Outsourcing to improve productivity of SMEs

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 Small and Medium Enterprises (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. IT outsourcing helps in reducing the initial capital requirements of the SMEs, and more importantly, helps in freeing up organisational bandwidth in managing IT resources.

Finance and Accounts: Several SMEs are choosing outsourced CFOs, as the scale of operations don't necessarily warrant a full-time CFO. More than the cost of hiring, retention of CFO has been a 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 are gaining significant advantages from this emerging outsourcing opportunity.

Human resource function: 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 organisation 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 utilised only by large corporations.

Several other outsourcing opportunities are fast emerging for SMEs, including end-to-end logistics, facilities management, telemarketing, 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 capitalise on this emerging phenomenon.

(The author is ex-Director Ratings, CRISIL and Co-founder, RiverBridge Investment Advisors.)

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