Outsourcing: A love / hate relationship for U.S. I.T. professionals. Ask the average employee in any I.T. organization, and hearing about fear of jobs going to India and China is almost unavoidable. Although many have started the move toward business service management (BSM) to address the chaotic labor trends, I.T. labor itself still consumes over one-third of I.T. budgets. This figure is perfectly in line with a recently published Gartner report stating that 37% of the typical I.T. budget goes directly to personnel costs. What are you as the CIO going to do to manage this frenzied situation? Is outsourcing, or “offshoring,” the answer?
How can you outsource your operations to a foreign country and still maintain compliance with best practice frameworks such as ITIL or MOF? How do you maintain Sarbanes-Oxley, PCI, or HIPAA compliance when utilizing 100% offshore resources with far less control?
Almost everyone in the I.T. sector has at least one story about various operational tasks being “offshored” to India, and no call-center, network operations center (NOC), or infrastructure team has been immune to rumors of jobs going offshore. No longer are the cities of Mumbai and Delhi simple manufacturing hubs and suppliers of raw materials. The country is home to some of the largest corporate call centers and development centers in the world. In late 2005, the Indian outsourcing workforce numbered 350,000 individuals. That total is now estimated at well over 800,000, with many new positions going unfilled due to the lack of qualified candidates.
Eleven years ago this month, USA Today published an article titled “Can political instability be eliminated in India?” Looking solely at the news of the past six months, the answer to that question is an obvious NO.
The trend toward a twenty-first century India has not fostered the sort of sweeping political change one might expect from the world’s most populous democracy. Moreover, the unwillingness of the Indian government to more robustly combat intellectual property theft is the stuff that causes your legal team to lose MANY nights of sleep.
Recession has made its way to India as well. The 4 December 2008 issue of The New York Times ran an article discussing the wave of outsourcing firms scaling back their daily operations in India due to the unhealthy global financial climate. As of this week, the Indian rupee is at a record low.
India makes a strong case as the “global back office,” yet it has failed to produce an environment supporting front-office operations such as product innovation and corporate strategies. The prevailing thought of the past 5 years has been that Indian outsourcing firms are masterful in the art of efficiency and product development measures. What about now?
On 7 January 2009, Indian stocks took a nosedive in the wake of announcements by Satyam Computer Services that corporate profit summaries had been inflated for several years. The announcement by Satyam’s chairman and co-founder that he had directly falsified accounting documents on an ongoing basis has thrown the entire Indian outsourcing industry into dramatic turmoil. As a provider of back-office services for many of the largest banks and healthcare institutions in the world, the result of the SATYAM crisis is nothing short of devastating.
By Friday, January 9, 2009 news sources were reporting that interim CEO Ram Mynampati does not have faith that the firm can continue past the next few weeks. Mynampati stated they were working to find the liquidity to pay current employees, suppliers, and creditors.
In less than a week, the crisis has crossed the Pacific Ocean and hit U.S. shores. Auditing giant PricewaterhouseCoopers is expected to pay a hefty price for the emerging fraud. The auditor has been responsible for Satyam financial oversight for over eight years, and Satyam investors are expected to go to court in attempts to recoup losses. According to legal sources from within India, most are likely to attack PricewaterhouseCoopers directly rather than Satyam.
The tragic events of November 2008 in Mumbai clearly show that the concerns go much deeper. Over 200 people were killed in the attacks, and the entire central business district in Mumbai ground to a halt for several days, resulting in billions of dollars in lost labor. Within one week of the attacks, five high-profile Indian cabinet members were forced to resign. On 1 December, TIME magazine posed the question “Will India’s Government Survive the Mumbai Massacre?”
Many companies are selecting alternate destinations, and some trends show an actual migration OUT of India to other knowledge-rich environments such as Singapore, The Philippines, Armenia, Pakistan, and various Latin American countries. Companies requiring less interaction with the public (for example, a software development center) may select destinations where English is not the primary language, or in some cases, is not a language spoken at all. Companies building public-facing operations such as helpdesks or call centers are being forced to reconsider earlier decisions, and many are moving to more English-centric countries like Taiwan and the Philippines.
Key players are making a strong case for themselves as these trends develop. In the Western Hemisphere, Costa Rica and Peru have marvelous records of rock-solid software development and high customer satisfaction ratings. In Europe, Armenia is emerging as a major powerhouse and model of efficiency. In Asia, many are discovering that the almost-perfect English spoken in Taiwan and the Philippines combined with some labor costs equal to or less than those in India make each a destination of choice. In fact, the November 30 edition of The New York Times Magazine featured a four-page article touting the viability of the Philippines as a premier outsourcing destination.
While China, Russia, and Korea have fantastic talent pools, the labor cost and in some cases difficulty dealing with local and national governments make them less attractive to some U.S. based companies.
While being one of the lesser-mentioned yet more historically colorful European countries, Armenia is a virtual strongbox of extraordinary talent. As mentioned by the ” target=”_blank”>www.cia.gov/library/publications/the-world-factbook/”>CIA World Factbook, 18% of Armenia’s current population is under the age of 15, meaning the talent pool is poised for huge growth.
Armenia declared independence from the former Soviet Union on 21 September, 1991 and is now a bastion of political stability (a particularly attractive factor for the O&O industry). A healthy GDP real-growth rate of 13.7% makes Armenia one of the top producers in the EU.
Additionally, Armenia is rapidly becoming a major challenger in the index of relative economic freedom. As reported by the Heritage Foundation, the change has been nothing short of amazing. In 2000, Armenia ranked 84th in relative economic freedom. As of late 2008, Armenia ranked 28th – ahead of European powerhouses Spain (31st) and France (48th) and just behind Sweden at 27th.
Hong Kong ranked #1 on the list for 2008, with the U.S.A. at #5.
The appraisal of economic freedom is based on 50 economic indicators within the following categories: capital flow and foreign investment; financial systems;
monetary, budget, and trade policies; salaries and prices; government interference in the economy; property rights and regulations; and black markets.
Many outsourcing experts are finding a presence in Armenia quite successful for many of their clients and partners. The cooperation offered by the Armenian government to ease immigration and visa restrictions for executives and other technical employees traveling between Armenia and the United States has been a huge advantage to many, and this is compounded by great satisfaction with the talent pool offered by this European country.
Having a stable presence in Armenia is but one example of alternatives to the current Indian instability. There are numerous other alternatives as well, and diversification is going to be the keystone to success over the next few years.
As pointed out by one CEO, “…the logical approach for today’s global economy is to diversify. Many of my contacts who previously invested heavily in Indian resources are already asking for new alternatives, and we believe the best approach is to simply avoid the old cliché of “putting all the eggs in one basket.”
Singapore has emerged as another destination of choice, with an extremely stable economy and government as well as strictly enforced laws on intellectual property rights. Perfect English is widely spoken, and the country is considered one of the top-five technical innovators in the world.
Originally founded as a British trading colony in 1818, Singapore joined the Malaysian federation for a short two years ending in 1965. Now completely independent, Singapore is undeniably one of the most prosperous, diverse, and cosmopolitan destinations in the world and has a per capita GDP greater than that of many “leaders” in Western Europe.
In 2006, the World Bank rated Singapore as “the most business-friendly economy in the world.” Immediately behind London, New York, and Tokyo, Singapore is the fourth largest foreign exchange trading hub in the world.
The country is home to three major state universities: The National University of Singapore, Nanyang Technological University and Singapore Management University, resulting in a literacy rate over 93%. The island nation accomplishes it all with a geographic size only three times that of Washington, DC.
The Philippines and U.S.A. share not only a very similar legal system but the English language as well. Companies in the legal sector consider this fact especially attractive. Once a U.S. colony, the Philippines has a workforce that is already familiar with many legal factors not readily obvious to those in countries with less of a seasoned relationship with the United States.
A few facts about the Philippines:
- Population of 91,000,000 as of 2008
- 550,000 college graduates per year on Average
- Educated labor pool of Over 30,000,000
- Entry-level I.T. salaries average $2500—$8000 USD P.A.
- Top-quality CBD real-estate costs average $17 PSF
- 95% literacy rate
- English as a primary language
One of the top-three law firms in the world relocated their entire network operations center from Chicago to Fort Bonifacio, Manila, in 2003. That operation has since grown much larger, also encompassing legal operations and software development.
From 1997 to 2008, companies such as Citibank, Fluor, IBM, Convergys, Telus, HSBC, Dell, JP Morgan, Siemens, and Deutsche Bank have all opened major offshore facilities in the Metro Manila area of the Philippines.
More than just a country filled with call centers, the Philippines is home to dozens of offshore operations involving network operations, wireless services, energy, shipping and logistics, legal and medical transcription, finance and accounting, and software development.
The country is now recognized by some as the top destination of choice in Southeast Asia. In 2006, the country generated in excess of $3.0 billion in outsourced operations, and that figure is expected to more than double by the end of 2009. The Philippine government has targeted a global market share of 8 to 10% in the O&O market by 2011.
Regardless of where you go, there is no “single best answer” to every situation. When looking for that “trusted advisor” to help you make your next outsourcing, offshoring, development, or infrastructure decision, you need a firm with the knowledge, process, devotion, and proven direction to make it a success.
Only by in-depth knowledge of your core business can any firm help in an effective O&O engagement. You need a firm that endeavors to understand and optimize how the process will enhance not only the I.T. department, but all other business units as well.
O&O will continue to gain momentum over the next few years, regardless of what happens in the Indian subcontinent. The recent events in India and the surrounding territories are but a small stumbling-block to an ever-evolving global business model.
Businesses today realize that three very important factors have emerged in the outsourcing and offshoring industry:
- O&O cannot and should not be based on the “one size fits all” methodology anymore. Diversification is the key.
- Every situation is different.
- Unless you are prepared to invest in learning foreign tax and H/R systems, unfamiliar holidays, unique infrastructure, governmental regulations, and possibly a few foreign languages, you NEED a trusted advisor on your side.
Companies and their investors who spent the billions of dollars (and thousands of man-hours) building outsourced operations based solely in India have found that trying to separate the technology from the actual business process is not only foolish—it is futile. Outsourcing and offshoring can provide limitless possibilities, but they must be done with precision , care, and proper distribution. Rather than outright withdrawal from offshoring operations, now is the time for diversification.
“There is timing in the whole life of the warrior, in his thriving and declining, in his harmony and discord. Similarly, there is timing in the Way of the merchant, in the rise and fall of capital. All things entail rising and falling timing. You must be able to discern this..”
Miyamoto Musashi , 1645
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We The People (through the election process) should have equal seats and voting power on the Federal Reserve Board. The FED care’s only of bailing out the CEO’s of Wall Street & the Bank’s.Not the familie’s that are losing their homes to foreclosure.Enough of bailing out Wall Street and the banks with our money from the FED and we have no say in it. It’s time we deep-six the FED for the sake of the working class people of our nation.
screw you…it is not that simple. And you know it. I think you feel guilty for living in the foreclosed home you now have because another family LOST IT. Con artists are JUST THAT…the banks,loan officers, realtors..all of them. so suck it up and be happy you’re OK.
The NWO started when you blue eyed savages entered into the lands of the people you intended to conqeir.
The European is in no moral position to lecture anyone.
You will be fucking yourself when the devaluation of the dollar by appropriating the bailout funds to foreign countries, the hyperinflation and the currency conversion to the Amero happens. Then even you won’t own shit.
Welcome to the NWO.
Blind eye??? You mean we cant see 38.6% in taxes going out of our payechecks every week? That kind of blind eye????
i have no shame i owe nobody a car or a house or free credit so go fuck yourselves
hey asshole, if they fuck over a spick, its just a matter of time before they get to the poor white trash.
If white people had a heart none of this shit would’ve happend.
You should be ashamed of yourself.
America,
So much greed in the place where your morality should be. We’ll see how smart you uncle toms are when your families and high rise penitentiaries are destroyed by the flame of public outrage. Laugh now in the face of crisis, spurn on the hate that allows you turn a blind eye, but when it consumes you and all those you love…don’t ever ask why.
No one is too big to fail.
The very idea is repulsive.
The strength of capitalism is that it weeds out the weak in favor of the strong
These bailouts merely reward the weak at the expense of everyone else
The bailout is to save the banks the republicans do not give a F*&K about hard working americans who have children to feed and pay their mortgage .
Republicans have sold out this country to big buisness and we are going to suffer once we go into a recession in 2009 .
Most of those azzholes are not deserving of any form of severance pay. They have mismanaged their companies, f*cked over the consumers and employees, and have screwed our nations economy all to hell. I have no sympathy for these bastards and wish they couldn't get a dime of severance pay. Unfortunately the contracts they have will be honored, which just sucks.
Ronald Reagan once said "The 9 scariest words in the English language are 'I'm from the government and I'm here to help.'" …apparently our country is about to learn that the hard way. :-/
good thoughts
I just heard Michael Moore & he explained what to do so simply. He said get rid of management. He said if the gov. gives them money they own them they should be able to tell them what to do. Make cars we need energy efficient. Anyway, see if you get this interview at the beginning of larry King..It was so simple & clear. He knows so much about GM that is what his first work was about. His father worked for them & Roger & me is about GM which I has forgot all about.
There's many ways to look at the bailout plan.
1. If the big 3 get a bailout loan it could prevent mass layoffs, closing of plants, High unemployment rates — Which would make at harder then it is already to find good paying job.
2. If the big 3 didn't get any help it could mean Even Higher prices for cars, a Many many more workers looking for work, The possiable end of America car makers.
The facts could go on for months
Hello Matt. I am completely against the bail out. The auto industry union workers kept getting bigger and better contracts until right now, the utility man at our local Ford plant makes more than I do and he pushes a broom.
I am a State employee with 20 years on the job. Our last contract froze our salaries for two years and longevity pay was stopped for two full years as well. The state is crying poverty again ( no real surprise there) and we are expecting a 0-0-0 contract again this coming July. Yes, we are upset since our bills continue to go up, but I am grateful that I am able to keep my job.
If the auto industry is in such dire straits, let the union brothers and sisters sit down and honestly renegotiate their own contracts. Take the pay cut to keep their jobs, keep the auto industry afloat and maybe even lower the price of the new cars.
This has gotten completely out of hand and the ones responsible for it are looking for a hand out from the taxpayers instead of correcting their own problems within the ranks.
I hope this helps and you can find it useful
Matt, dude, take a breath. ☺
I'm against any bailout. But then, I'm a free-market Libertarian and am against a lot of things we do in this country.
Take a look at your arguments here. The automakers don't control gas prices or supply. They had nothing to do with the 80's farm crisis. They didn't issue mortgages.
Yes, many people have been laid off. Have you read what the numbers will be if the Big Three automakers fold. Far more than we can imagine. And that number of unemployed will have a trickle effect on other workers in other industries as well.
While I applaud your interest in the present economic state – reformulate your debate points. They don't support your position.
Back to your question. As a believer in a completely free market (with very few exceptions), I hold that if we interfere now then we'll have to interfere later as well. Reality is that it's not so much corporate greed that has caused this problem but instead consumer greed. It's the consumer that buys gas regardless of how high the price goes and continues to drive his SUV. It's the consumer that bought a house he couldn't afford. Wall Street reacts to consumers/investors – they don't make anyone buy a stock.
It's also the American worker that has forgotten that a $100K per year job doing nothing is not a right we are born with. Honestly, we don't really make anything in the USA. We are a service based economy of people providing services for other services providers.
What we're seeing now is nothing more than our generations paying for things that were bought on credit during the last worldwide depression. We've been paying that bill since the last of the baby boomers were born. It's just that nobody wanted to admit how things are headed.
Want an example that fits this forum? How many posts here imply that simply going to college will result in a good job? How many others refute that idea? Two generations ago it was very true – now, not so much.
My point is that 1) we've interfered too much already and 2) it's just the way economics works – you have to pay the piper even if you've already danced and if you don't, the piper goes home.
I have to admit, "timing" was NOT those guys "best suite".
With today's economy, going down the "sh!t-chute", this is NOT THE TIME to come "groveling" for money.
"Angry ?" Try, "HE** YES" !, or
"DAMN RIGHT I'M MAD !" .
The American taxpayer is FED UP with all the CRAP that's been thrown around by the CEO's of big companies, and we ALL want to see our elected officials do the right thing (that's an "oxymoron" in itself) and just say "NO" !
I'm in the camp that say's our Congressmen and Senators ARE THE VERY REASON WHY the Big 3 are in trouble IN THE FIRST PLACE.
The idiots in Washington COULDN'T VOTE FAST ENOUGH to give the bankers 700 BILLION !, so why stop there ?
(and don't forget AIG for another 300B)
However, with all that's being said, I also think they should be given SOME form of help (maybe half, but WITH HUGE STIPULATIONS !) to keep their companies afloat.
(Yes, get rid of ALL the perk's, especially the jets !)
We're spending BILLIONS every month so the Iraqi's can vote, and with their EXCESS SURPLUS OF SEVERAL BILLION DOLLARS, why don't the Big 3 ask them for it ? (Or, start paying for our "services" ?)
I admit, I'm not sure that anyone has the right answer to today's financial problems, but (and maybe it's blissful thinking) I think (hope) that President Obama, can inspire enough confidence to lead us out of this mess, but he better be ready to hit the deck running and don't forget to bring a lunch.