Richard Mills, Chairman
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 this for months now. Today, we are
seeing the reaction: efforts are being made to move capacity from India to
next-step destinations like the Philippines, China and Vietnam.
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 features that address the growing problems in India and
the viability of the
next-step destination countries.
Looking at current events in the
Philippines, we can get a better idea what is going on. Sykes, a large
US-based contact center and information-technology (IT) support
organization, has operations in both India and the Philippines. The company
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's vice president for global strategies.
But knowledgeable observers in
the region say the rate of return differential must be large for a company
of Sykes's size and prominence to forgo India after already putting capacity
Ambergris Solutions is another
large contact center organization with operations in the Philippines. The
company just received a US$43.5 million investment through Telus
International, a Canada based global IT solutions 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 (B2B) 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, unlike the Philippines. Lee says: "Having
product development in India and professional and customer services in the
Philippines reduces risks."
More outspoken than most, Rick
McGonegal is clear that India will not be part of his company's plans for
the foreseeable future. He is the managing director of RCG Information
Technology, another IT solutions provider. The company already has a strong
offshore presence in the the Philippines and has assessed the Asia Pacific
region for future expansion. India, he feels, is already too crowded with
numerous companies scrambling to hire from each other. The result is
destructively high staff turnover rates, mounting salary costs and poorer
English communications skills compared to what is available in the the
Philippines. He also cites overstretched infrastructure in India as a
further reason RCG would not consider this destination at present. According
to McGonegal, his company has its "radar set on Vietnam and China"
should their current best option, the the Philippines, give way.
Others that appear to be moving
work to the the Philippines include: Hewitt, which has just started hiring
staff for its newly commissioned business process outsourcing (BPO)
facility; and HSBC, the global banking organization.
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 dotcom boom times in North
America. So current constraints are not indicative of weakness, but of great
Besides, rising costs may be a
big deal to business leaders who have to somehow budget for them. But for
individual workers, who see their paychecks rise by 30% from a well-timed
job change, "rising costs" probably don't warrant the same degree
If countries like the the
Philippines and Vietnam are better options today, it is 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.
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