Publication: ComputerWorld USA
Risks in Outsourcing: No One Seems to Care
Richard Mills, Chairman
- Both India and the Philippines are the subject of longstanding travel
warnings from various embassies. Some say India is on the verge of nuclear
war with Pakistan. In the Philippines, terrorist bomb threats are all too
common. Is it any wonder that Gartner Inc. cites security as a "key
concern in outsourcing"?
If you look only at the
screaming headlines, it's difficult to understand why so many intelligent
people are building outsourcing operations in these apparently
"unsafe" countries. But if you speak with the people actually
leading the operations in Asia, you get quite a different perception of the
John Standring is the
Manila-based general manager of the IT outsourcing facility for Safeway
Inc., a huge U.S. supermarket chain. He says that while there are security
risks in the Philippines, they aren't much different from those of any big
city anywhere in the world. He believes that with proper security measures,
there is little to worry about. It seems to me that this same advice would
be appropriate for anyone visiting New York or Washington for the first
Shaun Paterson, vice president
of operations at the large outsourcing facility of New York-based Thomson
Financial, takes a similar view. He feels that the streets of Manila are
"safer than those of London" (England is his home country), and he
says female friends visiting from Britain feel the same way. As someone with
many years of experience in IT and business process outsourcing (BPO) in the
Philippines, Paterson feels qualified to say that security risks are, at
Almost all experienced managers
I have spoken to make similar assessments. Some have said that the risk of
personal injury is higher while driving a car to the airport for an overseas
trip than it is being in the overseas country. One American manager made the
point that he can't understand why there aren't travel warnings for the
U.S., since there is clearly a greater proven risk of terrorist attacks
there. It seems to him that there have never been comparable terrorist
attacks in either India or the Philippines
That all sounds good, but
business process outsourcing is still a new concept to many people. Managers
wishing to pursue outsourcing programs must spend a lot of time justifying
their plans to skeptical department managers who face the loss of their
staffs. Security risk is always flaunted as a "key concern" in any
outsourcing project: What happens if a bomb destroys our facility and kills
our people? Will our senior staff be kidnapped? Aren't these countries very
corrupt? On and on.
Another approach to explaining
away the issue of country risk is to go back in time to an earlier
generation of offshore outsourcing. Let's talk about electronics.
Intel Corp., Philips Electronics
NV, Toshiba Corp. and Texas Instruments Inc. are a few examples of
electronics companies that have operated billion-dollar facilities for
decades in the Philippines. Last year was Intel's 30th anniversary in the
country. During that period, the company has seen a tedious parade of armed
insurrections, volcanic eruptions, electricity blackouts and corruption
scandals. Through all of it, Intel's operations in the Philippines have
continued supplying its critical components to the global supply chain
without notable interruption.
Semiconductor people consider
themselves the old hands of outsourcing and sometimes deride the sudden
attention given to the new kids representing BPO. The old hands don't
understand why there should be a lot of worry about spending $5 million to
set up a call center; for most of them, that's peanuts. Many have annual
maintenance budgets that are larger than that.
A semiconductor facility, they
say, requires large buildings to be custom-built, power and water supplies
to be upgraded, technical staffers to be trained over the course of years,
and so on. A BPO operation offers a lot less to worry about.
For these reasons, semiconductor
managers sometimes refer to call centers as "outsourcing lite" or
"outsourcing on a diet." Jokes aside, though, they are also full
of advice and information for the younger generation of outsourcers.
These old hands say there are
really two kinds of country risk to think about, one good and one bad.
Country risk that involves the threat of violence against employees or a
complete breakdown of law and order (such as what happens in war) is
generally felt to be bad. It's reasonable to say that Haiti and Bosnia
aren't currently realistic destinations for outsourcing operations for this
reason. It's also reasonable to say that the Philippines and India are
realistic destinations, since various generations of outsourcers have had
successful long-term experiences. Some say India is the higher risk of the
two, since it faces possible war with Pakistan -- the two countries have
already fought two wars against each other, and now they both have nuclear
weapons. But this hasn't stopped India from becoming the king of
outsourcing, has it?
Country risk that affects
currency values, on the other hand, can often be good for business. The head
of one major semiconductor firm said it like this: "If the value of the
local currency drops by 15%, then many of my costs also drop by 15%, and I
know it sounds bad, but this is good for my business."
With this in mind, countries
like the Philippines and, to a lesser extent, India should be good long-term
destinations for outsourcing. The Philippine peso has dropped by 40% against
the U.S. dollar over just the past five years, much more than the Indian
rupee has fallen. So, does this make India a less attractive long-term
outsourcing option? The answer isn't completely clear.
But what is completely clear is
that security risk isn't much of a concern to the people with experience
leading outsourcing facilities in either India or the Philippines. Most
leaders feel that the issue is overblown almost to the point of
ridiculousness. This view goes for both the current and especially the
previous generations of outsourcing managers.
Richard Mills, a chartered
financial analyst and a principal at executive search firm Chalre
Associates, is based in Manila.
the article above
PDF format by clicking below.
& Management Consulting:
Associates provides its Executive Search & Management
Consulting services throughout the Asia Pacific region. We are
proactive and well known in our sectors of focus. Regional
Managers use us to help bridge the gap between local environments and
the world-class requirements of multinational corporations.