FDI into developing economies are expected to be greenfield investments while mergers and acquisitions (M&As) are the more likely mode of investments in the developed economies.

1. Accelerate Reengineering Benefits
Reengineering aims for dramatic improvements in critical measure of performance such as cost, quality, service and speed. But the need o increase efficiency can come into direct conflict with the need to invest in core business. As non-core internal functions are continually put on the back burner, systems become less efficient and less productive. By outsourcing a non-core function to a world-class provider, the organization can begin to see the benefits of reengineering.

2. Access to World Class Capabilities
World-class providers make extensive investments in technology, methodologies, and people. They gain expertise by working with many clients facing similar challenges. This combination of specialization and expertise gives customers a competitive advantage and helps them avoid the cost of chasing technology and training. In addition, there are better career opportunities for personnel who transition to be outsourcing provider.

3. Cash infusion
Outsourcing often involves the transfer of assets from the customer to the provider. Equipment, facilities, vehicles and licenses used in the current operations have value and are sold to the vendor. The vendor then uses there assets to provide services back to the client. Depending on the value of the assets involved, this sale may result in a significant cash payment to the customer. When these assets are sold to the vendor, they are typically sold at book value. The book value can be higher than the market value. The book value can be higher than the market value. In these cases, the difference between the two actually represents a loan from the vendor to the client which is repaid in the price of the services over the life of the contact.

4. Free Resources for Other Purposes
Every organization has limits on the resources available to it. Outsourcing permits an organization to redirect its resources, most often people resources, from non core activities which serve the customer. The organization can redirect these people or at least the staff slots they represent onto greater value adding activities. People whose energies are currently focused internally can now be focused externally – on the customer.

5. Function difficult to Manage or Out of Control
Outsourcing is certainly one option for addressing this problem. It is critical to remember that outsourcing doesn’t mean abdication of management responsibility nor does it work well as knee jerk reaction by a company in trouble. When a function is viewed as difficult to manage or out of control, the organization needs to examine the underlying causes. If the requirements expectations or needed resources are not clearly understood, then outsourcing wont improve the situation; it ma in fact exacerbate it. If the organization doesn’t understand its own requirements, it won’t be able to communicate them to an outside provider.

6. Improve company Focus
Outsourcing lets a company focus on its core business by having operational functions assumed by an outside expert. Freed from devoting energy to areas that are not I its expertise, the company can focus its resources on meeting its customer’s needs.

7. Make Capital Fund Available
There is tremendous competition within most organizations for capital funds. Deciding where to invest these funds is one of the most important decisions that senior management makes. It is often hard to justify non-core capital investment when areas more directly related to producing a product or providing a service compete for the same money. Outsourcing can reduce the need to invest capital funds in non-core business function. Instead of acquiring the resources through capital expenditures, they are contracted for on an “as used” operational expense basis. Outsourcing can also improve certain financial measurements of the firm by eliminating the need to show return on equity from capital investments in non core areas.

8. Reduce Operating Costs
Companies that try to do everything themselves may incur vastly higher research, development, marketing and deployment expenses, all of which are passed on the customer. An outside provider’s lower cost structure countries such as Malaysia, China and India, which may be the result of a greater economy of scale or other advantage based on specialization, reduces a company’s operating costs and increases its competitive advantage.

9. Reduce Risk
Tremendous risks are associated with the investments an organization makes. Markets, competition, government regulations, financial conditions and technologies all change extremely quickly. Keeping up with these changes, especially those in which the next generation requires a significant investment, is very risky. Outsourcing providers make investments on behalf of many clients, not just one. Shared investment spreads risk, and significantly reduces the risk born by a single company.

10. Resources not Available Internally
Companies outsource because they do not have access to the required resources within the company. Outsourcing is a viable alternative to building the needed capability from the ground. New organizations, spin-offs, or companies expanding into new geography or new technology should consider the benefits of outsourcing from the very start.

The Outsourcing Instuitute. “Top 10 Reasons to Otsource”, The Outsourcing Premier Magazine on ITO and BPO, August-September: 2007, (Page 30).

In its latest analysis on Malaysia, the merchant bank said the Malaysian economy appeared to be reaching full stride. ?This development has raised our optimism over the country?s medium-term growth prospects,? it said.?The bank lifted its forecasts for GDP growth to 5.7% for 2007 and 6.3% for 2008 (previously 5.2% and 5.8% respectively).

Bank Negara Malaysia, on the other hand, has forecast an even higher GDP growth of 6.0 per cent for the country in 2007.

Merrill Lynch said Bursa Malaysia has rebounded with the local stock market being one of the best performers in the region this year.

International investor interest in the country has also been revived, thanks to the recent implementation of a string of economic reforms, it added. These include the restructuring of government-linked companies, foreign exchange liberalisation, improved foreign relations, reducing fuel subsidies and cancelling non-essential projects.

Merrill Lynch said some sceptics may argue that the current turnaround in the local stock market and underlying economic recovery would ultimately prove unsustainable as the wave of reforms may be nothing more than traditional pre-election related measures to help boost sentiment or a knee-jerk response to the political fallout currently undermining the Thai economy.

“However, we beg to differ. We think the reforms are in the right direction and have plenty of bite. More importantly, we think that conditions for a long-term sustainable acceleration in growth in Malaysia extend well beyond the pickup in economic reforms and have been in place for some time,” it stressed.

Besides the economic reforms, there were also other powerful catalysts at work.

It said the three often overlooked ones were Malaysia’s relatively weak exchange rate, the positive external shocks resulting in rising export prices (in commodities) and a change in the political regime, which had played larger roles in underpinning the country’s current economic renaissance and would subsequently lift its economic prospects further.

“All of the above factors (including reforms) have on an individual basis historically proven to be key drivers of a sustained acceleration in economic growth. And the good news in Malaysia’s case is that all four catalysts are now working in unison,” the merchant bank said.

Although the latest wave of reforms would not be able to transform the Malaysian economy overnight, the measures indicated that the authorities recognised that various measures were still needed.

On the ringgit, Merrill Lynch said although it had appreciated against the US dollar to around RM3.40/3.50 at present, the exchange rate “is still quite undervalued in our view”.

“Looking ahead, it will take a large appreciation in the ringgit (on trade-weighted effective exchange terms) or a significant increase in inflation for Malaysia’s cost advantage to be eroded,” the merchant bank said.

The Hon Rafidah Aziz, Malaysian Minister for International Trade and Industry will be in London chairing the Business Opportunities in Malaysia seminar to be held on June 12th at the Crown Plaza Hotel in Reading.

The seminar will provide participants:

• An opportunity to seek clarification from the Hon Minister on issues relating to trade, investment and services in Malaysia.
• An opportunity to establish networking with Malaysian industry leaders from the Manufacturing and service sectors.
• An opportunity to meet with the Malaysian delegation for potential business collaborations and alliances in Malaysia
• AND MOST IMPORTANTLY…MEET MR NEVILLE CLOKEY, MANAGING DIRECTOR OF CATENATE UK

Anyone interested in learning more about what Malaysia may have to offer you as your profit centre in Asia, please contact either Mr C Mathialakan or Mr Yusri Chu for a registration form.
Malaysian Industrial Development Authority UK Branch

Tel +44 (0)20 7493 0616
Fax +44 (0)20 7493 8804
Email: midalon@btconnect.com

Or
Mr Neville Clokey
Catenate UK
Tel: +44 (0) 1524 68488
Fax: +44 (0) 1524 34014
Email: neville@catenate.com.my

The Metagrobolize subject matter can be a little yawn inducing to the reader who stumbles across our humble little space on the great World Wide Web, so for accidental surfer collisions I’ve attempted to make my postings a little more colourful as well as enlightening.

Colourful usually means …outsourcing gone wrong….or how not to outsource….and I think this one falls into the latter category, and yes…it is real!

A recent job posting reads: “We seek a newspaper journalist based in India to report on the city government and political scene of Pasadena, California, USA.”

A reporter half a world away covering local street-light contracts and sewer repairs? A reporter who has never gotten closer to Pasadena than the television coverage of the Rose Bowl parade?
James Macpherson, editor and publisher of the two-year-old Web site pasadenanow.com, acknowledged it sounds strange to have journalists in India cover news in this wealthy city just outside Los Angeles.

But he said it can be done from afar now that weekly Pasadena City Council meetings can be watched over the Internet. And he said the idea makes business sense because of India’s lower labor costs.

“I think it could be a significant way to increase the quality of journalism on the local level without the expense that is a major problem for local publications,” said the 51-year-old Pasadena native. “Whether you’re at a desk in Pasadena or a desk in Mumbai, you’re still just a phone call or e-mail away from the interview.”

I guess the innovation of utilizing students editing and contributing to various Universities in the vicinity, who are looking for careers in Journalism and full of enthusiasm, local knowledge and empathy would require some thought….or has he outsourced certain brain functions too?

Thanks to Nicole Belle of www.crooksandliars.com for originally spotting the article.