Courtesy: http://www.goethe.de/
To be self-employed does not mean doing everything "oneself" and "all the time". Rafael Kugel is an extreme example: a scientist at the Free University of Berlin (Freie Universität Berlin), he also has a secondary occupation as the founder of a company and has been selling high-quality rapeseed oil via the Internet since 2005. Although he now has several thousand regular customers, Kugel deals personally with the day-to-day running of the business for only 15 minutes a day on average. The reason for this is that almost every activity has been outsourced: a German producer of bio-products produces and bottles the oil, while Kugel has contracted out the Internet shop, shipping and accountancy to specialised companies. Because of this he does not pay any wages for own staff who are not working to capacity. "It only costs me money if somebody at my call centre lifts up the telephone and takes an order. If nobody rings up, it doesn't cost me anything." Apart for a minimal basic charge, costs only ensue when an order takes place and are covered again as soon as the bill is paid. Kugel's "less-than-a-one-man company" began to make profits shortly after start-up.
Everything that is not among the core tasks
"In principle, all business processes of a company can be outsourced, that is, contracted out, unless they are among the core processes," Mario Kölzsch from A`PARI Consulting GmbH says. The staff canteen, administration and cleaning of the building, security, tax accountancy or IT services: nowadays it's usually service providers from the outside who see to these. "Well into the 1990s, such services were regularly provided by the companies themselves."
According to Kölzsch, outsourcing is particularly popular in economically difficult times because of the increased pressure to reduce costs. Often between 15 and 30 per cent of the budget in the IT sphere can be saved through skillful outsourcing. The German IT branch achieved a turnover of 13.6 billion euros in 2008 by means of outsourcing, according to the association Bitkom. The turnover has been increasing for years and Bitkom also expects a plus of 7 per cent for 2009. This area, with its complex know-how and fast-moving products, is crying out for highly specialised professionals. For example, if two companies using different hardware and software systems merge then the internal departments are very soon out of their depth. Usually people from the outside manage better to introduce a unified infrastructure.
IT and outsourcing are almost always mentioned in one breath. And no wonder: more than 60 per cent of companies outsource this sphere, according to Professor Arun Chaudhuri of the Münchener Fachhochschule für Ökonomie und Management (i. e. Munich School of Economics and Management). Further education (44 per cent) and procurement (43 per cent) follow; financial service providers, the manufacturing industry and public administration have handed out contracts to third parties in a big way. In these branches, the professor said, the pressure to modernise was especially strong. A slim company or a slim organization and a better overview of operational costs were the advantages. A pity, though, if it only has a cosmetic effect on the balance sheet: in the short term the results look higher and the management can show it has been active.
A secretary sitting in India
Globalisation has drastically increased the number of possible partners. Assistance activities are now outsourced worldwide, according to Professor Chaudhuri. For a long time now, office services within the country have not been unusual, but whoever can conceive of a secretary thousands of kilometres away? Outsourcing to low-wage countries is spreading to more and more areas of life: nowadays tax or nutritional advisors or an English teacher may well be located in India. "Over the last few years the transaction costs, for example for communication and monitoring, have dropped immensely because of the spread of the Internet and broadband connections." At the same time the qualifications of foreign specialized personnel and their number in absolute terms grew. That is why the trend is now to shift more challenging tasks, such as research and development, to China, India or Eastern Europe.
Parts of the production have already been located there for a long time: because of their proximity to important markets and the lower cost of wages. Companies with a lot of work done by hand especially choose to profit from the difference. The medium-sized producer of textiles, Setex, for example has outsourced a large section of its manufacturing to Poland.
In Germany, simple sewing tasks were too expensive: "The portion of manufacturing costs allotted to wages is roughly 50 percent," remarks Setex-Chef Konrad Schröer – at the weaving mill that mainly works automatically, they only amount to 9 per cent. That's why the fabrics are woven, refined and coated at the central Westphalian workshop but then cut to shape, hemmed and sown in the neighboring country to the East for a fraction of the wages. At first this was taken on by Polish sewing factories; however, over time the number of cutting losses increased and it became difficult to retain an overview. Schröer decided that they had to take that over themselves. Setex has had its own factory in a Polish special economic zone for three years now – and that has even engendered new jobs at home.
Longer decision-making processes and higher control costs
Companies that have their extended work bench further away, in Asia for example, now notice the following: the enormously increased costs of transport are gradually eating up any advantages in wages and the latter have been reduced in any case because wages are rising more strongly than in Germany in many countries of the world. Many companies and organisations are relocating jobs back to base. Loss of quality and fear of plagiarism are other reasons.
Many suppliers and service providers calculate very finely in order to snatch orders away from the competitors. If their plan doesn't work, though, they risk insolvency or have to cut back on quality. Large customers attempt to dictate conditions to the suppliers who are dependent upon them. And that doesn't only happen abroad.
"More lengthy decision-making processes and an increase in the necessity for controls are likewise disadvantages of the model," Rafael Kugel, with his own start-up company, says. However the advantages predominated by far. However, the owners of the machinery factory Bäumer from Freudenberg saw that differently: some years ago they outsourced their welding, turning and sheet metal shops to companies in the region in order to avoid long supply paths. During the economic boom however suppliers were so busy that Bäumer had to wait a long time for the ordered components and hence had to plan early. That impaired flexibility – and thus also the competitive strengths – of this medium-sized manufacturer of machines for processing foam that were to be sold worldwide. In the mean time the outsourced sectors have been reintegrated again. "One is much more flexible when one is one's own boss," the managing director Matthias Schuster explains. Luckily the staff that were able to weld and work with metal were still there.
To be self-employed does not mean doing everything "oneself" and "all the time". Rafael Kugel is an extreme example: a scientist at the Free University of Berlin (Freie Universität Berlin), he also has a secondary occupation as the founder of a company and has been selling high-quality rapeseed oil via the Internet since 2005. Although he now has several thousand regular customers, Kugel deals personally with the day-to-day running of the business for only 15 minutes a day on average. The reason for this is that almost every activity has been outsourced: a German producer of bio-products produces and bottles the oil, while Kugel has contracted out the Internet shop, shipping and accountancy to specialised companies. Because of this he does not pay any wages for own staff who are not working to capacity. "It only costs me money if somebody at my call centre lifts up the telephone and takes an order. If nobody rings up, it doesn't cost me anything." Apart for a minimal basic charge, costs only ensue when an order takes place and are covered again as soon as the bill is paid. Kugel's "less-than-a-one-man company" began to make profits shortly after start-up.
Everything that is not among the core tasks
"In principle, all business processes of a company can be outsourced, that is, contracted out, unless they are among the core processes," Mario Kölzsch from A`PARI Consulting GmbH says. The staff canteen, administration and cleaning of the building, security, tax accountancy or IT services: nowadays it's usually service providers from the outside who see to these. "Well into the 1990s, such services were regularly provided by the companies themselves."
According to Kölzsch, outsourcing is particularly popular in economically difficult times because of the increased pressure to reduce costs. Often between 15 and 30 per cent of the budget in the IT sphere can be saved through skillful outsourcing. The German IT branch achieved a turnover of 13.6 billion euros in 2008 by means of outsourcing, according to the association Bitkom. The turnover has been increasing for years and Bitkom also expects a plus of 7 per cent for 2009. This area, with its complex know-how and fast-moving products, is crying out for highly specialised professionals. For example, if two companies using different hardware and software systems merge then the internal departments are very soon out of their depth. Usually people from the outside manage better to introduce a unified infrastructure.
IT and outsourcing are almost always mentioned in one breath. And no wonder: more than 60 per cent of companies outsource this sphere, according to Professor Arun Chaudhuri of the Münchener Fachhochschule für Ökonomie und Management (i. e. Munich School of Economics and Management). Further education (44 per cent) and procurement (43 per cent) follow; financial service providers, the manufacturing industry and public administration have handed out contracts to third parties in a big way. In these branches, the professor said, the pressure to modernise was especially strong. A slim company or a slim organization and a better overview of operational costs were the advantages. A pity, though, if it only has a cosmetic effect on the balance sheet: in the short term the results look higher and the management can show it has been active.
A secretary sitting in India
Globalisation has drastically increased the number of possible partners. Assistance activities are now outsourced worldwide, according to Professor Chaudhuri. For a long time now, office services within the country have not been unusual, but whoever can conceive of a secretary thousands of kilometres away? Outsourcing to low-wage countries is spreading to more and more areas of life: nowadays tax or nutritional advisors or an English teacher may well be located in India. "Over the last few years the transaction costs, for example for communication and monitoring, have dropped immensely because of the spread of the Internet and broadband connections." At the same time the qualifications of foreign specialized personnel and their number in absolute terms grew. That is why the trend is now to shift more challenging tasks, such as research and development, to China, India or Eastern Europe.
Parts of the production have already been located there for a long time: because of their proximity to important markets and the lower cost of wages. Companies with a lot of work done by hand especially choose to profit from the difference. The medium-sized producer of textiles, Setex, for example has outsourced a large section of its manufacturing to Poland.
In Germany, simple sewing tasks were too expensive: "The portion of manufacturing costs allotted to wages is roughly 50 percent," remarks Setex-Chef Konrad Schröer – at the weaving mill that mainly works automatically, they only amount to 9 per cent. That's why the fabrics are woven, refined and coated at the central Westphalian workshop but then cut to shape, hemmed and sown in the neighboring country to the East for a fraction of the wages. At first this was taken on by Polish sewing factories; however, over time the number of cutting losses increased and it became difficult to retain an overview. Schröer decided that they had to take that over themselves. Setex has had its own factory in a Polish special economic zone for three years now – and that has even engendered new jobs at home.
Longer decision-making processes and higher control costs
Companies that have their extended work bench further away, in Asia for example, now notice the following: the enormously increased costs of transport are gradually eating up any advantages in wages and the latter have been reduced in any case because wages are rising more strongly than in Germany in many countries of the world. Many companies and organisations are relocating jobs back to base. Loss of quality and fear of plagiarism are other reasons.
Many suppliers and service providers calculate very finely in order to snatch orders away from the competitors. If their plan doesn't work, though, they risk insolvency or have to cut back on quality. Large customers attempt to dictate conditions to the suppliers who are dependent upon them. And that doesn't only happen abroad.
"More lengthy decision-making processes and an increase in the necessity for controls are likewise disadvantages of the model," Rafael Kugel, with his own start-up company, says. However the advantages predominated by far. However, the owners of the machinery factory Bäumer from Freudenberg saw that differently: some years ago they outsourced their welding, turning and sheet metal shops to companies in the region in order to avoid long supply paths. During the economic boom however suppliers were so busy that Bäumer had to wait a long time for the ordered components and hence had to plan early. That impaired flexibility – and thus also the competitive strengths – of this medium-sized manufacturer of machines for processing foam that were to be sold worldwide. In the mean time the outsourced sectors have been reintegrated again. "One is much more flexible when one is one's own boss," the managing director Matthias Schuster explains. Luckily the staff that were able to weld and work with metal were still there.
No comments:
Post a Comment