OUTSOURCING: THEORY AND EXAMPLES OF SUCCESSES AND FAILURES FROM DEVELOPING COUNTRIES

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OUTSOURCING THEORY AND EXAMPLES OF SUCCESSES
AND FAILURES FROM DEVELOPING COUNTRIES

• Dr. Khaled F. Sherif

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AGENDA
INTRODUCTION
OUTSOURCING EXPERIENCE INDEVELOPING COUNTRIES
CASE STUDY ROMANIA
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INTRODUCTION

• As governments seek to enhance the overall
  delivery of services, effective outsourcing can
  provide a significant advantage as a result of
  the competition among suppliers that it creates.
• It is this competition which drives down the
  costs of services, and produces substantial
  savings for government and more efficient service
  provision.
• In addition to the direct benefits to the
  government, a comprehensive and well-designed
  outsourcing program can have significant impact
  in stimulating private sector activities.

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INTRODUCTION

• Outsourcing as a tool is used by Governments to
  not only promote efficiency in service delivery,
  but it has been consistently used as a tool for
  government downsizing.
• In select developing countries, outsourcing is
  now beingused to

Promote opportunity for private sector investment
and development
Enhance the efficiency of delivery of particular
services
Affect the size of government employment by
eliminating the need for the State to pay
salaries, benefits and pensions as a result of
the contracting out of particular functions
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WHAT IS OUTSOURCING?

• The first phase of outsourcing involves the
  undertaking of a comprehensive Government
  Services survey.
• This survey would provide
• The key findings of the survey would provide
  insight as to the relative level of public sector
  participation in the provision of certain
  services, and potential opportunities for private
  sector involvement based on experiences in other
  countries and international best-practice.

A comprehensive inventory of current Government
delivered services
The relative costs for delivery of these services
The current mechanisms by which these services
are delivered
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WHAT IS OUTSOURCING?

• The findings of the outsourcing survey would
  provide the basis for the development of a
  comprehensive Government outsourcing program,
  focusing on improving service delivery.
• Strategic development would focus on
• Although outsourcing would provide significant
  direct opportunities for SMEs, spin-off
  enterprises would also emerge substantially
  increasing the growth prospects of the sector.

Identifying services in which outsourcing would
provide increased efficiency and quality in the
overall delivery process
Identifying services in which outsourcing would
provide substantial cost savings
Develop a program which has a built-in mechanism
for ensuring that the outsourcing process is
designed to place spur SME growth and focus on
enhancing productivity and competitiveness of SMEs
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OUTSOURCING EXPERIENCE IN DEVELOPING COUNTRIES

• Over the past half decade, outsourcing has
  quickly been embraced in many developing
  countries.
• This is particularly true in Eastern Europe where
  outsourcing is taking different forms and has
  advanced quite rapidly.
• In countries like Tajikistan, Turkmenistan, and
  Uzbekistan, however, the Government remains
  virtually the sole provider of virtually every
  kind of service and still remains quite active in
  the area of manufacturing.
• This is manifested not only in a lack of
  activities that have been outsourced by the
  Government, but also in a lack of privatization
  initiatives that have been key to the economic
  transformations that have taken place in many of
  the Second-Wave Accession Countries

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OUTSOURCING EXPERIENCE IN DEVELOPING COUNTRIES

• Recently, however, Central Asian Governments have
  began to consider the major benefits of
  outsourcing initiatives, largely stemming from
• The current low-levels of PSD activities and FDI
  in these countries, averaging less than 120
  million per year.
• Civil service wage bills that have amounted to as
  much as 70 percent of total budget expenditures.
• The extremely inefficient delivery of services
  across a variety of traditional and
  non-traditional State functions many of which
  are laden with corruption.
• According to the World Bank Tajikistan and
  Uzbekistan are two prime examples of countries
  where the State has taken on too much. They lead
  the way in agriculture, are a primary force in
  production, and are the major providers of
  services to consumers.

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EXAMPLES OF OUTSOURCING OPPORTUNITIES (BY
MINISTRY)
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EXAMPLES OF OUTSOURCING OPPORTUNITIES (BY
MINISTRY)
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IMPACT

• The World Bank conservatively estimates that if
  the forms of contracting out highlighted during
  this presentation were to be carried out in
  countries like Tajikistan, Turkmenistan, and
  Uzbekistan, this would generate over 1 billion
  in investment in each of these countries.
• Also, there would be the added savings from a
  lower civil service wage bill, likely lower
  corruption levels , and enhanced quality of
  service provision.

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CASE STUDY ROMANIA

• Various countries in Eastern Europe have followed
  a very different line than Tajikistan,
  Turkmenistan, and Uzbekistan.
• Romania has enhanced private sector development
  in their country by over 2 billion per annum
  spanning 2001 to 2004.
• Most of this investment has also been indigenous
  creating over 13,000 new local businesses over
  the same three year span, mostly SMEs.

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CASE STUDY ROMANIA

• Romania has been extremely aggressive in a
  variety of outsourcing initiatives spanning 12
  Ministries. In municipal services for example,
  and specifically in the capital Bucharest, the
  Government has
• Outsourced garbage collection and disposal,
  landfill usage
• Outsourced solid waste management
• Outsourced billings and collections including
  water, electricity, gas, and district heating.
• Outsourced maintenance and repairs of municipal
  utilitiesincluding water, electricity, gas, and
  district heating.
• Outsourced management of system to private
  operatorsincluding water, electricity, gas, and
  district heating.

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CASE STUDY ROMANIA

• The Bucharest initiatives alone have created over
  100 new businesses in Bucharest that employ over
  240 people
• They have saved the Government wages and benefits
  to state employees annually of over 3.2 million,
  as well as led to the downsizing of over 780
  state employees operating in this area-- many of
  which were ghost workers
• In addition, the tax revenue from many of the
  above concessions is quickly exceeding what it
  was costing the state to provide these services.
• The Government has built upon this success with a
  similar initiative in airport management, and is
  rolling out additional schemes across 12
  additional ministries