Sunday, November 6, 2011

Outsourcing to improve productivity of SMEs

Outsourcing  To Improve Productivity of SMEs

India as the back-office for the world is a familiar story. Outsourcing of technology development, helpdesk to accounting back-office and even high end equity research by large corporations across the globe has taken firm roots in India. A similar phenomenon of outsourcing locally by companies, especially SMEs, has started taking shape which if nurtured and adopted widely, can greatly improve productivity of SMEs in India. A few emerging outsourcing opportunities in India include

Technology Outsourcing: Large Indian IT companies have started dedicated business practice targeted at SMBs (Small and Medium Businesses) and offer complete outsourced solutions including hardware, software and applications designed for small businesses. This offering, which was hitherto available only for large corporations and banks, is available today even for very small SMEs. IT outsourcing helps in reducing the initial capital requirements of the SMEs, and more importantly, helps in freeing up organizational bandwidth in managing IT resources. 

Finance and Accounts: Outsourcing finance and accounts functions was unthinkable in India, a few years back. This is rapidly changing, with several SMEs opting for outsourced CFOs as the scale of operations may not warrant a full-time CFO. More than the cost of hiring, retention of CFO has been bigger problem for SMEs; this worry is obviated in an outsourced model as it is managed by the service provider, who is held accountable for the quality of service delivered. Progressive SME entrepreneurs, who have managed to overcome the fears of data leakage and misappropriations, are gaining significant advantages from this emerging outsourcing opportunity.

Human resource function: Many SMEs do not have a formal HR department until it becomes unmanageable for the entrepreneur to handle this function without support. The emerging practice in recent years is outsourcing of the basic day-to-day functions of the HR department – payroll processing, formulating and implementing HR policies, hiring and induction, employee training, performance management system, etc. to an external service provider, until such time the organization reaches a critical mass to have a full-fledged HR department on its own.    The outsourced HR function makes it affordable for SMEs to have systems and processes that are hitherto utilized only by large corporations.

Several other outsourcing opportunities are fast emerging for SMEs, including end-to-end logistics, facilities management, tele-marketing, etc. which can greatly reduce the direct involvement of the entrepreneur, who can focus on the core business functions.  Outsourcing to India has improved productivity of several global corporations; similar opportunities are available today for progressive SMEs in India, who are willing to capitalize on this emerging phenomenon.

N. Muthuraman is ex-Director Ratings, CRISIL and Co-founder of RiverBridge Investment Advisors Pvt. Ltd., a boutique financial advisory firm.
This is the blog of the Print Version published in Business Line dated 7th Nov 2011

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