Media
Publication: CIO USA Magazine
CIO - Ask
The Expert
By
Richard Mills
Ask the Expert
offers you the opportunity to pose questions to industry leaders. Every two
weeks a new discussion topic will be posted. Specific questions will be
selected to be answered by that month's expert. Experts will no longer
respond to questions once their time commitment has expired.
Topic:
Offshore Outsourcing
Questions
for Richard Mills
Answers to
these questions provided by:
Richard Mills, Chairman
Chalre Associates Executive Search
Question 1:
My question
regarding outsourcing has to do with its negative social consequences. Will
the lessons learned from the manufacturing outsourcing era of the last
century lighten the impact of IT outsourcing, or is there no parallel? Is
all this hand wringing over IT outsourcing justified?
“I
don’t agree with the premise of your question. Anything that increases the
productivity of American workers will increase their standard of living.
This has been the lesson in the past and I don’t understand why this might
have changed recently.
The
manufacturing outsourcing era is an excellent example of this process in
action. Today, it costs $2.65 to manufacture a running shoe in China that
will retail for $100 in the US. Most of the value of the shoe is not in the
manufacture of the physical object; it is in the design, advertising,
retailing, promotion, etc., to make people want to buy it in the first
place. American companies outsource low-end manufacturing because why would
they want to spend any time on something that adds so little value. Let the
Chinese compete ruthlessly for that $2.65. Americans are paid more than
Chinese because the work they do is more valuable.
During the
IT revolution over the past couple of decade, dramatic productivity
increases were experienced. We used to employ vast numbers of clerical staff
to do back office-processing roles. If you are older than 40, you may
remember the armies of clerks required to do manual papershuffling in
purchasing, payables, HR, shipping, warehousing, insurance processing, bank
processing, government processes, secretarial work, etc. etc.
Today,
millions of those jobs have disappeared because they were replaced
(outsourced) by computers. CEO’s spent hundreds of billions IT over the
past 20 years even though we all know they hate IT. What warmed their hearts
was cost reductions by getting rid of millions of their employees. If you
are older than 40, you will certainly remember the outcry years ago about
this.
While this
all sounds terrible, it really isn’t for one simple reason. American
workers are not stupid people. If they find themselves laid off from a job,
they go and do something about it so they can earn more money.
The
displaced workers retrained themselves and/or upgraded their skills so they
could earn higher incomes in related or new industries. Today, the US still
has a massive garment industry (including shoes) but it only cares about
doing the parts of it that are most important such as design, advertising,
brand building and the like. Let the third world countries do the low value
tasks such as actually making the physical objects.
We live in
a time of great opportunity for Americans since services such as coding
computer programs can be off-loaded for lower cost to third world employees.
The process
of outsourcing is nothing new and has always resulted in higher productivity
and incomes for American workers in the past. There is not reason to think
anything has changed today. Unless, that is, you think that Americans have
suddenly lost their traditional we-are-the-best-and-nobody-will-beat-us
attitude that has made the number one in so many industries.”
Question 2:
The
Philippines used to be a hot spot for outsourcing. What happened to them?
“I
disagree. In my opinion, Philippines has never been a hotspot for
outsourcing. The country had the same head start that India had years ago
during the Year 2000 craze. India worked hard to create dozens of
world-class outsourcing organizations and Philippines created almost none.
Even today, the penetration of the outsourcing
sector in Philippines is said to be 3 or 4 years behind India.
It is hard
to understand why this is. According to most business leaders, Filipinos
speak better English, have a better customer service mind-set and the
cultural gap is less. India is reported to have better technical
universities but Philippines is said to be better in liberal arts (more
appropriate for back-office outsourcing). Philippines is also said to have
better infrastructure and expatriate life-style.
So why has
India outpaced Philippines to such a degree?
It is an
issue that no one seems to have a definitive answer. Some of the reasons I
hear are:
1. Better Marketing – India has Nasscom, a one-stop association for
the entire Indian
outsourcing industry that has done a fabulous job of promoting India to the
world.
Philippines, despite being a much smaller country, have between 6 and 10
various
outsourcing associations (the actual number keeps changing), all supposedly
promoting Philippines. These associations are a fractious bunch that seems
to be constantly battling within themselves and against others who try to
unify them. The result is that none are large enough or competent enough to
effectively market the Philippines to global organizations. They seem to
spend their limited energies promoting Philippine outsourcing to other
Filipinos, not a productive endeavor.
2. Better Senior Managers and Entrepreneurs
– It was reported during the dot-com boom times that close to 40% of
Silicon Valley startups were founded by Indians. (A joke at the time was
that all it took to start a dot-com was 4 Indian engineers and an American
guy to sell.) Indians are clearly an entrepreneurial people who know what it
takes to build world class businesses. Filipinos, on the other hand, don’t
seem to have that same need for the recognition that building successful
businesses entails.
3. Bad Security Perception of Philippines
– Until recently, there was a real threat that India would go to nuclear
war with Pakistan over the Kashmir region. Such a war would be in addition
to the 2 previous wars these countries have already fought in just the past
few decades. They still lob a few missiles at
one another even today. For some reason, India was better about keeping
information from the American public. Philippines has a few Muslim
insurgents who sometimes take a few hostages to sell for money. They are
located far, far in the south away from the major outsourcing centers and
the numbers of people harmed in these disruptions are significantly less
than have been harmed in India. Yet, most Americans see and read about these
occurrences and have the impression that it is the more dangerous. The
vagaries of public relations seems to be something the Filipinos have been
poor at mastering.
I am sure
there are other reasons but these might be a start. The question for the
future is whether Philippines will succeed as an outsourcing destination in
the face to tremendous competition from dozens of other countries who also
want to develop outsourcing industries.”
Question 3:
Do you see
the supply of suitable technical resources in Asian countries to be
sustainable? It is not uncommon to see good people get lured abroad, who
gets left behind? Will we reach a saturation of the market and rates start
to rise to US/European levels.
“We will certainly see rates starting to rise. We are already seeing
this in India and China now. Employment growth rates over the past few years
have been unsustainable – 50% to 100% hiring growth cannot continue
indefinitely.
But
remember that there are a lot of people in Asia. India and China each have
about 1B people and if you include everyone else in Asia, you should surpass
2.5B people. This is without considering Russia and all of the eastern bloc
countries. We could even add South America and parts of Africa. The total of
all of this well over half the world’s population. By comparison, the
entire population of North America, Europe and Japan is less than 1B people.
Under such
circumstances, it seems clear that in the long run we will not run out of
candidates for outsourcing work. This is good since it means that we will be
able to offload our lower value work at lower and lower costs. Our future
work will involve higher and higher value functions that justify higher and
higher incomes for us in the developed world. Outsourcing ensures our
productivity and standard of living will continue to increase.”
Question 4:
How
effective and reliable are offshore resources during Katrina/Rita type
circumstances? Having considered some level of offshore cost savings, my
thoughts are, today, "thank goodness we kept it in house"... the
level of close attention and quick response it took to work through these
past few weeks was amazing; and trying to do the same with resources on the
other side of the planet seems impossible.
“It is
interesting that you should mention Katrina/Rita. These events have been
much talked about lately in the Asia Pacific outsourcing community lately.
As one
example, I had lunch with a fellow who runs a large outsourcing operation
for one of the world’s largest insurance companies. He said he has never
had a disruption in 3 years until Katrina. His operation is supported by a
group of 26 Citrix servers close enough to one of the US hurricanes that
they were shut down for a day and he had to send everyone in Philippines
home. Nobody had thought to have an alternate group of servers ready for
such a situation.
However,
when the servers were back on-line a day later many of the southern US
processing centers were not yet functional. His Philippine operation was of
critical importance to process the titanic number of claims the company was
receiving. The result was a response time that was praised by the
company’s customers. Many of the company competitors were not so highly
glorified. The overseas operations made all the difference.
I heard
similar stories from other senior people. The lesson that seems to be
important is that rich countries can sometimes be as disruptive as the
third-world and it is important to have geographic alternatives that are
able to support each other in times of need.
Likewise,
offshore operations would have helped enormously during the 9/11 terrorist
attacks. Many reading this may remember how traumatized many of the
country’s leading financial firms were in the weeks after the attacks and
the setbacks experienced by America’s (and the world’s) largest
financial industry. If these firms had had offshore facilities in place, the
economic impact would not have been as great. The situation would still have
been terrible in human losses but the economic blow would have been less and
in one respect we could have been able to tell Bin Laden to kiss our arses.”
Question 5:
Do you
think it is logical to have an office in Hong Kong as the BPO hub to manage
outsourcing since Hong Kong is known as a general hub between Eastern and
Western cultures? Are there currently any multinationals doing this?
“Hong
Kong is one of the world’s finest hubs for the transport of objects.
Services outsourcing is not about objects, it is about data. In my opinion,
it makes no sense to be a general hub to manage outsourcing initiatives. I
have not heard of any multinationals doing this. The “hubs” for
outsourcing occur inside the heads of individuals and through their
relationships with others.
Some
organizations have Asia Pacific regional offices in Hong Kong or Singapore
that sometimes are involved in selling projects and initiatives but they
seldom play anything outside a superficial
role from my experience.”
Question 6:
What is
Philippines’ "USP" (Unique Selling Proposition) or
"Differentiator" in the
Outsourcing/ Off shoring marketplace especially in the BPO & Call-Center
space? It seem that the industry in the Philippines doesn't have a very
clear long-term vision -- does this augur well for the industry?
“You are
exactly correct, in my opinion. Vision is sorely lacking in the Philippine
industry"
Some of you
may know that Philippines were previously a US colony -- sorry, I mean
protectorate. Americans built much of the country’s railroad network, its
ports, public education system (teaching in American English, of course),
even the government and judicial systems are modeled after the American.
Even today Young Filipinos follow American fashion trends and US watch
television programs. More than a few of them dream of one day immigrating to
the US. The result of all of this is that Americans find Filipinos very easy
to work with compared to everyone else in Asia.
In my
opinion, this Closest-to-America-in-Asia is the Unique Selling Proposition
of Philippines. India produces excellent hardcore software developers but a
lot more opportunities in outsourcing are in application support and
maintenance, technical support, business analysis, accounting, HR, insurance
processing, bank processing, medical transcription, legal services, on and
on. Filipinos are arguably the best in Asia because their legal, insurance,
banking, medical systems are all copied after America’s and they speak
better English than anyone else in Asia (except of
course Australia which is too expensive).
Whatever
the vision might be, it is clear Philippines needs to do something.
Philippines have not yet developed an equivalent of Nasscom in India, a
single strong voice of the country’s outsourcing industry on a global
scale. Philippines, despite being a much smaller country, has between 6 and
10 outsourcing associations, all supposedly promoting various sectors. These
associations are a fractious bunch that seems to be constantly battling
within themselves and against others who try to unify them. The result is
that none are large enough or competent enough to effectively market
Philippines to global organizations. They seem to spend their limited
energies promoting Philippine outsourcing to other Filipinos.
That said,
the current business environment is very strong in Philippines. People seem
to have learned about it on their own or through word-of-mouth. Maybe
Philippines will get lucky and it will grow despite their lack of
contribution toward their own success.”
Question 7:
What would
you consider the top 3 criteria when building a business plan that will
decide which country to offshore to?
“People,
People and Infrastructure. Those doing services outsourcing today have it a
lot easier than those who did manufacturing outsourcing years ago because
there are much fewer dependants for success. To be successful in services
outsourcing, the main components are hiring good people at reasonable cost
and being able to provide them with adequate infrastructure (mainly telco,
electricity and office space).
The
infrastructure decision is straightforward since either the location has it
or it doesn’t. Labor is a much more complicated situation since quality
will depend on many issues related to the work you want to do, the
competitive environment for this labor and costs
Of course,
there are a lot more issues such as security, the regulatory environment,
government support and quality of life (for expatriate management) that
could derail an outsourcing initiative. However, the people I talk to are
mainly concerned with the people and the infrastructure.”
Question 8:
How much of
the cost benefits of outsourcing IT work to China and India
is likely to be eaten up by inflation in these markets over the next 3-5
years?
“China
and India have achieved a lot in the past few years and we should all be
proud of them. They have done great work to open their economies to outside
firms and to promote themselves as welcoming business environments.
The result
has been a bandwagon of companies joining the rush to outsource
manufacturing to China and services to India. Regional managers I speak to
say that the result of this today is increasing salaries, worsening
retention and decreasing quality of output. In India, even basics such as
electricity, telco and roads are constraining growth.
In
addition, the Chinese currency especially is felt by most of the world’s
financial analysts to be greatly undervalued. What happens when the Chinese
government stops buying billions of dollars worth of American treasury
securities in its frantic attempt to hold down the value of its currency? It
is only a matter of time until they stop this madness and allow their
exchange rate to rise. This imminent adjustment will dull China’s
attractiveness. India’s situation is not so severe but this could still be
a factor.
It is
impossible to provide an estimate of the amount of inflation that will occur
in the coming 2 or 3 years but we should be aware that it will occur and it
will make outsourcing work to these
countries less attractive.”
Question 9:
1) What do
you think is the next phase of outsourcing given the fact that many
companies have realized the need to utilize the benefits of cost arbitrage?
2) What would be the impact on economies of developed and developing
countries?
3) What would be the impact of IT on outsourcing or vice versa?
“1) The
next phase is complicated since so many things are happening at once.
First,
outsourcing is expanding beyond just call centers and IT into almost every
other
conceivable business process: accounting, map-making, design engineers,
animation, medical services, legal services, insurance processes, banking
processes, HR, and so on.
Second, it
is not just Americans who are aggressively outsourcing processes. Now every
rich country in the world is moving quickly to join the movement.
Third, most
developing countries have seen the success of India and feel they have
something to offer as well. There is a frantic stampede going on of
countries entering the business from a supply side. If you consider how many
countries and people exist in the rest of Asia (outside India and China),
plus South America, Russia and the eastern bloc -- even parts of Africa have
offerings. The competitive pressure will mean downward pressure on costs.
Fourth,
pushed by competitive pressures, the early leaders of outsourcing like India
will move up the value chain to more sophisticated processes.
2) The
result of both developed and developing countries will be a higher standard
of living. This has been the outcome in the past when productivity advances
has been introduced and almost certainly will be the result this time
around.
Computerization
resulted in the displacement of millions of white collar back office
positions over the past 20 years as mundane tasks formerly performed by
armies of well-trained clerical workers. After a period of adjustment, the
former “white-collar ghetto” workers retained themselves for higher
values jobs. Today their lives and incomes are better as a result. Of
course, this is a rosy description of a complex and inconvenient process for
those who go through it. Nevertheless, the results are still roughly the
same.
3) The
impact of IT on outsourcing is that it makes outsourcing more and more
viable. An advance in IT that increases functionality or decreases costs
results in an exponential increase in the practicality of overseas
outsourcing initiatives.”
Question
10:
Would you
recommend a company consider a "captive" approach or a full
outsourcing approach to ADM/BP in India?
“This is
a very, very complicated subject. On the one hand, there are large
world-class
organizations who successfully outsource ADM (Application Development and
Management) to outside organizations and they have no inclination of taking
the work captive because they are happy with the results. Accenture, IBM,
CGI, Wipro, ClientLogic and a multitude of others have developed great
offshore businesses doing this work for clients.
On the
other hand, there are just as many large, world-class organizations that use
the captive approach just as successfully. AIG, GE, Thomson Financial,
Safeway are a few of these.
One broad
generalization I have noticed is that companies that are doing more
complicated work or who have onerous security or regulatory requirements
tend to want to do it themselves (captive approach). Lower end work like
help desk support is often easier to be done by service providers.
One
approach I have seen that seems to work well is a dual approach where a
company will use an outside provider so they can get up and running faster
and learn from their experience. Gradually, the outsourcing organization
will move over some of the processes initially provided by the third-party
company and move up the value chain to more sophisticated or sensitive
processes.
From my
experience, this approach has often resulted in happy people on both sides.
The provider keeps a long-term client and the outsourcing organization has
more control (and lowers its costs).”
Question
11:
If 1
million computer professionals are laid off, and each of them makes a modest
estimate of $60,0000, assuming that they pay a modest $3,000 in federal
income tax, that is $3 billion that U.S. Government won't have, annually.
Then if those same workers pay state and local taxes, a modest $3,000, that
is another $3 billion states do not have, annually. Is offshoreing good?
Corporate taxes may need to go up. If state and federal government utilize
software developed and supported by offshore staff, it's almost as if
American taxpayers are really getting a raw deal. Is this lose-lose both
short and long term?
“American
workers are not stupid people. If they find themselves laid off from a job,
they go and do something about it so they can earn more money. This country
used to employ 100’s of thousands of textile workers but now almost all
those jobs have been lost to third world countries. At the time those jobs
were being moved there were some frightened people and entire towns lost
their main source of employment.
Who today
complains about these lost jobs? Nobody, of course. The workers retrained
themselves and/or upgraded their skills so they could earn higher incomes in
related or new industries. Today, the US still has a major garment industry
but it only cares about doing the things that are most important such as
design, advertising, brand building and the like. Let the third world
countries do the low value tasks such as actually making the garments.
We live in
a time of great opportunity for Americans since services such as coding
computer programs can be off-loaded for lower cost to third world employees.
The process
of outsourcing is nothing new and has always resulted in higher productivity
and incomes for American workers in the past. There is no reason to think
anything has changed today. Unless, that is, you think that Americans have
suddenly lost their traditional we-are-the-best-and-nobody-will-beat-us
attitude that has made the number one in so many industries. Do you believe
that?
One study I
read, talked about the numbers of accounting jobs lost over the past 20
years due to computerization. You may remember this being an issue among the
accounting profession years ago. After a brief period of whining, these
professionals upgraded their skills and accountants earn more today than
they ever did as paper-shuffling clerks.”
Question
12:
Given
China's rapid growth and potential hegemony, and our sometimes adversarial
relationship with its government, how can it be considered "safe"
to outsource key data to this country?
“Just
because you are running a business in China doesn’t mean you have to turn
over key data to the Chinese government. Normal security precautions should
always be undertaken.
A bigger
worry might be that China and Taiwan get into a tiff and American forces
have to intercede. The result could be that China feels the need to make
life difficult for some sectors. Country risk like this is present in all
countries.
The
beautiful thing about American consumerist values is that they are so
corrosive to those of dictatorial regimes.”
Question
13:
We have
some offshore work going on now in India and it has been very good. My
question is with all the outsourcing going on now in India do you see it
becoming priced out eventually? In other words the more skill sets they have
and the skill they have acquired working with American business do you see
their status and pay raising in the near future where we better look to
start cultivating other areas such as Vietnam, China etc.?
“The
people I speak to running the large outsourcing facilities in India say this
is already
happening. For the past few years, the only destination companies talked
about was India and they all went there to setup. The result of this
bandwagon was that today they are experiencing a lot of problems related to
salary inflation, employee retention, quality of delivery, office space
availability, telco access, even electricity supply, etc.
Philippines
and Vietnam seem to be 2 countries that are profiting from this situation.
China seems to be experiencing its own constraints due to extremely high
growth rates in manufacturing outsourcing.
The
Regional Managers I speak to are now opening and growing facilities in
locations outside India for now.”
Question
14:
What do you
see on the future O/s prospects in Asia?
“There
are a number of trends that I see happening in Asia. I will list some of
them.
1. Sector Expansion – In the past, most of the growth in
outsourcing was just call centers and IT. Today, the number of sectors
embracing outsourcing has grown tremendously. A few of these new areas
include: legal services, medical transcription, financial research, design
engineering, HR, accounting, payroll, animation, content services,
publishing, on and on. This development will make growth explosive in the
coming few years.
2. Greater Country Demand Participation – In the past, most
outsourcing was undertaken by American firms. Today, everyone wants to do
it. Over the past few months, I have talked to large blue-chip companies
from most rich world countries: Britain, Canada, Australia, Japan, Germany,
France, Italy, Finland, etc. This will result in a tremendous expansion in
the number of companies participating in outsourcing.
3. Greater Country Supply Participation – In the past, only a few
countries were able to offer a credible offshore service. Now there are
dozens of countries that can and it has become a frantic stampede by
everyone else to join the club. The result will be strong downward pressure
on costs as companies have literally a world of options to consider.”
Question
15:
I am ready
to leave my current position that sends work overseas and
uses too many contractors. How can we find companies who don't offshore
work, hire cheap foreign labor, and are in general
"America-friendly"?
“Your
question seems to be a loaded one. The companies who are offshoring their
work tend to be the largest and most successful organizations in the country
and the world. They are at the leading edge of this movement just as they
are the leaders in other aspects of their industries. In a globally
competitive business environment, this is a requirement of their survival.
The
manufacturing sector went through its offshoring trend some years ago. The
companies that were slow to do this did not survive. One of many examples
was Fruit-of-the-Loom. The underwear brand is still well known throughout
the US and Canada because of its humorous television advertisements years
ago. Despite their great marketing success, the company was slow to send
manufacturing offshore and by the time they woke up, it was too late. Their
competitors like Hanes took their market share. Offshoring too late was not
the only factor that caused Fruit-of-the-Loom’s demise but most business
research indicates clearly that it as either a key factor or the primary
one.
In my
opinion, “American-friendly” companies are those that pursue innovative
ideas with vigor. America became the economic envy of the world by doing so.
This is the only way American companies can ensure secure, high-paying jobs
for their American employees
The jobs
being moved offshore are lower skilled in nature. So, you have nothing to
worry about. Americans have always worked hard to improve their skills to
justify higher and higher incomes and they earn more than anyone else as a
result.”
Question
16:
Our metrics
show that the offshore projects are the most expensive to support. Although
the actual coding is less expensive, the
other 70% of our lifecycle is more expensive. We all know that the majority
of developing software is in design, architecture, and support. If we must
spend more time in defining "gold-plated" requirements up front,
in the process that takes most of our time, how can CIO's justify offshoring
software development in light of this?
“There seems to be a learning phase that is required on both onshore
and offshore sides of the development process. Initially, the extra time
required to “gold-plate” design and architecture seems onerous. However,
CIO’s that I speak to who have gone through the offshore process say that
this “gold-plating” of requirements is one of the primary benefits to
the organization since if fosters the creation of standardized processes
where quality and efficiency can be measured and tracked. The outcome is
almost all cases is a general improvement in the design and architecture
phases, and an increase in skills levels of both onshore (American) and
offshore professionals.
You mention
that support is something that will not be sent offshore. My information is
that application support is one of the functions that is being sent
offshore. Many highly-skilled, creative Americans don’t like doing support
work since it is considered tedious and you have to listen to a lot of
complaining users. This low-end function is a prime example of something
that Filipinos (for instance) have greater interest in performing.”
Question
17:
China will
be an important outsourcing market for USA, can you explain some important
aspects for China to be a successful competitor in the outsourcing market?
Which kind of company will be successful?
“Because
of China’s tremendous achievements over the past few years, the country
seems to have acquired the reputation of being the answer to everyone’s
problems. Many companies have tried to do offshore work in China but the
results have been mixed as of yet.
One of
these is BearingPoint (formerly KPMG Consulting). The company reportedly
spent $50M setting up their center in China and the results are said to be
disappointing. This failure has left them behind many of their competitors
who setup operations in India and Philippines.
China’s
explosive growth in manufacturing has resulted in severe salary inflation
for skilled professionals such as software developers. In addition, English
communication skills are in short supply in China for similar reasons.
Further to
this are the pressures building up on the Chinese currency. Almost every
financial analyst in the world will tell you that their currency will
increase in value because of their titanic trade surplus.
Given that
China is already becoming expensive relative to other competitors and
English skills are in short supply, what will happen when the government is
forced to loosen control of the currency and its value increases by a
further 10% of 15%. All of these factors will limit their potential as an
offshore outsourcing destination in the near term (say in the next 3 to 5
years).
Don’t get
me wrong. I am not saying the Chinese are somehow bad. They have achieved
more in a short time than any other country in the history of the world. It
is just that their recent extreme success is resulting in constraints that
are pushing them out of certain markets.”
Question
18:
Does India
have a future as an outsourcing services provider? I mean, originally people
went there because the prices were much lower, because supposedly Indian IT
specialists were great, etc, etc.. But what we see nowadays is that the
salaries in India are growing rapidly (around 7% a year). India is thinking
of accepting the VAT laws that would also raise the prices. The amount of IT
specialists India produces each year is scaring and the quality seems to
drop a LOT.
“Your
information seems to be roughly correct according to the people I speak to
within Asia. Because of India’s past great success, they are now
experiencing problems due to increasing salaries, quality concerns, employee
retention, etc. You mention 7% as a rapid salary increase. I hear salary
increases are much greater than this for many skills.
India will
have challenges to maintain growth from this point forward. This situation
has opened up the market for countries like Philippines, Vietnam, South
Africa, Russia and eastern Europe, etc.”
Question
19:
IT -
Offshoring adoption in Southern Europe. Right now, partially due to the
cultural issues and partially because the salaries in these countries are
much lower than in the US or Northern Europe, offshoring is not that popular
in these countries. Do you think the situation will change drastically, say,
a couple of years from now?
“That is
an interesting question. I have seen a few southern European companies who
have setup offshore outsourcing operations in Asia. Examples of ones I have
had conversations with are Soluziona (the big Spanish IT consulting firm)
and Alitalia (the Italian airline). That said, there are not many from this
region yet who are active in offshoring work so it is difficult to estimate
their future presence.
A lot will
depend on the supply of labor in these countries. If Italy or Spain (say)
are producing large numbers of computer science graduates, then they won’t
have to offshore work. However, if these countries don’t have the people
required, then they will need to offshore work to acquire access to the
skilled professionals required. The continuing strength of the Euro may also
make
offshoring attractive to southern Europe.”
Question
20:
I have
heard and personally experienced many problems with India-based call
centers. What's the future of India-based call centers? Also, what's the
chance for China to catch up in the IT outsourcing field (non-call center)?
“India
has been a great success over the past few years. They have achieved a lot
and I think we all should be impressed with these hard-working innovative
people.
Nothing
goes up in a straight line, however. From speaking with a lot of senior
managers within the Asia Pacific region, it is clear there is movement of
voice-enabled work out of India. I shouldn’t specific mention company
names on a public forum such as this but I can tell you that this issue is a
major topic of conversation throughout the Asia Pacific region. Philippines
seems to be one of the destinations that is profiting from this movement for
now.
India will
continue to be a strong destination for voice-enabled work. However, they
will grow in a more measured manner from this point forward. In the IT
field, it is said that India will still be the king.
China is
another country that has achieved a lot in a short time. It seems clear that
they will be a strong competitor of India in the future. However, their
remarkable success in areas like manufacturing is resulting in severe cost
pressures in the coastal regions (where most English speakers are located).
Along with this, is the impending appreciation of the Chinese currency.
In the
short term, China will face is facing similar cost and employee retention
problems that is plaguing India. In the longer term, the hard-working,
entrepreneurial-minded Chinese will make a formidable competitor to
India.”
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