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If not India: Where next for Knowledge Process Outsourcing

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12th Sep 2007
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waterjeepIndia has made a concerted drive to build knowledge process outsourcing onto its existing lead in business process outsourcing (BPO). But it's not alone. Other emerging economies have recognised the value of BPO, and are looking to complement or compete with India. Alan Shipman evaluates the main contenders.

Non-European economies have been enjoyed success at landing major outsourcing deals of late, either from EU- and US-based companies or via Indian outsources that chose to place the work abroad. All can offer cheap skills, access to the world's major markets, and potential for assistance with planning approval, tax breaks and public infrastructure in pursuit of larger deals. Most hope to add specific selling points, such as language skills or large internal markets. With competing locations to choose from, multinationals now sending knowledge-based work to these countries are better viewed as guests than permanent residents. They are usually doing work for specific clients or projects on a fixed-term basis, and have bases in several other emerging markets, to which operations could quickly be transferred if local costs or other conditions turn against them.

Brazil

  • For: Large internal market, IT cluster around Sao Paolo, stable democracy, shared time-zone with North America, emerging as world leader in renewable energy that reduces former proneness to oil price shocks
  • Against: Strong labour protections leading to higher costs than India’s; shortage of technical and language skills; relatively high and complicated taxes; intellectual property weaknesses
  • BPO guest-list: includes ABN-Amro, Tokyo Marine Insurance

China

  • For: The biggest target for outsourcing of manufacturing and assembly, which BPO often complements; Dalian in north-east is opening up as BPO centre. Combines very low labour costs with relatively strong infrastructures and basic technical training, and is (so far) politically stable as well as economically fast-growing
  • Against: Less well supplied with highly qualified technologists and managers – and those with best qualifications may lack the ingenuity and free-thinking usually associated with them. English less widely spoken; intellectual property protections still weak
  • BPO guest-list: includes IBM, Accenture, Hewlett-Packard

The Philippines

  • For: Aims to match or exceed India on the technical skills of its English-speaking population, targeting 5% of the world’s BPO business by end of this decade. Already over 100,000 employed in call centres
  • Against: Expensive power supply, high minimum wage that keeps other salaries high, and exodus of skilled labour that hasn’t yet been attracted back by these. Arroyo government accused of corruption and heavy-handed action against guerrilla insurgency
  • BPO guest-list: includes Dell, American Express, Procter & Gamble

Singapore

  • For: Highly skilled, educated labour force, world-class telecommunications, stable politics and efficient public administration. Stress on reliability in BPO, extending to world-leading disaster recovery and business continuity standards and intellectual property protection
  • Against: Small domestic market, constraints on labour supply and land use, stifled free speech despite large university sector, health complaints linked to nearby forest fires and ‘Asian brown cloud.’ High labour costs despite regularly topping global competitiveness rankings
  • BPO guest-list: includes Credit Suisse, Merrill Lynch, Microsoft

South Africa

  • For: Relatively developed infrastructure, widespread English and business-friendly legal system. Already popular with Dutch companies because of language, same time-zone as European companies
  • Against: High crime rate and risks to personal security; short on graduate and technical skills; physically separated from Europe by less favoured African economies, especially imploding Zimbabwe
  • BPO guest-list: includes Samsung, Lufthansa, Carphone Warehouse

Vietnam

  • For: Government rapidly mobilising resources and infrastructure for BPO especially around Ho Chi Minh City: young population (half under 30) improving skills fast, with wage rates one-third of coastal China and land prices lower; market of 90m growing almost as fast as China’s
  • Against: Primitive industrial base still centred on farming and textiles; English often spoken with difficulty; narrow graduate skills base; tension between private business and communist state
  • BPO guest-list: includes Sony Computer Entertainment, Belgacom

No easy choice
While it remains the leading location for BPO, “There is now a willingness to look beyond India,” says Duncan Aitchison, managing director of outsourcing advisors TPI. “We’re seeing the arrival of new places in established geographies and new centres in Eastern Europe, Central and South America and Africa.” He sees no simple formula for determining where to go, each company needing to assess its specific needs and the potential opportunities in different host countries, “looking at skills, education, infrastructure, real estate, language, legal and financial environment, public administration and political stability as well as cost.”

What’s your experience?
Have you outsourced business processes to a country other than India? Would you consider relocating more knowledge-based processes there?

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