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

OUTSOURCING: THEORY AND EXAMPLES OF SUCCESSES AND FAILURES FROM DEVELOPING COUNTRIES. Dr. Khaled F. Sherif. AGENDA. INTRODUCTION. OUTSOURCING EXPERIENCE IN DEVELOPING COUNTRIES. CASE STUDY: ROMANIA. INTRODUCTION.

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

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  1. OUTSOURCING:THEORY AND EXAMPLES OF SUCCESSES AND FAILURES FROM DEVELOPING COUNTRIES Dr. Khaled F. Sherif

  2. AGENDA INTRODUCTION OUTSOURCING EXPERIENCE INDEVELOPING COUNTRIES CASE STUDY: ROMANIA

  3. 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.

  4. INTRODUCTION • Outsourcing as a tool is used by Government’s 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

  5. 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

  6. 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

  7. 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

  8. 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.

  9. EXAMPLES OF OUTSOURCING OPPORTUNITIES (BY MINISTRY)

  10. EXAMPLES OF OUTSOURCING OPPORTUNITIES (BY MINISTRY)

  11. 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.

  12. 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.

  13. 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 utilities—including water, electricity, gas, and district heating. • Outsourced management of system to private operators—including water, electricity, gas, and district heating.

  14. 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

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