Executives Dumping Environmentally-Unfriendly Outsourcers

Green factors are forcing a new stage of expectations on global outsourcing suppliers. Environmental concerns have entered into the formal selection process of outsourcing vendors, according to a recent Brown-Wilson Group, authors of "The Black Book of Outsourcing" independent study of industry decision-makers and analysts.

The influence of consumer and investor opinions for green corporate accountability and the creation of new government regulations in favor of protecting the environment have pushed green issues onto the boardroom agenda and onto outsourcing vendors' growing plate of priorities.

Over 21 percent of publicly traded companies that outsource functions have added "green policies and performance" demands to their vendor contractual arrangements in 2007, and over 94 percent plan on adding clauses or including "green" in their renegotiations processes. Only 36 percent of private companies executives are currently considering greener outsourcing service agreements in 2008.

Among first time outsourcing clients in 2007, 43 percent included green factors in their selection processes and 18 percent added contractual goals for outsourcers.

How does the shift to environmental responsibility impact outsourcers?

"While many outsourcing vendors, particularly European and US based vendors have already established proactive green corporate policies, there will be a flurry of activity among offshore firms from India and China to retain competitive appeal. The offshore perspectives of these suppliers, traditionally focused on cheaper and faster, did fortify the strategic importance of the environment on the decision-makers within North American and European clientèle, hence the frantic catch-up mode to set green agendas," said Scott Wilson, partner, Brown-Wilson Group & co-author, The Black Book of Outsourcing.

The pressure is on for outsourcing suppliers to produce green credentials and adopt green initiatives to meet client demand, yet suppliers must strategize ways in which they can extend such value-adds without significantly increasing costs to stay competitive.

"Beyond labor savings and operational re-engineering, outsourcing clients now seek top-line and bottom-line contributions from their suppliers. There's still a very short list of outsourcing firms who are making the grade as good stewards of the planet with significant implemented ecological commitments and dedication to environmental responsibility," said Wilson.

Boards & CEOs are also turning to corporate outsourcing governance and procurement advisors to implement green corporate policies via their sourcing vendors.

Some Wall Street analysts and portfolio strategists are not as enamored with green policy implementations, regardless of who is responsible, because of the cost factor to climate issues which are still debated. Individual investors seek green companies while institutional investors are cautious about the bottom line impact. Analysts warn that costly environmental efforts may eventually hurt margins which propels the outsourcer into damned-if-you-do/damned-if-you-don't predicament, indicated Wilson.

According to the Black Book survey, the impact on outsourcing vendors is forcing executives to incorporate issues like hardware energy consumption, alternative energies, waste disposal, use of recycled content products and environmentally preferable products and services, use of biobased products, energy- and water-efficient products, alternate fuel vehicles, products using renewable energy, and alternatives to hazardous or toxic chemicals as well as asset disposal into their sourcing strategies.

Wilson also noted that the economic development of emerging outsourcing countries is alarming earth scientists concerned about the surge in greenhouse gas emissions in countries like China and India.

"The Black Book of Outsourcing" (Wiley Publishers) recently conducted its annual survey of outsourcing 20,000 global users, which included this high ranked collection of outsourcing vendors whose clients recommended these forty vendors for demonstrating the highest green credentials.

Over 88 percent of outsourcing decision-makers indicated that the environmental dedication will influence their selection processes as contracts come up for bid in the next twelve months, but only a mere 7 percent anticipate any increase in passed-along costs from their outsourcing vendors to meet specified green concerns.

This article originally appeared in the 08/01/2007 issue of Environmental Protection.

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