12 January 2006 - Speech By Mr Chan Yeng Kit, Chief Executive Officer, Infocomm Development Authority of Singapore At IDA-MOF Outsourcing Exchange.
Speech By Mr Chan Yeng Kit, Chief Executive Officer, Infocomm Development Authority of Singapore At IDA-MOF Outsourcing Exchange on 12 January 2006.
Ladies and Gentlemen,
Good morning. It is my pleasure to be here this morning.
The Need for Outsourcing
Outsourcing of non-core functions to external service providers has been seen as a way for private companies to reduce costs and focus on their core competencies, which in turn helps them be more competitive.
Although outsourcing started with the private sector, the public sector is also beginning to embrace it.
In his 2005 Budget Speech, Prime Minister Lee emphasized the need for the public sector to be efficient, urging Government agencies to "best source" their non-core functions to reduce costs and spur greater productivity. In turn, the Government can focus on providing better services to the public.
Business Process Outsourcing, or BPO, is no longer some novel, experimental idea which companies embark on at their own risks. It has matured. And BPO has become an essential part of the business strategies of both private and public sector organizations.
From Outsourcing to Business Process Outsourcing
So, what is BPO? BPO takes place when a company delegates one or more IT-enabled business processes to an external service provider.
The benefits of BPO are well-documented in journals, books and business-school studies. It stretches beyond just cost savings. BPO redirects resources and management attention to more valuable activities. It increases the nimbleness of an organization and allows it to tap on the specialized skills and competencies of the external provider.
For example, in the public sector, 128 projects were outsourced in the 21 months up to October 2005. The Government saved $25 million.
In the private sector, DHL Singapore and DHL Malaysia outsourced their HR functions to Zapper. In this case, the main driver was not so much cost savings. But to buy HR competencies that they did not want to divert resources to build themselves. The external provider's services could better meet their HR needs and offered regional coverage as a bonus.
Developing Singapore's BPO Industry
While Singapore may be more expensive as a BPO base than many low-cost countries, we have our intrinsic strengths and competencies. We are seen by many as a trusted, value-added player in the BPO arena.
To enable our local companies to plug into the growing global BPO market, IDA has set aside S$12 million to help local infocomm companies develop capabilities in the development and provision of high value-added BPO services.
For the local market, IDA's efforts is two-pronged - increasing local demand in both public and private sectors, and developing Singapore's capabilities to meet the increased demand.
On the demand side, IDA will facilitate and spur collaborations between end-users and service providers. We would be happy to assist organizations that are keen to embark on BPO, with pointers on developing the business case and in facilitating outsourcing arrangements with BPO service providers.
IDA is putting in place a competency framework to develop manpower capabilities in BPO. We will assist local BPO companies to strengthen their BPO competencies and enhance their global competitiveness.
To give the BPO industry greater focus and drive, IDA has worked with the Singapore Infocomm Technology Federation (SiTF) to establish a BPO chapter within SiTF, for companies to network and collectively address issues pertaining to BPO industry development.
The BPO Chapter is called the Best Sourcing Chapter. This Chapter will work with IDA and other Government agencies to increase awareness of the benefits of best sourcing, explore and deliver best sourcing strategies, as well as organise networking events for knowledge sharing.
For a start, the Chapter will develop a sectoral directory of service providers and sectoral best practices in outsourcing.
Positioning Singapore as a High Value-Added BPO Hub
Besides stimulating local demand, the global market provides tremendous opportunities. According to Gartner, the global BPO market is estimated to reach US$173 billion by 2008. And Singapore is well positioned to tap into this market.
In a 2004 report, the US Department of Commerce ranked Singapore as the second fastest-growing hub for outsourcing among US businesses.1 And in recent reports by AT Kearney, PricewaterhouseCoopers and the Economist Intelligence Unit, Singapore was found to be amongst the top destinations for offshoring.2 3
These reports show that Singapore can hold it own against low-cost countries in South and Southeast Asia, for high value-added BPO.
Indeed, major global banks such as Citigroup have chosen Singapore to be their Regional Processing Centre for operations such as cash and securities settlement, and claims processing.
Companies, like BASF runs its Asia Pacific Trading Centre out of Singapore.
ERP software provider, SAP, also locates its global shared services operations in Singapore, where it fulfils the global IT support, HR and Finance operations.
These MNCs have chosen to locate their offshoring operations in Singapore because we offer a highly secured and stable business environment. Singapore's strengths lie in its strong intellectual property protection, pro-business attitude, talent pool, and a worry-free stable environment. We are free from natural disasters, from political uncertainties, and equipped with a robust infocomm infrastructure and excellent connectivity.
Singapore has a good diversity of companies that are able to support outsourcing and offshoring initiatives. We have a ready pool of global BPO companies like EDS, HP, IBM, and Scandent. As well as local BPO companies like NCS, SCS, Frontline, Melioris, Boardroom and many more who are here today.
Moving forward, IDA will work with other economic agencies to build on Singapore's strengths, to capture a greater slice of the global BPO market. We will continue to focus our efforts towards attracting high value-adding activities such as financial services, human resource management, supply chain management, legal and compliance functions.
IDA is not alone in this. Agencies such as the EDB, IE Singapore, MAS, WDA, MOM and MOF are all working on concert to position Singapore as the regional BPO hub for high value-added activities.
About IDA-MOF BPO Seminar
The successes and benefits of BPO are many, but problems and challenges do exist. As with any business relationship, it needs to be managed with care, with the right processes and internal policies put in place.
There is a saying that you cannot solve a business problem simply by outsourcing it. Today's seminar seeks to share some of these intricacies in BPO, from both users' and service providers' perspectives.
Besides the seminar, the exhibition also provides a platform for end-users and service providers to interact and explore innovative outsourcing solutions.
I hope you will find today's event a fruitful one for you.
1 US International Services, Oct 2004
2 Offshoring in the Financial Services Industry: Risks and Rewards, Sep 2005, PWC and EIU.
3 Making Off-shore Decision: 2004 Off-shoring Location Attractiveness Index, 2004, AT Kearney