Publication: ComputerWorld USA
Next Phase Has Begun
Richard Mills, Chairman
- Outsourcing in India has reached a near-term peak, and meaningful
expansion from this point forward will result in higher costs and
lower-quality delivery. Business leaders in Asia have been saying such
things to one another for months now. Today, we are seeing deliberate action
to move capacity from India to next-step destinations like the Philippines,
China and Vietnam.
Even major business publications
have picked up on the evolving situation. Both Forbes ("India: Good
Help Is Hard to Find") and BusinessWeek ("India's IT
Challenge") recently published feature articles that directly address
the growing problems in India and the viability of the next-step destination
Looking at current events in the
Philippines, we can get a better idea what is going on. Sykes, a large
U.S.-based contact center and IT support organization, has operations in
both India and the Philippines. The company said it would shift much of its
Indian capacity to the Philippines, where it already has 7,000 employees.
"We moved calls to other facilities in Asia to get a higher rate of
return," was the official statement from Dan Hernandez, Sykes' vice
president for global strategies. But knowledgeable observers in the region
say that the rate of return differential must be large for a company of
Sykes' size and prominence to forgo India after already putting capacity in
Ambergris Solutions is another
large contact center organization with operations in the Philippines. The
company just received a $43.5 million investment through Telus
International, a Canada-based global IT provider. Jim Evans, who played the
key local role in coordinating the deal, says his company wanted a
"strategic investment" in the outsourcing industry in Asia, and
the Philippines offered the best long-term opportunity given all the
options, including India.
As Asia-Pacific vice president
for global business-to-business services provider GXS, Victor Lee oversees
the professional and customer services operations in the region. His company
made the decision to direct functions with a strong customer component to
the Philippines because of better economics and results there. His company's
analysis also indicated that costs were increasing disproportionately in
India. As well, Lee feels that "having product development in India and
professional and customer services in Philippines reduces risks."
More outspoken than most, Rick
McGonegal is clear that India won't be part of his company's plans for the
foreseeable future. He is the managing director of RCG Information
Technology, another good-size IT provider. The company already has a strong
offshore presence in the Philippines and has assessed the Asia-Pacific
region for future expansion. India, he feels, is already too crowded, with
numerous companies all scrambling to hire from each other. The result is
destructively high staff turnover rates, mounting salary costs and poorer
English communications skills compared with that available in the
Philippines. He also cited overstretched infrastructure in India as a
further reason RCG wouldn't consider this destination at present. According
to McGonegal, his company has its "radar set on Vietnam and China"
should its current best option of the Philippines give way.
Others that appear to be moving
work to the Philippines include Hewitt, which has just started hiring staff
for its newly commissioned business process outsourcing facility, and HSBC,
the global banking organization, which got its BPO under way a few months
ago. I am currently meeting with numerous early-stage entrants to the
Philippines -- more than at anytime during the past three years.
As another anecdote, I spoke
recently to the Texas-based global recruitment manager of a multinational
technology company who needed help attracting Indians living in the U.S. and
Canada to jobs back in India. This is no surprise, since there is strong
demand for returnee management talent. But this fellow wasn't looking for
managers; he was looking for individual contributors with three years of
Java/C++ experience -- a core skill that was once available in seemingly
infinite quantities. He described, with great exasperation, the challenges
his company faced hiring such people within India these days.
Long Live the King
No one is saying that the king
of outsourcing will lose its dominance or its long-term attractiveness as an
outsourcing destination. India created the offshore outsourcing model, and
it will continue driving the industry forward because of its huge size and
the remarkable competence of its managers.
If India does experience slower
growth because of constrained resources in the near term, it is only because
of its tremendous success over the past few years. India's recent hiring
growth has been roughly double that of the crazy dot-com boom times in North
America. So, current alleged constraints aren't indicative of weakness but
of great success.
Besides, while rising costs may
be a big deal to business leaders who have to somehow budget for them, they
probably don't warrant the same degree of concern for individual workers,
who see their paychecks rise by 30% from a well-timed job change.
If countries like the Philippines and Vietnam are better options today, it's
only because they have been less successful at developing and attracting
quality outsourcing employers in the past. The pioneering accomplishments
made by India have now opened the door for these countries to receive their
share of the blessings. And as for India, we can be sure it will soon be
back stronger than ever.
Richard Mills, CFA, is
director of executive search firm Chalre Associates, based in Manila.
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