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A Global Outsourcing Review | Jockeying For Global Position

Over the prior decade India has clearly emerged as a country-wide outsourcing success story. The South Asian outsourcing destination booked $22 billion in business in 2006 by answering customer phone calls, managing computer networks, processing accounting transactions and writing custom application software for companies from all over the world. Other developing countries see what outsourcing has done for India's economy, such as creating more than 1.4 million jobs during the past decade, and want to replicate that success for themselves. "National and even regional governments are making increasingly sophisticated efforts to attract offshore IT services," says Paul Laudicina, head of the Global Business Policy Council at A.T. Kearney Inc.

Compared with capital-intensive and high maintenance manufacturing businesses, IT (information technology) and service businesses are faster and cheaper to set up and normally generate scores more jobs per dollar invested. Further, the jobs are at the high end of the pay scale and the IT and professional services sectors are exploding. Analyst firm Gartner estimates offshore information technology and business-process outsourcing (BPO) reached $34 billion in 2005 and may double by the end of 2007. India's 60 percent market share of the global pie is certain to decline, in large part because the country's success is driving up wages and job turnover dramatically. India's demonstration of success and growing pains leave much room for other nations to stake their claims. By 2007, Gartner estimates that other offshore locations will attract in a combined $30 billion from outsourced services work.

Global
Region
Eastern and
Central Europe
China and
Southeast Asia
Latin America
and Caribbean
Middle East
and Africa
 Market Cap $3.3 billion $3.1 billion $2.9 billion $425 million
 Top Outsourcing  Countries Czech Republic, Bulgaria, Slovakia, Poland, Hungary China, Malaysia, Philippines, Singapore, Thailand Chile, Brazil, Mexico, Costa Rica, Argentina Egypt, Jordan, United Arab Emirates, Ghana, Tunisia
 Emerging Countries Romania, Russia, Ukraine, Belarus Indonesia, Vietnam, Sri Lanka Panama, Nicaragua, Columbia South Africa, Turkey, Morocco, Israel
 Emerging Local  Providers Luxoft (Russia), DataArt (Russia), EPAM Systems (Belarus), Softline (UKraine) NCS (Singapore), BroadenGate Systems (China), Bluem (China), Neusoft (China) Softtek (Mexico), Politec (Brazil), Neoris (Mexico), DBAccess (Venezuela) Jeraisy Group (Saudi Arabia), Xceed (Egypt), Ness Technologies (Israel)

Some of the most talked about contenders in the global IT and BPO outsourcing race are the large rapidly developing countries attempting to leverage low wages and abundant labor pools into offshore services. China stands in strong position thanks to its very large numbers of human resources and proven success in attracting manufacturing work. China is now aggressively pursuing India's highly lucrative IT and BPO work. Russia, Brazil, Argentina and Mexico are similarly blending a mix of government and private sector efforts to offer low costs and comparable skills with India's, and with the added advantage of being closer in proximity to the United States and European Union markets.

Not too be left behind, even very small countries such as Nicaragua, Costa Rica, Botswana, and Sri Lanka are vying for their piece of the global market. To effectively compete, these countries have organized efforts which send trade missions to outsourcing expositions, modernize the university curriculums, subsidize technical training, jump start office complexes and offer attractive tax benefits. "From the President down to the worker, this is a top priority for us," says Juan Carlos Pereira, executive director of the Nicaraguan trade promotion agency ProNicaragua. Nicaragua hosts three small telemarketing groups and an employee support center for the Latin American operations of Spanish telecom giant Telefónica. Hourly wages are about 75 percent higher than Indian wages, however, but only half the cost of neighboring countries Costa Rica and Panama. Pereira hopes to announce a call-center deal with a large U.S. Internet enterprise by March which he believes will create about 4,000 call center agent positions by 2009.

The economic and social benefits gained from remote outsourcing and offshore workers go far beyond the immediate IT and service jobs. India's software industry association, Nasscom, estimates that each new offshore worker in the information technology sector creates about seven indirect jobs, which include everything from janitors to security guards to suppliers. "Everybody wants to get into the game because it's a virtuous economic development model," says Nasscom Vice-President Sunil Mehta. However, to effectively compete requires long term planning and plenty of cooperation. Countries must normally improve their infrastructures and utilities, including telecommunications, airports, universities and medical services. Similarly, countries may have to bring their business laws and intellectual property compliance measures up to the 20th century.

Even with strategic planning, government funding and coordinated execution, the competitive landscape is fierce and success is far from guaranteed. Rivals have yet to achieve India's scale and experience which makes it difficult to differentiate themselves to win customer contracts, says Kris Wadia, a London-based partner at Accenture. Nonetheless, each country is finding its niche and jockeying for a defined position. Egypt is branding itself as a low-cost specialist in European language call centers. Dubai and Singapore claim their modernization, safety and legal systems give them an edge in handling information security and business continuity service operations. The Philippines, a former U.S. colony, draws on long-standing cultural ties and fluent English skills to snare North American call center contracts. Central and South American countries use their near shore proximity and Spanish language skills to pursue call center contracts for the Hispanic market in the United States.

Smaller countries are also taking advantage of a increased desire for outsourcing diversification by global companies. "Companies do not want to put all their eggs in one basket, as far as India is concerned," says Michael Henderson, Asia managing director for Tampa-based call-center operator Sykes Enterprises, which operates 37 facilities from Costa Rica to the Philippines. U.S. companies are also adding near-shore locations which reside only a few hours away by air and are often in the same time zones. For U.S. outsourcer's, that means Central and South America, where back-office operations are blossoming from Mexico to Argentina. Similarly, European Union companies are turning to Central and Eastern Europe, the Middle East, and Africa for near shore opportunities.

Russia is also attempting to cater to the near shore trend. However, it's focusing its aim at high-end software programming jobs. Taking advantage of its strong engineering culture dating back to the cold war, Russia is cultivating its underemployed talent which normally costs about one-fifth as compared to U.S. programming resources. A few local software development companies have emerged, including Moscow-based ITCI and a firm called DataArt that employs engineers in St. Petersburg and a head office in New York. None of the Russian upstarts have yet matched the success of Moscow's Luxoft, which acquired high-profile technical jobs to develop a document management system for Boeing and a sophisticated customer management tool for Deutsche Bank. "We offer quality, dedication, and most of all, stability, which is difficult to find in India," says Luxoft CEO Dmitry A. Loschinin.

Surprising many has been the rise of several Africa countries as an outsourcing destinations. Led by South Africa, which has garnered more than 500 call centers serving companies such as Lufthansa and General Electric in English, Dutch, and other languages, other African countries are positioning themselves as outsource destinations. Cairo-based Xceed Contact Center handles calls in Arabic and several European languages for Microsoft, General Motors and Oracle. The latest hopeful is Botswana, which is promoting strong English language skills, a strong bond rating, favorable tax breaks and financial subsidies for training to attract call centers.

The dramatic increase in the number of new outsourcing locations is forcing existing providers to spread their operations and get even more global. U.S. companies such as IBM and Accenture are growing their operational presence in Central Europe and Brazil. Indian giants such as Infosys and Tata are acquiring or opening new operations in China, Europe and South America. The second largest Mexican outsourcing company, Neoris, which operates in Monterrey and Rosario, Argentina, is now opening a new facility in Budapest to accommodate European customers. "The point is to serve customers wherever they are," says Carlos Castilla, VP for services outsourcing at Neoris.

 

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