Worrell, ITC Adviser on Trade in Services, drawn from the ITC publication Offshore Back Office Operations, by Dorothy Riddle. For more information, contact worrell@intracen.org 




    Back office operations in India 

    Active government championship of the software engineering sector, careful adherence to internationally recognized quality standards and promotion of India's competitive advantages have created a significant success story. In 1999, software exports from India were worth over US$ 2.6 billion, giving the country some 18.5% of the global customized software market.

    Hi-tech parks have been created in rural areas, providing employment, training and increased amenities to local populations. These parks generate other non-back office operational businesses and jobs to provide the support services needed by the employees in the park, including catering, health, accommodation, retail and other services.

    This boom in the information technology (IT) industry has now had a ripple effect on other offshore back office operations, sparking a rise in services such as data processing, call centres, medical and legal transcription, insurance claims processing, and payroll and accounting services.




    Back office operations in Mauritius 

    Mauritius decided to build support for an offshore sector and formed a trade support institution, the Mauritius Offshore Business Activities Authority. The authority upgraded the Mauritius offshore sector by negotiating double taxation treaties (now completed with 16 countries), assisting the government in developing an efficient legal and fiscal framework, and providing a "one-stop shop" for assistance to investors in creating their offshore business. Subsequent growth in the offshore sector triggered growth in IT-based services, and thus served as an indirect springboard for growth in back office operations.




    Setting up an advisory council 

    Who to invite: 

    • National trade and investment promotion agency

    • National planning agency

    • National telecommunications authority

    • Export or free-trade zone authority

    • Ministry responsible for skills training

    • Institutes providing skills training

    • Labour union(s)

    • Chamber of commerce

    • Association(s) for communications and IT services

    • Association(s) for the industries being targeted as clients

    • Local economic development agency

    • Sources of funds for enterprise and infrastructure development

    • Executives from local foreign corporations that typically outsource




    National web sites can promote back office operations 

    Here are ideas to include in your national web site on promoting back office operations.

    Research. Look at other investment and trade web sites for ideas (http://www.ipanet.net has a convenient list).

    Accessibility. Make sure your site loads quickly with key text appearing before graphic images. Remember, you have approximately five seconds to impress!

    Navigation. Clearly label different areas of the web site. Equip the site with a search function. Ask clients what information they want; make sure this is highlighted and easy to find.

    Messages. If you want investment in back office operations, clearly state this. Address your competitive advantages as well as any potential concerns.

    Contents. Think about sections to describe the laws, company structures, amenities, labour opportu-nities, infrastructure, easy access to economic data, etc.

    Partnerships. Assist local suppliers of back office services by promoting their capabilities.