GLOBAL OUTSOURCING

Outsourcing is subcontracting a service, such as manufacturing, to a third-party company.The decision whether to outsource or to do inhouse is often based upon achieving a lower production cost, making better use of available resources, focussing energy on the core competencies of a particular business, or just making more efficient use of labor, capital, information technology or land resources.

ACTIVITIES FOR OUTSOURCING

RESEARCH & DEVELOPMENT

The competitive pressures on firms to bring out new products at an ever rapid pace to meet market needs are increasing. As such, the pressures on the R&D department are increasing. In order to alleviate the pressure, firms have to either increase R&D budgets or find ways to utilize the resources in a more productive way.There are situations when a firm may consider outsourcing some of its R&D work to a contract research organizations or universities.

RESEARCH & DEVELOPMENT

Reasons why a firm could consider outsourcing are: new product design does not work project time and cost overruns loss of key staff competitive response problems of quality/yield. The key drivers for R&D outsourcing are emerging mass markets and availability of expertise in the field.In this context, the two most populous countries in the world, China and India, provide huge pools from which to find talent. Both countries produce over 200,000 engineers and science graduates each year.

MANUFACTURING

Often companies will develop and market products but leave the manufacturing to other companies that specialize in it.Thus a factory can do manufacturing for several companies and keep a large manufacturing plant operating at nearly full capacity when no individual contract could justify the expense of maintaining the infrastructure.

REASONS FOR OUTSOURCING

Cost savings. The lowering of the overall cost of the service to the business. This will involve reducing the scope, defining quality levels, re-pricing, re-negotiation, cost re-structuring. Access to lower cost economies through offshoring called "labor arbitrage" generated by the wage gap between industrialized and developing nations. Focus on Core Business. Resources (for example investment, people, infrastructure) are focused on developing the core business. For example often organizations outsource their IT support to specialised IT services companies. Improve quality. Achieve a step change in quality through contracting out the service with a new service level agreement. Knowledge. Access to intellectual property and wider experience and knowledge. Contract. Services will be provided to a legally binding contract with financial penalties and legal redress. This is not the case with internal services.

Operational expertise. Access to operational best practice that would be too difficult or time consuming to develop in-house. Access to talent. Access to a larger talent pool and a sustainable source of skills, in particular in science and engineering. Capacity management. An improved method of capacity management of services and technology where the risk in providing the excess capacity is borne by the supplier. Catalyst for change. An organization can use an outsourcing agreement as a catalyst for major step change that can not be achieved alone. The outsourcer becomes a in the process. Enhance capacity for innovation. Companies increasingly use external knowledge service providers to supplement limited in-house capacity for product innovation. Reduce time to market. The acceleration of the development or production of a product through the additional capability brought by the supplier. Commodification. The trend of standardizing business processes, IT Services, and application services which enable to buy at the right price, allows businesses access to services which were only available to large corporations.

Risk management. An approach to risk management for some types of risks is to partner with an outsourcer who is better able to provide the mitigation. Venture Capital. Some countries match government funds venture capital with private venture capital for startups that start businesses in their country. Tax Benefit. Countries offer tax incentives to move manufacturing operations to counter high corporate taxes within another country.

CRITICISM OF OUTSOURCING

Quality Risks
Quality risk in outsourcing is driven by a list of factors. Quality fade is the deliberate and secretive reduction in the quality of labor in order to widen profit margins. The downward changes in human capital are subtle but progressive, and usually unnoticeable by the outsourcer/customer. The initial interview meets requirements , however, with subsequent support, more and more of the support team are replaced with novice or less experienced workers. India IT shops will continue to reduce the quality of human capital, under the pressure of drying up labor supply and upward trend of salary, pushing the quality limits. Such practices are hard to detect, as customers may just simply give up seeking help from the help desk. However, the overall customer satisfaction will be reduced greatly over time. Unless the company constantly conducts customer satisfaction surveys, they may eventually be caught in a surprise of customer churn, and when they find out the root cause, it could be too late. In such cases, it can be hard to dispute the legal contract with the India outsourcing company, as their staff are now trained in the process and the original staff made redundant. In the end, the company that outsources is worse off than before it outsourced its workforce to India or another country.

Quality of service
Quality of service is measured through a service level agreement (SLA) in the outsourcing contract. In poorly defined contracts there is no measure of quality or SLA defined. The end consumer of the service may also receive a change in service that is within agreed SLAs but is still perceived as inadequate. The supplier may view quality in purely meeting the defined SLAs regardless of perception or ability to do better. Quality in terms of end-user-experience is best measured through customer satisfaction questionnaires which are professionally designed to capture an unbiased view of quality. Surveys can be one of research. This allows quality to be tracked over time and also for corrective action to be identified and taken.

Language skills
In the area of call centers end-user-experience is deemed to be of lower quality when a service is outsourced. This is happening when outsourcing is combined with off-shoring to regions where the first language and culture are different. The questionable quality is particularly evident when call centers that service the public are outsourced and offshored. The public generally find linguistic features such as accents, word use and phraseology different which may make call center agents difficult to understand. The visual clues that are present in face-to-face encounters are missing from the call center interactions and this also may lead to misunderstandings and difficulties. In addition to language and accent differences, a lack of local social and geographic knowledge is often present, leading to misunderstandings or mis-communications.

Public opinion
There is a strong public opinion regarding outsourcing that outsourcing damages a local labor market. Outsourcing is the transfer of the delivery of services which affects both jobs and individuals. It is difficult to dispute that outsourcing has a detrimental effect on individuals who face job disruption and employment insecurity; however, its supporters believe that outsourcing should bring down prices, providing greater economic benefit to all.

Social responsibility
Outsourcing sends jobs to the lower-income areas where work is being outsourced to, which provides jobs in these areas and has a net equalizing effect on the overall distribution of wealth. Some argue that the outsourcing of jobs exploits the lower paid workers. A contrary view is that more people are employed and benefit from paid work. Social responsibility is also reflected in the costs of benefits provided to workers. Companies outsourcing jobs effectively transfer the cost of retirement and medical benefits to the countries where the services are outsourced. This represents a significant reduction in total cost of labor for the outsourcing company. A side effect of this trend is the reduction in salaries and benefits at home in the occupations most directly impacted by outsourcing.

Staff turnover The staff turnover of employee who originally transferred to the outsourcer is a concern for many companies. Turnover is higher under an outsourcer and key company skills may be lost with retention outside of the control of the company. In outsourcing offshore there is an issue of staff turnover in the outsourcer companies call centers. It is quite normal for such companies to replace its entire workforce each year in a call center.This inhibits the build-up of employee knowledge and keeps quality at a low level.

Company knowledge Outsourcing could lead to communication problems with transferred employees. For example, before transfer staff have access to broadcast company e-mail informing them of new products, procedures etc. Once in the outsourcing organization the same access may not be available. Also to reduce costs, some outsource employees may not have access to e-mail, but any information which is new is delivered in team meetings.

Qualifications of outsourcers The outsourcer may replace staff with less qualified people or with people with different non-equivalent qualifications.

Failure to deliver business transformation

Business transformation promised by outsourcing suppliers often fails to materialize.

Productivity
Outsourcing for the purpose of saving cost can often have a negative influence on the real productivity of a company. Rather than investing in technology to improve productivity, companies gain non-real productivity by hiring fewer people locally and outsourcing work to less productive facilities offshore that appear to be more productive simply because the workers are paid less. Sometimes, this can lead to strange contradictions where workers in a developing country using hand tools can appear to be more productive than a U.S. worker using advanced computer controlled machine tools, simply because their salary appears to be less in terms of U.S. dollars.

Security
Before outsourcing an organization is responsible for the actions of all their staff and liable for their actions. When these same people are transferred to an outsourcer they may not change desk but their legal status has changed. They no-longer are directly employed or responsible to the organization. This causes legal, security and compliance issues that need to be addressed through the contract between the client and the suppliers. This is one of the most complex areas of outsourcing and requires a specialist third party adviser. Fraud is a specific security issue that is criminal activity whether it is by employees or the supplier staff. However, it can be disputed that the fraud is more likely when outsourcers are involved, for example credit card theft when there is scope for fraud by credit card cloning. In April 2005, a high-profile case involving the theft of $350,000 from four Citibank customers occurred when call center workers acquired the passwords to customer accounts and transferred the money to their own accounts opened under fictitious names. Citibank did not find out about the problem until the American customers noticed discrepancies with their accounts and notified the bank.

WINDING UP OF A COMPANY

Winding up of a company is the stage , where by the company takes its last breath. It is a process by which business of the company is wound up, and the company ceases to exist anymore. All the assets of the company are sold, and the proceedings collected are used to discharge the liabilities on a priority basis.

Modes Of Winding Up
There are three ways, in which a company may be wound up. They are : 1. Winding up by the court. 2. Voluntary winding up, Members Voluntary winding up. Creditors Voluntary winding up. 3.Winding up subject to supervision of the court

Winding up By The Court

Winding up By The Court

1.

2. 3.

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A company may be wound up by the court in following situations. Here, the court means "High Court". If the company itself, has passed a special resolution in the general meeting to wound up its affairs. Special resolution means, resolution passed by three-fourth (3/4") of the members present. If there is a default, in holding the statutory meeting or in delivering the statutory report to the Registrar. A company which is limited by shares, and a company limited by guarantee having share capital, is required to hold a " Statutory meeting" of its members, within six months, and after one month, from the date of commencement of it's business. A statutory report of the meeting so held shall also be forwarded to the registrar. [ sec 165 (1) & (5)] If the company fails to commence it's business within one year from the date of it's incorporation, or suspends it's business for a whole year.

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6. 7.

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A company limited by shares, has to obtain a "certificate of commencement" of business from the registrar. Unless it obtains such certificate, it cannot carry on it's business operation. If the number of members, in a public company is reduced to less than seven, and in case of private company less than two. The statutory requirement of minimum number of members in a public company is seven, and in case of private company, it is two (sec 12) If the company is unable to pay its debits; where the financial position of the company is, such, that it has more liabilities than assets, and after disposing off the assets, it is still unable to extinguish it's liabilities, it means that company is unable to pay it's debts. If the court, itself is of the opinion that the company should be wound up. The court may form such an opinion, if it comes to the knowledge of court that, the company is mismanaged, or financially unsound, or carrying an illegal operations etc

Who Can Apply To Court, For Winding Up Petition?( SEC 439)

Following persons can apply to the court, for petition for winding up: The company itself The creditor Registrar Any person authorised by central government, in case of oppression or mismanagement (397)

Consequences of court passing an order for winding up

If the court is satisfied, that sufficient reasons exist in the petition for winding up, then it will pass a winding up order. Once the winding up order is passed, following consequences follow : 1. Court will send notice to an official liquidator, to take chaRge of the company. He shall carry out the process of winding up, ( sec. 444) 2. The winding up order, shall be applicable on all the creditors and contributories, whether they have filed the winding up petition or not. 3. The official liquidator is appointed by central Government ( sec. 448) 4. The company shall relevant particulars, relating to, assets, cash in hand, bank balance, liabilities, particulars of creditors etc, to the official liquidator. ( sec. 454) 5. The official liquidator shall within six months, from the date of winding up order, submit a preliminary report to the court regarding : Particulars of Capital Liabilities Movable and immovable properties Unpaid calls, and An opinion, whether further inquiry is required or not ( 455)

Stay Order

Where, the court has passed a winding up order, it may stay the proceedings of winding up , on an application filed by official liquidator, or creditor or any contributory. (466)

Voluntary Winding Up

A company may , voluntary wind up it's affairs, if it is unable to carry on it's business,or if it was formed only for a limited purpose, or if it is unable to meet it's financial obligation, and etc. A company may voluntary wind up itself, under any of the two modes: Members voluntarily winding up Creditors voluntarily winding up A company may voluntarily wind up itself, either by passing : An ordinary resolution, where the purpose for which the company was formed has completed, or the time limit for which the company was formed, has expired. Or By way of special resolution Both types of resolution shall be passed in the general meeting of the company. (484) Once the resolution of voluntarily winding up is passed, then the company may be wound up, either through : Members voluntarily winding up, or Creditors voluntarily winding up The only difference between the above two, is that in case of members voluntarily winding up, Board of Directors have to make a declaration to the effect, that company has no debts. (488)

Members Voluntarily Winding Up

Directors of the company shall call for a Board of Directors Meeting, and make a declaration of winding up, accompanied by an Affidavit, stating that; The company has no debts to pay, or The company will repay it's debts; if any, within 3 years from the commencement of winding up, as specified in declaration (488)

Who shall carry out the winding up procedure? & What shall be the procedure?

The company shall appoint one or more liquidators, in a general meeting, who shall look after the affair of winding up procedure, and distribution of assets. [ 490 (1)] The liquidator so appointed, shall be paid remuneration for his services, which shall also be fixed in general meeting [490 (2)] The company shall also give notice of appointment of liquidator to the registrar within ten days of appointment (493) Once the company has appointed liquidator, the powers of Board of Directors, Managing Director, and Manager, shall cease to exists. (491) The liquidator is generally given a free hand, to carry out the winding up procedure, in such a manner, as he thinks best in the interest of creditors, and company. In case, the winding up procedure, takes more than one year, then liquidator will have to call a general meeting, at the end of each year, and he shall present, a complete account of the procedure, and position of liquidator (496)

Creditors Voluntarily Winding Up

Where the resolution for winding up has been passed, but the Board of Directors are not in a position to give a declaration on the liability of company, they may call a meeting of creditors, for the purpose of winding up. (500) It is the duty of Board of Directors, to present a full statement of company 's affairs, and list of creditors alongwith their dues, before the meeting of creditors. [500 (3)] Whatever resolution, the company passes in creditor's meeting, shall be given to the Registrar within ten days of it's passing. (501)

Who shall carry out the winding up procedure ? & At shall be the procedure ?

Company in the general meeting [ in which resolution for winding up is passed] , and the creditors in their meeting, appoint liquidator. They may either agree on one liquidator, or if two names are suggested, then liquidator appointed by creditor shall act. ( 502) Any director, member or creditor may approach the court, for direction that ; Liquidator appointed in general meeting shall act, or He shall act jointly with liquidator appointed by creditor, or Appointing official liquidator, or Some other person to be appointed as liquidator. [502 (2)] The remuneration of liquidator shall be fixed by the creditors, or by the court. (504) On appointment of liquidator, all the power of Board of Directors shall cease. (505) In case, the winding up procedure, takes more than one year, then he will have to call a general meeting, and meeting of creditors, at the end of each year, and he shall present, a complete account of the procedure, and the status / position of liquidation (505).

Winding Up Subject To Supervision Of Court

Winding up subject to supervision of court, is different from "Winding up by court." Here the court only supervise the winding up procedure. Resolution for winding up, is passed by members in the general meeting. It is only for some specific reasons, that court may supervise the winding up proceedings. The court may put up some special terms and conditions also. However, liberty is granted to creditors, contributories or other to apply to court for some relief. (522) The court may also appoint liquidators, in addition to already appointed, or remove any such liquidator. The court may also appoint the official liquidator, as a liquidator to fill up the vacancy. Liquidator is entitled to do all such things and acts, as he thinks best in the interest of company. He shall enjoy the same powers, as if the company is being wound-up voluntarily.