The case for outsourcing

More and more businesses worldwide are contracting out functions that were previously thought to be important.

Mustafa Nemat August 30, 2010

KARACHI: More and more businesses worldwide are contracting out functions, or business processes, that were previously thought to be important, internal tasks sacred to the organisation.

Even in Pakistan, corporations – local and multinational – are increasingly outsourcing processes such as marketing, corporate social responsibility programmes and human resource management.

Unilever, for example, has handed over the responsibility of marketing various ‘Ponds’ products to an external firm specialising in retail enablement.

“The organisations supervise the results while our teams deliver them,” explained Saad Ali, chief executive of Helium Private Limited.

Helium is primarily a business process outsourcing company with over 450 employees on its payroll and offices in three major cities of Pakistan. Although the firm is more popularly known for providing marketing solutions, such as brand activations and road shows, it offers a range of outsourcing services.

The company is involved in everything from handling back office operations, including finance and administration, for an international technology giant to running corporate social responsibility programmes for oil marketing companies like Shell Pakistan.

“Organisations like Coca Cola and P&G are looking to outsource not just to cut costs but also to achieve flexibility in the long run,” said Ali. “Specialisation and headcount control were two important trends that emerged towards the end of the 1900s,” he added.

These developments gained popularity because they were believed to be efficient cost control measures and once they had been achieved internally, the next logical step was to outsource.

“Companies want to control their destiny and one way they can achieve this is by tagging expenses with revenues,” commented Ali. By doing this not only can costs be managed better, they also become more predictable. Citing the example of distribution, he highlighted that at one point in time it was common for companies to control the distribution of their products themselves but now almost all large firms hired external distributors who handled the entire process.

The common practice is to link the distributors’ commission with sales revenue. This means that even though the distributors earn more when sales are high, they are also the first ones to take a hit in case turnover drops. Meanwhile, it is the distributors who make infrastructural investments to make sure the product is available in the market and not the corporation, further reducing risk for the latter by making costs both manageable and predictable.

Responding to a question regarding what functions could practically be outsourced, Ali cited the case of Nike, one of the pioneers of outsourcing. He said that except for marketing and finance, the company has outsourced almost all functions, including manufacturing and supply chain management.

Published in The Express Tribune, August 30th, 2010.


Amina Ansari | 10 years ago | Reply Nike's outsourcing efforts do not consider the 6 dimensions socially responsible procurement such as: 1. Community involvement, not slightly in Pakistan 2. Diversity and inclusion, mixing varying demographics in one room is a recipe for disaster 3. Environmental protection, a joke in Pakistan 4. Ethics and financial stewardship, the last priority on the long list of money making avenues for companies in this nation. Fashion magazines like GT and She are killing any thought of us possessing smart talent pools. 5. Human rights respect, another whopping joke 6. Health and safety, only pursued by the Engro Foundation and Mission Centenarian as far as UN reports show. The former is owned and managed by Pakistani's and the latter is owned by arabs and managed by an arab raised pakistani.
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