Category Archives: Outsourcing

Where To Next?

In addition to pointing out the recent corruption survey by Transparency.org, which pointed out that Brazil, China, and India fall about halfway down the corruption chart, the CPO Agenda recently pointed out a recent report by the Economist Intelligence Unit that revealed that, although countries such as India and China remain vital investment destinations, investments are being planned in other destinations as well. Specifically, approximately:

  • 17% of multinationals are planning investment in Mexico
  • 14% of multinationals are planning investment in Indonesia
  • 12% of multinationals are planning investment in Thailand
  • 11% of multinationals are planning investment in Poland
  • 11% of multinationals are planning investment in Romania
  • 10% of multinationals are planning investment in Ukraine

Given that the investment plans for the BRIC are only:

  • 20% for China
  • 17% for India
  • 12% for Brazil
  • 10% for Russia

It looks like not only is near-sourcing coming back, but secondary sourcing destinations are on the rise. So where are you going next? Giving the lack of coverage of some of these destinations, it’s hard to say, but it’s almost a sure thing that new “low cost” destinations will be making the headline soon. Any bets?

Does Outsourcing Save Jobs?

A recent article over on Global Services on “Outsourcing often Mischaracterized as Evil and Insidious” states that outsourcing costs jobs is one of the myths that turn outsourcing into an epithet.

The article states that it is a jobs fallacy that when a job disappears in a western country and turns up in India it was exported by a nefarious businessmen. The article claims that the reality is that the job was exported because the job has been uneconomic to maintain in the West, whether or not India exists. The example given in the article is that when Carly Fiorina exported 35,000 jobs, it was the right decision, because if HP did not remain competitive in fiercely competitive markets, HP would have lost 100,000 jobs. In addition, if a certain job gets too expensive to do, such as calling a patient to remind her to take her medications, then it will disappear. But if it can be outsourced at an affordable cost, it will not.

I certainly buy the second argument. But I don’t know how far I buy the first. Costs have to be kept under control to support solvency and maintain jobs, but does this mean they always have to be outsourced? Sometimes it’s just a matter of increasing productivity. While that may be hard to do in online customer support, in certain areas of manufacturing, new technology and processes might be all that is needed if the plant is put in an area where costs are low or government incentives are high. In other words, outsourcing may not always be saving as many jobs as other methods could. It’s a balance.

Near-shoring: Advantage Mexico

As per this recent article in Logistics Management on Near-Shoring/Right-Shoring Strategies, a recent poll of 80 C-level executives across more than 15 industries by AlixPartners found that 63% of senior executives chose Mexico as the most attractive locale for re-sourcing manufacturing closer to the U.S. market. With its geographical proximity and recent improvements in transportation services between the borders, Mexico is regaining its attractiveness. If 33% of senior executives are going to re-shore within the next three years, Mexico could be on track to regain its former glory. Especially since its attractiveness ranking by these executives was more than seven times that of Central America and Brazil.

Why is Mexico more attractive than the BRIC? In addition to near-shoring, lower freight costs, and improved speed-to-market times, as cited in the article, it’s also lower cost. Costs in the BRIC are rising aggressively. Manufacturing is getting more expensive by the day in China. Services are getting more expensive by the day in India. Raw Material costs are rising in Russia. And inflation in Brazil is over 6%.

Plus, there are the time-zone advantages, cultural alignment with the rest of North America, workforce passion, and free trade zones. Security is still a concern, but the number one cause of death for foreigners in Mexico is still car accidents, not crime. Crime has doubled since the economic crisis of 1994, but most of the crime is non-violent. Unfortunately, “organized crime” (gangs and cartels) is still very violent and a real concern, especially in the northern border region. However, near-shoring to other regions of Mexico is, on average, not much more of a security concern than Home-Shoring in the more dangerous US cities, and a viable alternative.

Is “Low-Cost Country” Inflation Driving Manufacturing OnShore?

There’s a lot of noise out there about how inflation may be forcing manufacturing back on-shore (to South America, Mexico, and even the Good Ol’ USA), but how much of it is noise and how much of it is (about to become) reality. Leaders want to know, and so does the Hackett Group.

As a result, the Hackett Group has just launched a new complimentary study designed to assess whether inflationary pressures are driving manufacturing out of China, India, and other low-cost countries. It is trying to answer the relevant questions, which include:

  • What impact are rapidly changing cost drivers having on manufacturers?
  • What strategies are manufacturers using to offset these costs?
  • Are manufacturers bringing production closer to customer markets?
  • What are the critical success factors for optimizing the supply chain footprint?

The study is open until September 16 (2011) and all participants will receive a free copy of the research report and an invitation to the presentation of key research findings. As always, responses from individual participants will remain completely confidential and will be used only in combination with those of other study respondents to develop a composite picture.

The study on “Optimizing the Supply Chain” can be found on the Hackett site.

The Case for Colombia

Buried at the bottom of an article over on World Trade that purported to offer insights into “the next generation of outsourcing” while, in reality, at least in SI’s opinion, offering none, was a little sidebar on the business case for Colombia that is worth checking out. According to the article (which focusses on an Argentina-based IT provider with a large operation in Colombia), Colombia, which is rated higher by the World Bank than Peru, Panama, Chile, Mexico, and Brazil as the “best place” to business, should be a locale of choice for North American operations to outsource to. Citing:

  • passion
    and a strong work ethic
  • government resources
    and wealth in the region
  • a strong talent pool
    which is highly qualified (with over 50,000 IT and BPO professionals) and well educated with 67,000 graduates being produced every year in in Bogota alone
  • plentiful real estate
    which is affordable
  • international experience
    as a relevant percentage of the younger generation has been to, or lived in, the US
  • time zones
    which are “local” to North America
  • a strong cultural fit
    as the culture is more aggressive (in comparison to eastern cultures where subordinates won’t do anything until being told to do so by a manager)
  • English aptitude
    which is official in San Andres and Providence islands, is now being spoken by a larger percentage of the population (eventhough EF Education First ranks Colombia in the bottom five in a recent study of English learners in 44 countries, source)
  • Free Trade Zones
    which are very business friendly
  • the El Dorado airport
    which handles more cargo than any other Latin American airport
  • the Conferias Pavilion
    which is the continent’s largest event centre, capable of accommodating up to 21,000 people
  • the pending U.S. – Colombia Free Trade Agreement
    that will see over 80% of U.S. exports become duty free immediately, with remaining tariffs phased out over 10 years
  • broadband penetration
    which is ranked 4th in Latin America
  • lowered political risk
    from efforts to weaken the guerilla groups while simultaneously lifting the middle class (in an economy that has tripled its GDP over the last decade), that were started by Colombia’s last President, continue to be pursued by the current President
  • increased safety
    as Colombia experienced a decrease in homicides by 45%, kidnappings by 92%, terrorist attacks by 71%, and attacks on the country’s infrastructure by 83% between 2002 and 2009 (and Bogota’s crime rates are now lower than Miami, Atlanta, and Washington D.C.

the article paints Colombia as an attractive place to be if you are an IT or BPO provider or looking for outsourced IT or BPO services.

And with over 1,200 multinationals already in Colombia, you wouldn’t be alone. Plus, with Spanish as on official language, chances are that a considerable number of your North American employees will already be able to communicate with the locals as over 1/6th of the US population either speaks Spanish as a first or second language or is currently studying Spanish.