The Outsourcing Blog..."Horses for Sources"

Banned in China

I discovered today that Horses for Sources is now inaccessible from China.  Maybe they got a bit upset when I posted Will China's Internet purges inhibit their knowledge services industry? Kind of proves my point...

Bored? Look no further

Clearly you have far too much time on your hands if you're spending time here, so here are more places to go to fill those vacant hours.  This is especially for all you sourcing consultants who went out of your way to vote for yourselves as the "top place to go to get balanced advice on outsourcing" - c'mon chaps get real -:)

IBM vs. Tata: Who's More American? - Businessweek's Steve Hamm raises some incisive points, namely, TCS, India's largest tech-services company, collected 51% of its revenues in North America last quarter, while 65% of IBM's were overseas.   Builds upon some of the issues we discussed here last year;

HP/EDS redux

I know several of you are hounding me for my views here... we've put out a couple of pieces on this today at AMR - check out Bruce Richardson's blog where he raises the discussion. 

I have to confess this one came completely out of left-field while I was traveling, but does tally well with HP's focus on bundled BPO.  All-in-all, these are my key takeaways from this eventful day:

No-one saw this one coming, most of us were expecting one of the Indian providers merging with EDS.  This now raises the possibility of further mergers in services, even though this was looking unlikely until recently.  The incumbent Western providers need scale and depth to compete effectively with the lower-cost Indian firms, and we could see a response from one of the other top tier firms to swallow up one of the vulnerable services firms.

On the BPO side, this is a great move, with the merger filling both companies’ BPO portfolio gaps, most notably in finance and accounting (F&A) and HR processes.  As we discussed a few weeks' ago, BPO market leaders Accenture and IBM have already been aggressively pushing their combined portfolios of finance and accounting and HR BPO services, with increasing emphasis on bundling these services with their application outsourcing services.   HP is looking to follow suit, with the likes of Cap Gemini, Infosys, Wipro and TCS avidly observing how they can broaden their global BPO and IT services depth, scale and industry specialization.  Now HP has deep HR delivery expertise to draw on, which elevates its bundling capability, in addition to EDS's $1 billion call center outsourcing and global IT services business.

Culturally, this is definitely an odd one to fathom, but Mark Hurd has the track record and financial discipline to make this merger a success.  He also got a good valuation for the firm, so now was probably a good time to strike.

Interesting times... maybe we'll have some more days like this in the coming months?

Is it time to dump the term "outsourcing"?

Having worked on a large number of "O" initiatives with enterprises over the last few years, the term outsourcing has given me nothing but problems. The minute the "O" word is uttered, staff get defensive, passions get stirred, resistance occurs.  Often staff quickly brush up their CVs for a hasty exit before the axe falls.  Staff and management tend to associate outsourcing with job losses, and their firms using low-cost labor from service providers. 

But what else can you use when you are looking to move into a multi-year engagement with  third-party service provider, where you will use their staff, technology and processes and likely reduce your own inhouse overhead?  I have experienced companies trying to disguise the fact they are outsourcing by labeling their service initiative as "out-tasking", "co-sourcing", "right-sizing", or even "resource-optimizing" (oh, there is more...).   Peter Allen also chips in with his preferred term "services contracting".  However you want to spin it, your staff will view it as outsourcing, and the more you try and disguise the taboo term, the more suspicious your staff will be that you are simply trying to ship them out for lower-cost labor.   

Personally, I prefer the term "managed services", as staff are not always transitioned out of the organization, and management responsibility for running the contracted services is transitioned over to the third-party provider.  However, outsourcing has become ingrained in modern business vernacular, not dissimilar to information technology.  It describes the activity a company goes through when it engages a third-party to take on the management of specific IT or business services on a long-term basis.  However, I would stress that outsourcing these days describes the activity of evaluating and transitioning the processes and not normally the long-term management of them.  For example, if a company decides to engage ADP to take on its payroll services, it will say "we're outsourcing our payroll to ADP".  However, ask the same company how they run their payroll a couple of years later, and it will say "we use ADP for payroll".  It won't say "we outsource our payroll to ADP".

So all-in-all, if you are looking to outsource processes, be upfront with your staff and tell them you are looking at outsourcing opportunities.  Explain they are a key part of making this outsourcing initiative successful and you need them onboard to support the initiative.  It will be good for their career, and they will have the chance to take on new tasks that are more core the the business - for example vendor and service-level management and higher-level business activities that directly impact senior management decision-making.   The more upfront you are with what you are doing, the more your key staff will appreciate the honest communication, and the more likely they will be supportive and proactive in making it work.  If they still resist and try to derail the process, at least you know who the dissenters are and who may not be onboard the train once it has left the station.

If you have any preferred terms for outsourcing, I'd love to hear from you...

Are we reaching an inflection point of business globalization?

I can't help feeling we are entering into a critical phase of business globalization, due to a convergence of factors.   We have seen these global dynamics in play for the last 30 years, but we are now in an economy where today's CEOs are aware they need the tools at their disposal to become truly integrated global enterprises.

I was privileged to have a preview of IBM's new study of 1100 CEOs this week at its analyst event in New York, and, while the findings are under embargo until next Tuesday's public release, I can say they reinforced one thing for me:  the vast majority of today's CEOs recognize the need for change, and are more prepared than ever to be bold and adopt measures that can drive rapid change through their organization.   So why is now different from that of 5 years' ago, or 25 years' ago?

Bada Din comes late this year for Indian outsourcers: the Indian STPI tax holiday is extended

The Indian Government has clearly been reading this blog and bowed to our pressure to extend the Software Technology Parks of India (STPI) tax holiday.  The Indian finance minister has now proposed to extend the  STPI tax holiday to expire on March 31 2010, a year later than the originally stipulated March 31 2009 date. 

This is a shot in the arm for the Indian offshore services sector, and the shares of Infosys, Wipro, TCS, Cognizant, WNS, Patni, Satyam, EXL Service, Genpact et al. are all expected to jump by up to 10% as a result.  The additional year should give the Indian outsourcing industry the time it needs to stabilize its current issues with Rupee appreciation and wage inflation.

Thanks to all you for you great contributions on this issue.

Is the sub-prime lending crisis placing outsourcing engagements on the backburner, or providing an impetus to proceed faster?

UBS has shelved their planned HRO engagement with ACS and IBM as a result of its issues with the sub-prime lending crisis, the economy and their internal business uncertainty.  Like the recent Starbucks cancellation of their HRO engagement, plans have been waylaid to progress into a major HRO implementation due to changes in the business, as opposed to any operational issues.

What concerns me is the level of short-term-ism that some companies are currently adopting, with their looking only at the next quarter, as opposed to the longer-term picture.  I do believe this crisis will provide the outsourcing industry with a mixed-bag of opportunities, with some firms viewing the bigger picture and moving more aggressively into outsourcing initiatives, and others, like UBS, deferring decisions over long-term initiatives such as HRO, as they monitor the current economic situation and figure out their survival tactics.  Surely this is a perfect time to embrace changes to your business that will drive lower operating costs and new ways of doing things?  I'd be interested in your views....

How severely will the expiration of India's STPI tax scheme impact the Indian outsourcing industry?

360DegreeVendorManagement raises some real concerns regarding the Software Technology Parks of India (STPI) tax scheme which expires on March 31 2009.  The scheme currently gives tax-breaks to new Indian organizations in the region of 10-20% for their first 10 years of inception, designed primarily to bolster India's software industry. Established Indian firms are constantly spinning out new companies to keep enjoying the tax breaks. Today, exports by STPI registered units comprise more than 95% of the total software exports from the country, which include ITO and BPO exports.

Our mystery vendor management expert, recommends to her vendor management peers:

• Get more knowledgeable on this subject now. Talk with your attorneys, analysts and consultants. Do not wait for your vendor to “educate” you. There are many layers of taxes and your advisors will be able to separate hearsay from fact.
• Negotiate your pricing terms to reduce your exposure to changes in Indian taxes.
• Use the risk as another reason to diversify your offshore vendors and locations. Multi-location, multi-vendor strategies mitigate a wide variety of risks.
• Recognize that this change will not kill the Indian industry - it will just level the comparative costs among countries. India will likely become just as expensive as the Philippines.
• Adjust your financial plans now as you enter into 2009 budgeting and planning.

To compound issues with the competitiveness of India's outsourcing exports, Ted Botzum at TPI discusses the issues with foreign currency fluctuations and their impact on outsourcing contracts.  Ted pushes the point that firms looking at outsourcing need to invest in scenario development to balance the financial risk. 

Hence, there are a number of variables that must be built into the Indian outsourcing scenario:

• Rupee appreciation
• Weak dollar and potential weakening of the Euro
• Impact of the STPI tax scheme elimination
• Impact of Indian wage inflation

By taking away the tax break, the price-playing field will be leveled considerably between the Western outsourcers and the Indian-centric firms.  The Indian firms are now competing for the majority of top-tier enterprise outsourcing contracts, both BPO and ITO - which was not the case five years' ago.  Firms such as Infosys, Wipro, TCS, Genpact and Satyam (as we discussed here last year) are constantly having to evolve their human capital strategies to retain and develop quality staff over longer periods and keep wage inflation to a minimum.  Moreover, they are moving increasingly towards volume / service-based pricing models and relying less on FTE-based pricing, which leaves them vulnerable to these pricing pressures.  Incumbent global outsourcing firms such as Accenture, ACS, HP and IBM, which have large employee-bases in India, are also facing similar challenges to keep spiraling costs to a minimum, but benefit from having a larger proportion of their employee resources in other global locations, and are not going to be impacted when this tax break is eliminated. 

My view is that the Indian-headquartered suppliers have arrived on the global stage and are now seeking to take their services to a new level by investing in higher-value services and greater onshore presence.  By taking away their tax-break, the Indian government is only serving to harm its star performers at a time they need greater support to maintain their market surge.  With the current economic downturn, outsourcing deals are more competitive than ever, and next couple of years will lay the groundwork for the global sourcing industry for years to come.  I'd be surprised if the Indian government doesn't relent on extending the STPI tax break, but maybe it's decided the time has come to cash in on its most successful export? 

Update:  the Indian finance minister is proposal a 1 year extension to the STPI tax holiday until March 31 2010

March madness: little advisors, Starbucks redux, F&A is bubbling back... and EDS gets active

So what was the month of March all about?

Little outsourcing advisors.  The outsourcing advisor debate continued on Deal Architect.  We opened the debate here where we discussed the plethora of small boutique outsourcing advisors that continue to be influential advising on outsourcing engagements.  We also kicked off a heated discussion thread when we discussed what enterprises should look for in an advisor.  Vinnie makes some interesting comments on why many firms find advantages with the smaller players, especially when established advisors can suffer from Stockholm Syndrome and refrain from aggressive negotiation tactics with large vendors.  Bottom-line, it's "Horses for Courses" when enterprises decide what's best for them... now where is that recurring theme from again?

Starbucks redux.  Returning CEO Howard Schultz made a quick decision to perform a U-turn on the retailer's HR Outsourcing (HRO) engagement with Convergys, which got debated here.  HRO has proved too much of a distraction for the firm’s management and staff, as the firm goes through a major restructuring to improve its offering to its customers, close some US stores and slow down opening new ones.  With the contract only eight months old, you cannot cite operational issues as a prime reason for this reversal of strategy.  As only Convergys was involved in the initial blue-print deployment work, both parties can exit the agreement before any serious implementation efforts have started. With the press trying to find flaws in the HRO model, I have been at pains to point out that only a small handful of HRO deployments (3%) have actually been terminated.  While comprehensive HRO deals may be under continual scrutiny, the demand for smaller scope HRO solutions in transactional areas is still healthy, with ADP announcing it is servicing payroll for 100,000 of Sodexo's employees.  The fifth annual HROWorld show this year should be interesting... and yes, I will be there.

Finance & Accounting (F&A) Outsourcing is bubbling again.  There are a number of major F&A BPO pursuits well underway at the moment, with the market showing strong signs of a pick up this year after a slowdown in the latter half of 2007.  Watch-out for my upcoming report on this market in May.  My old friend Clarence Schmitz, who runs F&A BPO specialist Outsourcing Partners International, has also been busy expanding his company's footprint.  Only a week after he announced his firm had opened a new F&A service center in Gurgaon (New Delhi), I was invited to the opening of their new 280,000 sq foot facility in Bangalore in May.  OPI now boasts three facilities in India (their other center is in Kochi),  in addition to its Central European center in Sofia, Bulgaria.  And if you ever wanted some excellent - and low-cost - skiing, don't discount Bulgaria...

EDS is back onboard the public sector gravy train. It's been an interesting few weeks for EDS, with its contact center outsourcing and government businesses.  No sooner had it announced its joint initiative with Microsoft to develop its Dynamics CRM solutions for its call center business, that it announced it had been named one of the preferred suppliers to the General Services Administration's $2.5 bn Indefinite Delivery/Indefinite Quantity contact center services contract.  This comes hot on the heals of a mega $1.3 bn contract with the Singapore government's iDA to provide desktop services across Singapore 74 public agencies both domestically and worldwide.  Having lived and worked in Singapore, I can personally attest that the country is a true pioneer in developing Internet-enabled government services for its citizens. With EDS' recent initiatives to restructure its SAP services practice and its renewed focus on developing its legacy integration services, are we looking at a new era for the Plano TX firm?  My view is it needs to fill the F&A BPO gap in its delivery portfolio and it will have a completing array of BPO and IT services.  Don't bet against an acquisition this year to remedy this.  Drop me an email if you want to speculate further...

And more from Blogsphere in March....

Blog-culture is ripping up the rule book for the outsourcing services and technology media industry

The rapid maturing of blog-culture is radically changing the way media is being delivered to people in the hi-tech, services and outsourcing industry.  Suddenly, opinionated experts (I do use this term lightly) have access to the industry which they never had previously. Long-gone are the days where they needed regular columns in trade magazines to get their views across, or a press quote that could be used out of context.  Why wait a month to get your latest opinions to the world when you can get them out in minutes? 

The lower-tier trade publications are getting a hammering.  Why go to some of the traditional trade magazines and websites, when there are a plethora of blogs out there with up-to-date news, and great debate - and from people who generally know their stuff.  What's more, YOU get to be part of that debate and YOU can decide whether these blogs are worth reading.  The threatened media firms argue that blogs are de-regulated and provide unsubstantiated information, however, most journalists are experts at placing their own spin on stories to get attention, and often provide us with unfounded opinions and views for the sole purpose of carving out their piece of the airspace.  Even on this blog, for example, we've had opportunities to pick out inaccurate media stories and try and add a dose of realism to the world, which otherwise would have left people with serious misinformation.  Not all bloggers have the polish of journalists, but they can get their point across just the same. 

Most of the top-tier media brands get this and offer bloggability on their websites.  I predict the top media brands, such as Forbes, ZDNet, Businessweek, Wall Street Journal and Investors' Business Daily, will continue to embrace the media of blogging and continue to be successful.  However, the choice of websites to visit to get the latest scoop on industry events, technologies, deals, mergers, or even general opinionated banter has ripped the media industry apart over the last couple of years - and this is escalating.  Some media firms are building stables of their own bloggers to combat the threat and deliver their own blogging-style media, but are often restricted to people who tend to be independent and not work for large organizations. 

What's more, some of my friends who are now pro-bloggers would never have become journalists, however, blogging has provided them with a medium to deliver their insight to industry in their own conversational style.  Several of them even make a living doing this... vendors - and even some trade press - are sponsoring their blogs if influencers, clients and prospects go there. The trade-press now competes with these individuals, many of whom are delivering regular content at no cost. In the past, many bloggers would have provided the trade-press with their insight, but they now prefer to preach from their own, personalized pulpit.  What blogging provides is a medium for experts, analysts, academics, consultants, marketeers and practitioners to convey their views of the industry, so we don't solely rely on journalists for information, whose media firms are dominated by the whims of their advertisers and parent organizations.

All-in-all blogging has completely changed the media game in our industry.  Whereas mainstay publications believed it was their right to own the delivery of information, they are quickly getting a nasty shock that they are no longer the prime vehicle for delivering news and content to their industry.  Just visit Google finance and check out Microsoft - as an example.  Scroll down the page and you'll see the latest blog posts on the firm.  While the trade press still cling on to delivering the news, the bloggers are delivering most of the color commentary...

Can outsourcing be a catalyst for driving down the cost of healthcare?

Outsourcing has proved to be a major "hot potato" for the US healthcare industry.  Coming from the UK, the healthcare system in the US is like comparing a Porsche with a Lada, but the British National Health Service (NHS) has, in recent years, been resorting to outsourcing major pieces of its back office infrastructure in efforts to slash cost, centralize and standardize processes, and access skilled IT services it simply does not have inhouse.  I don't believe the NHS would have dragged itself from a 1950s infrastructure to something vaguely resembling a modern-day organization, if it wasn't for the outsourcing services that have been provided by Accenture, EDS, IBM, Steria (Xansa) and others.  Outsourcing provided a shock to the system that forced reform and modernization it was never going to achieve on its own.

When you spend time studying the improved efficiencies and cost saving opportunities from which hospitals, managed healthcare providers and ambulatory services can benefit, simply by centralizing and standardizing their operational processes, you will scratch your head to understand why this industry has been so resistant to change.  These operational functions include specific healthcare processes such as revenue cycle management, contract management, clinical data management, patient accounting system management, in addition to the classic general and administrative processes such as application management, payroll, benefits admin, transactional accounting and management reporting services.  I have seen cost savings opportunities well in excess of 50% from original budget (and sometimes even more) that many healthcare providers can take advantage of, by outsourcing many of these processes to providers such as ACS, Perot Systems or Vengroff Williams, which specialize in taking on healthcare processes from both onshore and offshore locations.  Perot, for example, has significant medical coding resources in Bangalore, which comprise qualified medical personnel to take on routine revenue cycle processes such as medical insirance coding.  Vengroff Williams has service centers located onshore within the United States for healthcare providers nervous of taking processes offshore.

So why is this industry one of the least willing to adopt third party services?  Much of the problem is cultural - healthcare managers tend to stay with organizations for very long periods, and if they do switch jobs, will move into other organizations with similar infrastructures.  Things do not change much.  Most of the administrative functions are layered with top-heavy management structures that are highly resistant to change and argue that outsourcing will severely disrupt the quality of their services, and ultimately the quality of healthcare.  Perspectives of third-parties are that they will never be able to deliver the quality of services as well as they do themselves.  The healthcare industry has also been, on the whole, highly profitable, and the onus to take on "disruptive" strategies such as outsourcing has never been as strong as it is for highly competitive industries such as manufacturing and consumer business.  And I can tell you from experience, that outsourcing is rarely successful where the resistance is deep and senior managers simply will never buy in.

The US healthcare industry is plagued by high costs throughout its value-chain - from the drugs companies, through to the doctors' salaries and finally through to the heavy administrative costs of healthcare services.  My view is that we need to see a knock-on effect throughout this value chain to reduce the overall cost of healthcare in the US, and outsourcing is just one catalyst to enable this.  The pharma industry is going to be the spark for change ultimately, as competitive dynamics, globalization and low-cost generic products are forcing the incumbents to look towards new ways of stripping out cost and driving efficiencies.  GlaxoSmithKline, Novartis, Bristol Meyers Squibb and some other leading pharma giants have recently entered into BPO engagements, and last week Astra Zeneca announced a significant engagement where Cognizant will provide clinical data management services.  At the end of the day, competitive dynamics drive change, and this is the prime vehicle for outsourcing adoption in pharma.  With increased competition and pressure to reduce costs among healthcare providers, surely it's only a matter of time?  Perhaps the next occupant of 1600 Pennsylvania Avenue will have a say in this?

Claims of death greatly exaggerated

Check it out... Forbes used our counterpunch... thanks for your contributions! 

I was going to write somethng dramatic about the "power of blogging"... but you can work that one out for yourselves.  And a major hat tip to the Forbes technology editor, Elizabeth Corcoran, for publishing this.

PF

The death of Indian outsourcing? Don't make me laugh...

Following hot on the heels of "34% Buyers Axe Their BPO Deals", I woke up to an even more breakfast-choking shocker this fine morning with Forbes.com's Sramana Mitra declaring "The Coming Death of Indian Outsourcing" . 

So I checked out the credentials of the author.  I couldn't find any other outsourcing literature, but plenty of Yahoo-Microsoft commentary, which was pretty informative.  However, I did find Sramana's blog where she comments that the "Indian BPO industry is very much at risk because of the SaaS trend, and if they do not start to get their act together and respond to the trend, they are going to get punished".  This is incorrect. SaaS applications actually enable delivery of BPO services for certain processes.  Where software can be delivered as a pure web application, and does not require onsite maintenance and development, what better for a global delivery model where services are delivered from remote locations?  True, SaaS threatens the traditional software model, but it actually compliments an outsourcing model.  And surely SaaS is much more threatening to software providers than services firms, which dominate India's outsourcing economy.

Moreover, Sramana claims "Yet, India, for all its glory, is still the world’s back office. India's tech industry is a "services" industry. The Indians don’t do the thinking. The customers do. India executes".  Er... isn't that the point?  However, what she plainly fails to discuss is the fact that the better the Indian services become, the greater the number of services that require the "thinking". It is no coincidence that IBM, Accenture and HP have employed 10% plus of their workforces in India today to perform tasks that go beyond pure execution work.  When you look at the scale and type of services being delivered from India today, as opposed to 5 years' ago, the move up the value-chain of services being delivered from India is impressive.  Services such as remote infrastructure management, financial reporting, insurance claims adjudication and industry-specific application development were a far-flung fantasy back then, but today are high-growth outsourced services being delivered for enterprises today.

Sramana picks on on ADP's global sourcing model, which only has 2,500 staff in India.  However, what she doesn't comment on is that fact that very few firms outsource payroll to India, largely as this industry was established long before India came to prominence, but also because of the regulatory and privacy concerns tied to sending payroll data offshore. 

I empathize with her concerns over wage inflation, staff attrition and rupee appreciation.  These are the challenges the Indian industry is dealing with, which we discussed here last year, and it will slow down the breathtaking growth in the long-term, however, to proclaim the "coming death" of Indian Outsourcing is absurd. 

Managing talent in these economic conditions

As we reflect on enterprises' strategies for this troubled economic climate, people seem to be thinking about the same old "routine" approaches for battening down the hatches and riding this out - i.e. mass layoffs and budget slashes across the board.  This may be the case if this recession is longer and deeper than we fear, but in the shorter term, I am seeing many companies taking a different approach when bracing themselves for this forthcoming downturn than many past recessionary experiences.

February highlights

Some thought-provoking gems from February:

An Industry Gone Wild on HRM Technology Deployment:  HR luminary, Naomi Bloom, is on top form as she gives us a breakdown of the evolution of the Human Resources Management (HRM) software market over the past 4 decades, and discusses the influence of how IT and Business Process Outsourcing has given companies access to delivery models and scarce talent to run HR technology platforms.  However, she doubts today's HRM software vendors will achieve the Holy Grail of a true one-to-many model with SaaS, as they cannot create the "embedded intelligence across HRM processes" and has faith in HR BPO as the preferred deployment and payment model.  Well worth a read.

The NASSCOM 2008 Diaries: More Fog on the Windshield:  AMR Research's Chief Research Officer, Bruce Richardson, on his experiences and takeaways from the recent NASSCOM event in India.

Renewal Strategies for ITO Relationships:  TPI's thought-provoker Peter Allen is on the money discussing options enterprises have when they enter into renewal discussions with their ITO provider.  "Incumbent providers should not be retained on the basis of predecessor agreements.  A review of the current market conditions – meaning pricing, contract terms, and scope of services – is essential. We’ve observed that some clients can become complacent and trapped by the perception that the transfer of responsibility and institutional knowledge between IT service providers, or repatriation, becomes costly.....The pricing of the existing contract should be compared to the prevailing market for like services in order to gauge the range of anticipated future pricing"  I appreciate Peter's efforts to discuss some of these options for enterprises today so openly on his blog.  My view is that enterprises today need to use renegotiation as a great opportunity to get more value (process and technology) from their provider.  More on this to follow...

Mexico Sourcing:  That Margarita Never Looked Better:  Jason Busch on Mexico's attractiveness as a manufacturing sourcing location for US businesses.  "When it comes to the dollars and sense of importing manufactured parts and goods into the US on a total cost basis, the benefits that Mexico presents more than outweigh the risks."  Interesting discussion... builds on what we discussed here.

You're Not Consultants Anymore:   Brian Sommer on why consultants have become "order fulfillment specialists".   "People love to call themselves consultants even when all they do is show up at the same outsourcing data center and do the same task every single day.  Likewise, you are not a consultant if you routinely install the same software package using the same methodology that is sold through a menu of pricing options from which a customer selects. No, you're not a consultant."

Podcast:  Outsourcing in a Downturn:  And finally....yours' truly being grilled on the potential ramifications of an economic downturn on outsourcing trends by AMR Research's CEO Tony Friscia. 

 

Will China's Internet purges inhibit their knowledge services industry?

  The Guardian put out an excellent report last week entitled "Behind the Great Firewall", which discusses the Internet popularity in China, and the fact that there will shortly be more Chinese online than Americans.  The piece does a good job pointing out how much the Web is impacting society, but what concerns me is the fact that the Chinese government is working extremely hard to increase its level of censorship and keep the Chinese Internet-world sectioned off from the rest of the world.  The Guardian has since followed up with a further report entitled "China's New Internet Purge",  which discusses how the Chinese government is ramping up its attempts to close down it's "Black Web" bars. Just last month, there were 868 arrests made of people providing "unhealthy" content.  Google reports that the most searched for words in China are related to "money" and "technology", which indicates that this "unhealthy" content probably wasn't all pornography.  People talk a lot about how China will be changed more by the Internet than the Internet will change China, but if the Chinese government manages to keep most Western sites from being accessed, and persists with stepping up attempts to block this "unhealthy" content, then surely there will be a limit to the level with which China can become "changed"?  How far could the Chinese government go to restrict the Internet within its borders?   And will the Internet really change China to a great extent if their citizen are only interacting amongst themselves across controlled media.  If it's a battle for restricting information online, then surely the player with trillions of dollars will win out?

As we discussed here a few week's ago, there are some clear challenges with China becoming a dominant force for delivering outsourced, or offshored, knowledge-services for Western businesses.  One of the key reasons for the success of India and the Philippines, for example, for delivering outsourced services such as application development, insurance services and accounting services, is the ability for their workers to learn and assimilate with Western business culture.  Interaction with Western staff is vital, and so is the ability for offshore workers to research information in the Web.  If the Chinese middle-classes are continually blocked from integrating their online culture with the rest of the world, won't this impact their ability to assimilate, understand Western business culture and deliver knowledge services for customers outside of the Great Firewall?  They have proved themselves highly proficient at producing physical products in China at very low cost, and have clear potential to develop their engineering services on a global scale, but the constant attempts to keep China sectioned off from the rest of the world over the Web could substantially hold back the country from delivering knowledge-based business services for Western companies. If their development is stifled through restricted access to information and people outside of China, they could be left performing knowledge tasks that require very limited "business thinking" , for example data-cleansing services.

'

....who's this Barack Obama guy?

  "

How to let your opponent win

Away from the outsourcing topic, I watched the Democratic debate (or should I say "slugfest") last night on CNN.  Being a citizen of the old country, I am used to opposing political parties viciously going at each other... but never the politicians from the same party.  If two British MPs (Members of Parliament) from the same party threw accusations at each other in public anything like Obama and Clinton were doing, their party would have thrown them out, because the only winners from my perspective were the leading Republican candidates.  The Democrats should be celebrating the fact they have, for the first time, both the first African American and woman candidates leading the race for their presidential nominations, but instead we are subjected to them trawling through each others' backgrounds on live TV digging up dirt on each other.

Please can we see their campaign leaders clean up their act for the remainder of the campaign?

H1B Visas: the $12,000 question

You may recall the feisty debate on the H1B Visa and outsourcing issue here and here last year.  With the 2008 campaigning now in full swing, the "O" issue is noticeably absent from the candidates' agenda and our old friend Lou Dobbs is waiting in the wings to shoot pot-shots at any of the candidates who say anything that remotely supports offshoring, outsourcing or increasing H1B visas.  Step up Hillary Clinton (see video clip below, taken from Lou Dobbs' CNN show last year).

Yes, she's supporting Silicon Valley businesses and has them contributing substantially to her campaign, but at least she's openly discussing the issue and - more importantly - attempting to tie together the realities of outsourcing, offshoring, immigration and the need for the US government to invest in developing technical and engineering talent.  I respect Lou Dobbs a great deal - he's a passionate man who sincerely believes in his vision for American workers, has a great sense of humor, and conjures up some excellent - and entertaining - political discussion.   However, this H1B argument just isn't holding up. 

Is India adapting to the Night Shift?

A new report released by the Associated Press is highlighting the issues of outsourcing jobs on Indian workers' health.  While the report lacks any hard evidence and focuses on a handful of individual cases, data released by the Indian Council for Research on International Economic Relations estimated the cost of these increased health issues, namely sleep disorders, heart disease and depression, could amount to $200bn for the Indian economy over the next 10 years "if corrective action is not taken quickly".

As we discussed here on HFS a few weeks' ago, the business case for organizations outsourcing certain services to locations closer to home (or even at home?) is becoming increasingly appealing - especially for those services that require a high degreee of interaction between the organization and its outsourced workers (for example software development).  For those services where the offshore workers need to be operating at the same hours as US companies, for example customer support / help-desk services, the Indian workers must adapt to working swing-shifts and unsocial hours.  My concern here is that Indian culture is very family and social-centric, and these types of jobs are becoming increasingly less desirable for many workers who go into these jobs initially to enjoy the increased compensation on offer, but are quickly realizing the trade-off with their lifestyle, health and family / social issues.  As long as outsourcing providers are servicing US businesses from India that require a large degree of worker overlap, they are going to be faced with increasing issues of attrition and rising wages to keep workers in these jobs.  This is the chief reason why the Latin America region is on the cusp of a major upswing of taking on outsourced jobs that benefit from the time overlap.  At the same time, it increases the appeal of UK and European-centric services being run out of India, where the time differences are far less oppressive on the offshore workers. 

These health and social issues are very symptomatic of a developing economy like India - and my only surprise is the speed at which they are happening.  I believe these issues will only be magnified when work is outsourced from US businesses to China, where the time differentials are even more brutal, and the language issues much tougher.  That is one of the principal reasons why China is (and will continue to be) far more successful at taking on services such as engineering and manufacturing, where these worker interaction issues between offshore staff and Western organizations and their customers are less crucial. 

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Is India growing up too quickly?

Hoovering up the transactional stuff... is NCO becoming the ADP of F&A Outsourcing?

Going pretty much unnoticed last week was the acquisition of receivables management firm Outsourcing Solutions Inc by the global market leader in Collections BPO, NCO Group, to create a combined accounts receivable (AR) BPO giant with revenues of $1.5 billion, and adds nearshore service center capability in Puerto Rico, Canada and Mexico to NCO's current global delivery portfolio, which includes the USA, UK, India, Australia and the Philippines.  NCO has steadily been focusing on developing offerings in reporting, analysis and budgeting areas, and now only needs to acquire a major capability in accounts payable services to boast a pretty impressive full-service F&A offering.  What's impressive about this expanding portfolio is the multiple geographic locations being developed, and the avoidance of over-reliance on India.  The added capabilities in the Philippines and Latin America put the firm in a strong position to compete for global AR contracts, service all the necessary major languages, and jostle service delivery across several low-cost locations to accommodate multiple time zones, combat attrition issues and the appreciation of currencies such as the Rupee.  NCO boasts several high-profile clients, where it delivers outsourced AR services, often as augmented offerings to existing shared services operations.

Cost reduction is not the only medicine many companies need in these times

The recent post "Will an economic downturn spark a new wave of outsourcing growth" provoked several differing views on how outsourcing will be impacted by a potential economic downturn:

My good friend David Sheinfeld, who wrote a great piece here back in May, has contributed some very forthright views regarding how an economic downturn will impact the BPO industry and the fact that cost reduction is not the only medicine many companies need in these times... take it away David:

So much has been made of the downturn in the economy and the credit crunch that it is hard to believe that any industry stands to gain over the short term let alone the BPO market.  But as they say with every downturn, an opportunity is created.  The traditional story line sounds something like this; the company’s outlook is bleak and its financial model is flawed. 

Is the world really that "flat"?

This will provoke some heavy thinking... if we could turn the population of the earth into a small community of 100 people, keeping the same proportions we have today, it would be something like this.....

We're back!

Thanks for your patience over the last few weeks...

Phil

• • • "I hope this comeback is as successful as mine", a delighted "Horses" fan declared earlier...