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The Farthest Shore

When it comes to outsourcing locations, no place is too exotic. Not even Cleveland.
John Edwards, CFO Magazine
September 1, 2004

Last year, when management at call-center services specialist LiveBridge Inc. was searching for a place to house the company's Spanish-language operation, it looked south of the border — way south of the border. After considering the more traditional outsourcing venues in Latin America, the Portland, Oreg.-based company decided to build its state-of-the-art call center in Argentina.

And just what was the lure of the land of gauchos and Maradona? "We didn't want reps who could just speak Spanish," explains CFO Chuck McLaughlin. "We wanted people who are bilingual, well educated, and who could interact with customers in a friendly, natural way."

LiveBridge isn't the only company taking the path less traveled when setting up an offshore outsourcing operation. As wages increase in one region, companies move farther afield. This search for new lands spells trouble for India. Admittedly, the subcontinent remains the most popular information-technology offshoring location for U.S. companies. But observers say India's period of competitive advantage may be waning. In fact, with local wages rising at a 20 percent annual clip, executives at companies from Bangalore to Brahmapur are reportedly beginning to shop out some of their own operations. "This outsourcing to India is definitely a very short-term phenomenon," insists Phil Fersht, an analyst who covers offshoring for The Yankee Group, a Boston-based technology-research firm. "Other countries are maturing and getting involved with the global economy," he adds.

Indeed, executives who are considering outsourcing their corporate IT functions are hearing from some unexpected quarters. At the top of the list: Africa. Experts report that several African nations, including Uganda, Senegal, and South Africa, are getting into the outsourcing game. To date, though, Ghana seems to be the destination of choice for U.S. technology companies setting up offshore operations in Africa. Case in point: Affiliated Computer Services, a $4 billion (in revenues) outsourcing company headquartered in Dallas, is building a new data-input center in Accra that will employ 2,000 workers. Three years ago, the company employed only 65 workers in Accra.

Somewhere, Beyond the Sea
This increase in outsourcing choices may be bad news for officials in Mumbai, but it's really bad news for U.S. technology workers. The irony here: advances in technology are what's costing IT workers — and their managers — their jobs. The truth is, the Internet has made it easy for businesses to outsource vital technology functions to some very remote outposts. In the North Sea, for instance, a former World War II anti-aircraft military fortress now serves as a server co-location center for dozens of companies.

As everyone knows by now, tech workers in those kinds of remote locales get paid a whole lot less than their counterparts in the United States. According to a study conducted by Mercer Human Resource Consulting, a senior IT manager in the States pulls in an annual average salary of about $140,000. In Argentina, a senior IT manager makes $61,000. In Vietnam, one of the new outsourcing hot spots in Asia, top technology executives make less than $30,000 a year.

And the bottom line? According to the Information Technology Association of America (ITAA), an Arlington, Va.-based IT industry trade group, worldwide outsourcing of computer software and services currently saves U.S. companies about $7 billion. By 2008, that number will likely top $20 billion. In a recent CFO magazine survey, 42 percent of respondents said their companies saved more than 20 percent by offshore outsourcing (see "Off Shore," June).

The VOIP Connection
What's more, innovations such as Web services and grid computing can give virtually any location first-class IT capabilities. Voice-over Internet Protocol (VoIP) telephone connections, for one, mean businesses no longer have to pay exorbitant fees for satellite or dedicated landline circuits to bring first-rate telephone service to global locations.

AT&T, for instance, is using VoIP to launch a low-cost "telework" service that aims at helping multinational corporations interconnect workers at global locations. Trials were to begin this summer in Australia, Hong Kong, Singapore, and the United Kingdom.

The increasing number of offshore destinations is also making it possible for companies to implement more-nuanced outsourcing strategies. In addition to its Argentina operation, for example, LiveBridge operates call centers in Canada; India; Portland, Oreg.; Lewiston, Maine; and Auburn and Olympia, Wash. Explains McLaughlin: "We have an onshore, near-shore, and offshore strategy." All those shores enable LiveBridge to provide different levels of service to different customers in different locations. That, in turn, helps the company control its SG&A.

Cleveland Rocks
LiveBridge is not unusual in maintaining U.S.-based outsourcing contracts, especially in specialized fields like telecommunications, financial services, and insurance.

Even India is beginning to send a few jobs back to the States. IBM, for example, signed an agreement last March to take over the IT operations of an Indian telecommunications company. The deal with Bharti Televentures calls for the Indian company to outsource all of its hardware, software, and services to Big Blue. As a result, some Indian jobs will transfer to IBM's telecom innovation center in Le Gaude in southern France, as well as to the United States.

As political pressures mount, look for less-skilled U.S. workers to become more attractive to global companies. The hot spots? Depressed manufacturing centers such as Detroit and Cleveland, says Richard Samson, president of EraNova Institute, a management-consulting company located in Mountain Lakes, N.J. "Many unemployed workers and their spouses are willing to man phones or keyboards at competitive rates, minus foreign problems or political flak."

Expect more outsourcing to Europe, too. European Union regulations favor employment outsourcing to member countries over others. Hence, nations like Poland and Hungary are starting to pick up outsourced work from companies located in France and Germany. Samson observes that some EU nations offer many of the same advantages as India. "They have good or adequate and improving electronic infrastructure, and relative political and social stability," he says. And, he adds, "they have large numbers of upwardly mobile people eager to learn and willing to work for less to advance themselves."

Call centers in the United Kingdom, for instance, now employ more than 500,000 workers. The attraction for outsourcers? Many companies like to impress customers with British accents. And as The Yankee Group's Fersht points out, the further you get from London, the more wages drop. "You can hire pretty good people to sit in a call center for about $15,000 to $25,000 per year," he says.

For a while, anyway. For most people, advancement tends to bring on a different worldview, one in which metallic blue BMWs easily beat up Yugos. Desires — and wages — inevitably go up. At that point, the search for new offshoring locations begins anew.

John Edwards is a freelance writer based in Gilbert, Arizona.

Locations, Locations, Locations...
The most attractive offshore spots in 2004.

  1. India
  2. China
  3. Malaysia
  4. Czech Republic
  5. Singapore
  6. Philippines
  7. Brazil
  8. Canada
  9. Chile
  10. Poland
  11. Hungary
  12. New Zealand

Source: A.T. Kearney

CFO Publishing Corporation 2009. All rights reserved.