The article ‘Outsourcing as a step towards civilized business’ by Helen Volska, Director and Managing partner EBS, was published in the business educational magazine "Kiev CAPITALIST" (February 2006)
Outsourcing is the word which is an example of the technology that began to be widely used in our country at the beginning of its independence. It is a borrowed word which characterizes many foreign technologies employed on the territory of Ukraine. Outsourcing is one of such technologies that are relatively new for Ukrainian market. The reasons for this are outsourcing specificity, its functions and potential, and also creation of favourable conditions for market work to form the demand for this technology. Though, Ukrainian home market is not so clear as it is necessary, still there is competition in many spheres, and it lets foreign and national capital work successfully. And if to turn a blind eye on instability of the economy legislation, we can say that a lot of rules of conducting business in our country are almost the same as those in developed states. As a result more and more foreign investors become interested in our country; appearance of new companies increases the competition on the market, while the demand for this technology rises. But I want to underline that this concerns only separate fields of economy.Now outsourcing should be spoken about as much as possible and in a high-quality way, because every year it will become more and more demanded in Ukraine. Our country is on the threshold of big changes as receiving market economy status and becoming a member of World Trade Organization that will greatly increase the competition and creating more favourable conditions for conducting business; and that is outsourcing that will help companies to compete under these new conditions.
So, what does outsourcing mean? Who forms demands for such a kind of technology? Under what conditions does he do this? When outsourcing is favourable for a company; and when is it necessary? What disadvantages does it possess? All businessmen should know answer to these questions and understand how to work in this field, how to use outsourcing in a right way to achieve maximum results for the companies and themselves.
What is outsourcing as a phenomenon
Appearance of outsourcing as a phenomenon can be easily explained – this is a simple labour distribution known to everyone from school, only now it is used on a higher level. Globalization in world economy and tendencies caused by it make companies work as quickly and neatly as possible and without any mistakes, react with lightning speed on their competitors’ actions and all changes on the market. That’s why companies willing to remain successful try to concentrate on their major aspect of activity using all their means to make their product competitive. In other words, the leadership of the company might pay not enough attention to those structural elements that are not connected with earning money. It often happens that such departments in big companies become completely independent in making decisions; and in such situations their ability to be competitive is tested. In other words, more power at the local level is given for it is easier for a separate department than for the whole company to improve their methods of work according to changed conditions of conducting business. As a result instead of a slow giant we see a very flexible and dynamic structure. Everything seems all right, but a question occurs: What if such a department or its personnel, to be more precise, doesn’t manage to cope with its independence? For this situation is considered to be highly probable. Then there is a demand for companies that will perform duties of such a department. Moreover, one should take into account that these companies specialize in this definite sphere of activity, in other words they will do their work effectively and according to all necessary standards. There are different kinds of outsourcing, as a technology. This can be either outsourcing of accounting as a whole, or outsourcing of salary, or giving company’s specialist to a client for some time. So, having decided to work this way, the company doesn’t have problems with its minor departments and can fully concentrate on its major activity. This is not the cheapest and suitable way out, especially in our country, but read about this below.
Outsourcing under country’s conditions – Ukraine.
Analyzing the process of business establishing in Ukraine will help much with tracing the development of forming offer and demand for outsourcing. Primary accumulation of funds in our country didn’t imply any rules of behaviour at all. Everything depended on the contacts with “the high and mighty” and the distribution was held between “one’s own people”. This fact won’t surprise anybody for the majority of countries have experience connected with such processes, organization of which differed as time passed. In other words, as years passed people tried to make them as civilized as possible even calling it “auction”. But sooner or later such a process comes to the end; and already formed main business-groups are ready to rise to more civilized level. But not everyone is willing to do this for it is quite natural that there are companies that are ready to stew in their own juice and competition is unknown to them. But unfortunately for them Ukraine has proclaimed market economy to be its choice, and one has nothing to do but to conform to this choice. We should agree that much has been done in this field within 14 years, but still there is much more that must be done. We’ll try to accept today’s situation, analyze it and understand how necessary outsourcing is in this situation and what its prospects are considering Ukrainian reality. Also we’ll try to understand what outsourcing is for numerous Ukrainian companies.
Taking into consideration the fact that outsourcing was brought on the territory of Ukraine by foreign companies for whom outsourcing is a natural way of work organisation, we should admit that these are they who form demand for it in our country. It often happens that a great number of companies specialising in some definite field organise the work of some company (usually of a big international one). Ukrainian business, working under Ukrainian conditions, has to pick holes in legislation, tax system; businessmen begin to lead dirty business harmful both for them and Ukraine which loses its possible taxpayers. All these facts often cause Ukrainian businessmen’s misunderstanding of outsourcing. They see in it only the possibility of the smoothest and high-quality way of leaving the pitfalls of their business behind. Wrong rules of business conducting lead to misunderstanding of outsourcing.
But we should admit that demand for outsourcing appears among Ukrainian companies. It means that they begin to realise that it is better to let some company specialising in this field to take control under work organization of they separate departments for more effective work, while they concentrate on their major work. Now let’s make a list of such Ukrainian companies that can be interested in this technology. In other words, let’s point out such a group of businessmen who want to work honestly and clearly even under such difficult conditions, be as quick as possible in reacting on every negative situations created by country’s totally inconsequent policy. First of all this group contains companies with foreign funds whose owners can’t work in some other way, though they are trying to specialise to new circumstances using all possible methods. Also it contains local business which either works in such field that is marginally subject to given above negative factors, or is much interested in clarity due to orientation on foreign markets. Besides, this group can consist of local companies that basically work clearly and honestly, though the number of such companies is not big.
Companies offering outsourcing in our country direct their attention both to this group of Ukrainian companies and the group consisting of foreign companies. Taking into consideration the fact that number of companies that work conforming to the rules common for the whole civilized world, the demand for such a kind of technology grows.
Outsourcing as the way of solving problems.
Now we’ll try to understand what outsourcing, as phenomenon, is today. What are its advantages and disadvantages? We’ve already touched the problem of outsourcing definition, also clarified how and who can form demand for it in our country. Outsourcing is not a cheap way of solving a problem. That’s why, before dismissing your cheaper accountant in favour of a company, totally independent in its decisions and besides more expensive, one should think everything over, analyse, consider all pros and cons and then make a decision.
So, on one hand there is an accountant who tries to listen to various company owners’ wishes and fulfils their numerous demands keeping within the limits of legislation and sometimes exceeding them. In other words, this is a common worker with whom it is easy to come to an agreement about the way of solving any problem. On the other hand, there is a company specialising in this definite field and has everything necessary for performing this work professionally, with all consequences caused by it. This means that if a manager makes a decision in favour of outsourcing, he solves all the problems concerning bookkeeping and can forget about them until the period of validity of the contract with the company, that does the whole work, ends. This company follows some criteria in its work: legislation current in force, contract terms and those standards given in this contract. Moreover such a manager can be not worried even under conditions of inconsequent government’s decisions and instability of tax system in our country for the company dealing with outsourcing is responsible for bookkeeping and its correspondence with all necessary norms. Besides, the company is also responsible for all mistakes made during the work, and pays damages according to agreements. In the same situation an accountant as a common worker and his responsibility for made mistakes lead to totally different consequences for the company. According to Ukrainian legislation currently in force, the biggest punishment for a worker can be a fine the amount of which doesn’t depend on those damages the company suffered due to careless work of this specialist.
We shouldn’t deny that decision to open one’s own bookkeeping and place it at somebody’s disposal is a very decisive step for the company agrees not to break the law or give salary in envelopes, to pay taxes on time, that means to work to the limit clearly and honestly, and I’ll repeat myself saying that very few companies in our country can allow this. But such a company can always count on precise inner control, full information and financial flows security. Moreover, separation of a director from an accountant is very important for such a company; that means that bookkeeping work is performed totally independently. It should be mentioned that companies offering such a technology of work organisation as outsourcing, are of the same culture as their clients, in other words, they use Western kind of approach in numerous situations, and as it was said above the majority of the companies-clients in Ukraine are companies with foreign funds. So it is very important for them that their partners should understand the problem in the way they do it. The usage of English as a corporative language in the company can be included here. Also such companies give a multistandard account that makes the company-client confident during negotiations with any partner.
We should also mention such kind of outsourcing as outsourcing of personnel selection. In other words, there is a clause in the contract according to which the company, performing this kind of outsourcing, is responsible for labour market and all consequences caused by this. This means that the company-client is not engaged in personnel problems and search of highly-qualified professional specialists. The company is not concerned of the changes that may occur on labour market, for example the shortage of necessary specialists, because certain standards of quality of personnel selection are given in the contract, and the company should adhere to these standards.
Very important is also the practice of rotation conducted by consulting companies. This means a constant transfer of your employees from one company to another. This is done for reducing to minimum a human element in relationships between a top-manager and a specialist conducting outsourcing in this company, and for maintaining professional relationships. As a rule, rotation takes place every 3 months, though this period can be changed due to situation.
We should also pay attention to one of kinds of outsourcing which is not developed in Ukraine now, but the demand for it begins to appear. It is a question of outsourcing of salary. There is a great demand for this kind of outsourcing abroad, especially among large companies. This is fully technical work which implies an impartial and independent approach, for if a common worker is responsible for this work, it is fraught with consequences for the company. In other words, a worker has full information about other workers’ income, unwittingly he begins to compare it with his one, as a result there is dissatisfaction at first with his salary, then with work and at last he begins to perform his duties badly. It is much easier for an independent specialist to remain objective for he is not concerned about a list of members of company staff and receives his wages in other place.
Outsourcing as a phenomenon, recently totally unknown to many people, becomes more and more popular in our country. But its further destiny and popularization depend on many factors. This is how high-quality an offer of outsourcing will be in Ukraine, as long as how successful an experience of introducing this technology in our country will be. But it should be mentioned that outsourcing has certainly found its client in Ukraine already and we should establish a fact that it has passed the period of acclimatization in our country.
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