Me, ...again!
2010-08-23 16:50:38 UTC
http://www.sramanamitra.com/2008/01/22/death-of-indian-outsourcing/
http://www.sramanamitra.com/2008/03/03/indias-labor-arbitrage-strategy/
You found a good pile of insightful comments. The growth rates of bothhttp://www.sramanamitra.com/2008/03/03/indias-labor-arbitrage-strategy/
India and China have begun to decline from low double digets now into high
single digets and that trend parallels figures I've seen for fully
developed countries (Europe/US/Japan/etc) once they become fully
developed. This means that India and China are headed into a kind of
"saturation." Who else can they sell anything to? Other less developed 3rd
world countries will undercut India/China (eg. Viet Nam, which has said
in the media that it will be 30% cheaper than China).
I only looked at the first URL, and its 49 pages of article plus comments.
However, my sample quotes and reference list (along similar themes,
including that offshoring has already started going to 3rd world
countries other than India) from some of the articles I've read is
below....
Reference List: India No Longer Offshore IT King
(36 references to recent articles, from present
back to 2005)
Offshore outsourcing (including BPO to India) is
declining as a fraction of total world-wide IT service
to developed countries and has a high failure rate,
not necessarily high quality service, is leading to
a new phenomenon: backsourcing/backshoring.
Somethings called the "H-1B swindle" is discussed
below. And there are some reports that outsourcing
is declining or reversing.
-------
Financial Times, Weds, Aug 18, 2010, front page:
"US proves call centre match for India over hire costs"...Quotes:
"Call centre workers are becoming as cheap to hire in the US as they are
in India, according to the head of the largest business process
outsourcing company in the Asian community." "At the same time, wages in
India's outsourcing sector have risen by 10 per cent this year and senior
outsourcing managers based in the country command salaries above global
averages." "Pramod Bhasin, the cheif executive of Genpact, said his
company expected to treble its workforce in the US over the next two
years, from about 1,500 employees now." "The narrowing of the traditional
cost advantage is also spurring other Indian outsourcers to hire more
staff outside India." Said Suresh Vaswani (Wipro) began recruiting many
workers around the world and that half of his companies 110,000 employees
will be non-Indians in two years. Second article on page 13 of the same
newspaper: "China proves to be the toughest frontier for India's
outsourcers"-- Basic story: India is up against the wall with the Chinese.
----------
35. Wall Street Journal, March 12, 2010, page B1:
title:"Caterpillar Joins 'Onshoring' Trend"
Quotes: "Caterpillar Inc., is considering relocating some heavy-equipments
overseas production to a new U.S. plant, part of a growing movement among
manufacturers to bring more operations back home..." "The trend, known as
onshoring or reshoring, is gaining momentum as a weak U.S. dollar makes it
costlier to import products from overseas." "After a decades of rapid
globalization, economists say companies are seeing disadvantages of
offshore production, including shipping costs, complicated logistics, and
quality issues. Political unrest and theft of intellectual property pose
additional risks." Article makes reference to the Manufacturers Alliance
(MAPI), a public policy and economics research group in Arlington, VA.
"General Electric Co. said last June it would move production of some
water heaters from China to its facility in Louiville, Ky, starting in
2011." "Last year, U.S. Block Windows,...after studying logistics...came
back to the USA." "'When we started looking at the costs and complexities
of the inventory and lead times, there really wasn't any savings' said
Block Windows president Roger Murphy."
-------------------
34. WSJ, Oct 5, 2009, page B1:
title:"Indian Tech Outsourcers Aim to Widen Contracts"
contains the following sentences:
"But the days of 30% annual revenue growth from such work are over, a
casualty of the global economic downturn and increasing competition in the
services industry world-wide."
"Annual revenue growth in Indian technology services slowed to 16 % in
fiscal year ended in March. The industry's trade group, Nasscom, estimates
growth will be only 4% to 7% this fiscal year."
page B7 (continuation):
"Adding to the pressure on Indian firms is increased competition from
outsourcers based in the U.S. that have expanded their presences in
India, and the rise of competitors in even cheaper offshoring locales
such as the Philippines and Vietnam."
"But Indian companies are still having a hard time shaking their
reputation as the vendors of choice for low-cost, commodity services. And
on bigger, infrastructure heavy deals, they can no longer beat rivals on
price."
- - - - - - - - - - -
33. From Business Week, October 5, 2009, title "The Peril and Promise of
Investing in Russia," starting on page 49, about 1/3 way into article is
this paragraph on page 50:
"Consider IT giant Intel, which moved into Russia in 1999 and since then
has invested $800 million. It now employs more than 1,000 engineers at
four research centers, including its largest software [R&D] group outside
of the U.S. Because of Russia's top-notch math skills, Intel assigns local
engineers more complex work than it gives specialits in other outsourcing
venues such as India, says Dimitry Konash, the company's Moscow-based
regional director."
And the picture caption on page 52 says "Russian worker's math skills give
them an edge over Indian engineers, says Intel's Konash"
- - - - - - -
32. Business Week, May 4, 2009 issue, page 59: title: "The Sudden Chill
at an Indian Hot Spot." Picture caption says:"A commercial real estate
boom has turned into a glut, with vacancy rates of 28%" "In the second half
of 2008, as American and European clients hit the skids, India's outsourcing
industry saw contracts shrivel by 22%, its worst performance in a decade,
according to research firm Technology Partners International." "Nobody in
India collects layoff data, but every day papers carry dire news...." as
many named Indian companies announce layoffs.
Sidebar at the bottom of page 60:
"Outsourcing to India may soon be old news. KPMG has identified 31 new hot
spots, from Buenos Aires to Zagreb, and from Indianapolis [in the USA] to
Iloilo City (a Philippines town known for its animation services).
It gives the URL for that KPMG report as:
http://bx.businessweek.com/global-outsourcing/reference
- - - - - - -
31. http://www.bloomberg.com/apps/news?pid=20601110&sid=aB5yoCVxbXe4
Delta Air Returns Customer Call-Center Work to U.S. From India
April 18 (Bloomberg) -- Delta Air Lines Inc., the world~Rs largest
carrier, said it stopped routing customer service calls to India and
brought them back in house in the U.S. because customers were unhappy.
Delta started shifting the calls to employees in the U.S. over the
past year, and completely removed Indian contractors last quarter,
Chief Executive Officer Richard Anderson said in his weekly recorded
message to employees.
The move makes Delta the second big carrier to repatriate customer-
service work from India in 2009, after UAL Corp. United Airlines
did so in February. Companies including AT&T Inc. have taken similar
steps, said Karl Keirstead, an outsourcing analyst at Kaufman Bros.
LP in New York.
- - - - - -
30. Subject: More Jobs coming back to the USA from India
WSJ, April 7, 2009, Tuesday, page B5:
title: "Sallie Mae To Shift Jobs to the U.S."
Quote: "AP. New York--Sallie Mae gave some hope to the unemployed Monday,
announcing it will bring 2,000 jobs to the U.S. within the next 18 months as
it shifts call-center and other operations from overseas."
And, same story in Washington Post, April 7, 2009, page A18:
title: "SLM to Transfer Overseas Jobs to U.S."
subtitle: "Reston Student Lender to Move 2,000 Workers Out of Asia"
- - - - - -
29.(BusinessWeek/SmallBiz, Feb/Mar 2008) title:
"Outsourcing HEADING SOUTH" by Amy Barrett, "Jon
Morris...shifted his outsourced design and Web
development staff from India to Costa Rica in 2005"
and he made reference to not having to deal with
the time zone difference with India. "Forget
'Chindia,' A growing number of entrepreneurs are
finding Latin America a great place to sell,
source, and outsource.." Article says US companies
exported 30% more goods to Latin America, up 30%
from five years earlier. Direct investment to LA up
12% in 2006 over 2005. LA has less daunting
language and cultural problems. Countries featured:
Mexico, Brazil, Columbia, Chile, and
Argentina.(businessweek.com/smallbiz).
CFO magazine (www.cfo.com/backissues?), February,
2008, p. 24: "view from asia" in an interview with
Deepak Natraj, Infosys's head of strategic
initiatives: "Everyone assumes that we're going to
slash and burn and send two-thirds of the people
home," (and the bring over Indians on L visas) "But
when you send home the workforce, what are you
paying for?" Natraj "...prefers leaving the local
CEO--as well as the human-resources director --in
place."
- - - - - - -
28. Subject: "India's Competition in the Caribbean"
from Business Week,
Dec 24, 2007 issue, page 072, edited by Jena
McGregor:
"The region [the Carribean], along with Latin
America, is fast becoming a customer-service
hot spot. GE Money is...using call centers in Barbados
and Puerto Rico. Delta Air Lines is sending calls
to Jamaica." "...Philip Peters, CEO of Zagada Markets,
....[says]..the ranks of Caribbean call-center agents have
swelled from 11,000 in 2002 to 55,000 in 2007.
Hispanics are boosting demand for bilingual agents,
driving companies to Central and South America, too.
Dell and [HP]...have set up in countries
such as Panama and Argentina.'Latin America is the
fastest-growing region that we have,' says Mark
Notaraninni, HP's call-center director."
- - - - - -
27. Subject: Dell shuts down hardware R&D unit in
India and moves back to USA
"BENGALURU, India -- Dell Inc. is about to shut
down its hardware R&D unit based in this city, and
will move the work being done here to its centers in
Texas and Taiwan. Anywhere between two dozen to 170
staff will lose their jobs as a result; they have been given
45 days to find new employment."
"A Dell executive blamed rising costs in the city
for shifting the R&D unit out of the country, but
current and previous staffers have pointed
out that employing similar engineers in Austin,
Texas, or Taiwan would likely be more expensive,
not less."
"This is the second time the company has shifted
work out of India. Citing customer complaints about
quality about four years ago, Dell moved part of
its high-end technical support out of India."
http://www.eetimes.com/news/semi/showArticle.jhtm
l?articleID=204701812
(originally posted on a.c.c Dec 6, 2007)
- - - - - - - - -
26. From WSJ, Aug 21, 2007, page A6 (see title
above): Quote of first paragraph: "CAIRO, Egypt--
As rising wages and attrition rates in India
spur some international companies to seek new
locales for outsourcing operations, Southeast Asian,
Eastern Europe, and Latin America have all
been competing to become new offshoring hubs." The
article says Satyam CS hired 300 in Cairo; Wipro
set up in Saudi Arabia and plans to enter Egypt,
Tata says it will go into Morocco. Says in recent
years Egypt, Jordan and the UAE have all broken
into the top 20 for offshoring destinations.
Quotes A.T. Kerney as saying the Middle East is the
next big destination. Paris-based Teleperformance
hired 3,500 in Tunisia, and going into Cairo.
EDS is putting $100 million into Abu Dhabi (UAE
emirate), and already hired 450 in Egypt and planning
to hire more. The sidebar clearly implies that India is no
longer the offshore destination any more. On the list in
the sidebar for offshoring destinations are China,
Malaysia, Thailand, Brazil, Indonesia, Chile, Phillipines,
Bulgaria, Mexico, Singapore, Slovakia, Egypt, Jordan,
and Estonia.
--------
25, From Business Week, August 6, 2007, page 66m
("Rise of the Rupee") and The Economist, July 28, 2007,
pages 65-66 ("Outsourcing-External Affairs").
From BW: Quotes: '"We are losing our competitiveness to
China, Korea, Taiwan, and Singapore...and the Reserve
Bank [of India] is allowing the rupee to appreciate?" growls
New Delhi economist Surjit Bhalla." And, "Profitability across
the sector [Indian IT] fell by 8% in the most recent quarter."
And, "A further rise in the rupee, says Suresh Ramrakhiani,
economist at the Cotton Textile Export Promotion Council
in Mumbai, could lead to job losses for up to 200,000 people."
From The Economist: "...jobs no longer flow only from richer
countries to poorer ones." And, "The latest outsourcing from
TPI, a consultancy, was published earlier this month. It
showed that both the number and value of contracts awarded
during the first half of this year had declined in comparison with
the same period in 2006 [lowest since 2001]." Article also
says Wipro is going to set up its first software-development
center in America (either Atlanta, Austin, Raleigh, or
Richmond) and "Azim Premji, Wipro's chairman, says that the
proportion of local employees (as opposed to visiting Indians)
in the company's overseas locations will rise from
10% to one-third over the next three years." Jobs
coming back to the USA.
- - - -
24. title: "Infosys Shaves Forecast After Strong
Quarter" by Jackie Range (WSJ, July 12, 2007, page C8)
"...citing the stronger currency, Bangalore-based
Infosys cut its full-year, rupee-based earnings outlook..."
and "In the past three months, the rupee has appreciated
some 7% against the dollar. That has particularly hurt
companies like Infosys, which earn most of their revenue
in dollars." The graphic, made from data provided
by the company, shows projected 1Q, '08 net profits
as being below 4Q, '07 net profits by about 7 %. Looks
like India's "rising" and "shining" may be coming to an end as
more foreign companies don't consider India as an
outsourcing destination any more (see below).
------------
23. from: The Wall Street Journal, Tuesday, July 3,
2007, front page
title: "Some in Silicon Valley Begin to Sour on
India" subtitle: "A Few Bring Jobs Back As Pay of Top
Engineers In Bangalore Skyrockets" by Pui-Wing Tam
and Jackie Range
Interviews and research with quotes as follows:
Munjal Shah [with image of him, and born in India]
led a California start-up [Riya] opened an office in
Bangalore in 2005, hired about 20 skilled software
developers at 1/4 what they cost in Silcon Valley. Then
salaries soared. He said this year it cost 75% of
SV salaries, plus extra expenses of running an office
in India, and in April this year he closed the Bangalore
office.
"Across SV, some technology companies, particularly
start up and midsize ones, are beginning to turn away
from India for low-cost labor to do sophisitcated tech
work. Kana ... eliminated 100 software-developemnt jobs
in India in late 2005 and expanded its U.S. hiring
instead. Teneros, Inc., shut down a 30 member
India office and brought 12 of the people to its
headquarters in ...California."
The article mentioned that Apple cancelled plans to
open a facility in India.
"'The wage inflation rate for engineers in India is
four times what it is here' in America, says Intel's
chief executive, Paul Otellini."
Article says Indian wage inflation is 10-15% per
year, other sources say it is closer to 50%.
"India is no longer the premier outsourcing
destination."
Article says even the simple call-center work may
be done more cheaply in the Philippines and Vietnam,
and mentions that Indian companies are even
looking outside India to create jobs. TCS recently
opened a center in Mexico and is considering a move
to Morocco. Wipro has two centers in China and
planning one for the Philippines.
Pervasive Software (from Texas) opened a Bangalore
unit in 2004 with 45 people, but turnover reached more
than 25% per year. Last year it closed the
Bangalore office.
The article mentioned that it takes more supervisors to
manage Indians. So, they are asking why pay a junior
guy in India just a little less when they can get a senior
guy right in California.
---------------
22. Quotes from A Wall Street Journal article, Feb
26, 2007, page B3: title: "Behind Outsourcing: Promise
and Pitfalls" by Scott Thurm
"Companies such as Lehman Brothers Holdings Inc.
and Dell Inc. reversed decisions to move customer call
centers to India after a customer rebellion." and "[Jagdish]
Dalal advised a big insurance company with
little outsourcing experience to locate a call
center in Canada, to minimize problems with non-North
American English accents." This article also gave many
other details on problems with outsourcing that had nothing
to do with India or offshoring.
----
21. I have seen many reports (sorry I have no
specifics) of Indian (and other foreign corporations) opening
up branches in the USA and establishing jobs within the
USA. An important caveat regarding this action is that while
these are new jobs in the USA, foreign companies are
allowed to transfer existing employees from their
home country into these jobs on L-1 visas and there is no
cap on the number. I hardly think that many of these jobs
will be offered to US guys (green card or citizens)
when home country guys can probably be transferred
at lower pay. Furthermore, the reports may be overly
glossy if a foreign company just buys an existing company
and then claims that it is "bringing" jobs to the
USA. When, however, a US MNC lays off 20,000 US
guys and moves those jobs to India, that MNC is going
to hire local Indians into those jobs and NOT
invite the US guys to "transfer" to India with
something like a 2/3 pay cut.
-------
20. Wall Street Journal, Feb 21, 2007, page B6:
Under "Plots and Ploys" section entitled "Call it
insourcing": Quotes: "One real-estate company has
decreased its outsourcing of some services to india
and turned to a North Carolina town that has lost jobs
to overseas competitors. Situs Cos., a Houston-based
company that provides services to the commercial-
mortgage industry, says it will send some work
to Robbins, N.C. the company previously had tried
to outsource certain services to india, but looked
elsewhere as well in part because of soaring
rents in India, says Situs Chief Executive Ralph
Howard. 'We think we are getting a better quality
for the same price, and at the same time, we're
creating U.S. jobs,' says Mr. Bean [who works for
Mr. Howard]."
---------
19. WSJ, front page, November 13, 2006. title
"Clothes Made Abroad Create Factory Jobs in
L.A. for Mr. Fix-It" subtitle: "Barry Foreman Left Rag
Trade, But is Back, Salvaging Flawed Chinese
Garments" by Stephanie Kang. This whole article
is about a fairly large fraction of imported clothing
that comes with a variety of defects and the
featured guy, Barry Forman, got back into business
to "correct" the defects in the imported lots so as to
make them saleable again. His business is booming,
expanding, and the article is worth reading for those
who want the details. Not all of that cheap labor is
worth what people pay for it. You get cheap quality,
too.
------------
18. Financial Times, Nov 2, page 18, 2006
title: "Volkswagen chooses to swim against the
current-The German carmaker is to shift some of
its production back home" by Richard Milne
"To move production away from lower-cost countries
to a high-cost nation may appear to be a peculiar
decision, but not at Volkswagen. The carmaker
intends to cut thousands of jobs at Spanish,
Portugese and Belgian factories and to shift some
of the models back to Germany..."In the course of this
change, workers in Germany will work longer hours
for the same pay (and keep their high-paying jobs
which will end up at about E40.65/hour [or around
US$50/hour]).
------------
17. From Financial Times, Oct 12, 2006, page 15,
entitled "Boom in outsourcing abates as groups seek
shorter deals" by Francesco Guerrera.
"The wave of outsourcing that has engulfed the
global economy over the past five years is showing
signs of abating as multinational companies opt for
shorter and smaller deals, according to a study to
be published today. The outsourcing industry has
just experienced its worst quarter in four years
and is unlikely to match the $81.9bn in contracts
won in 2005 by the end of
this year, data from the consulting firm Technology
Partners International shows. A slowdown in 2006
would mark the second consecutive year fall in the
volume of outsourcing contracts since their $84.7bn
peak reached in 2004. The results suggest that, following
the drive to curb costs and streamline operations by
contracting out non-core functions, multinationals
might be running out of major operations to outsource.
...The average contract is down to four years from
about 10 years in the recent past. 'In some sectors,
especially information technology, companies
perceive that there has been a commoditisation of
services, leading them to opt for shorter-term contracts
of lower overall value,' said Peter Allen, a partner at
TPI. 'We just don't see enough big deals in the pipeline
to cause us to believe the levels of last year will be
reached.' The trend is likely to raise concerns in
countries such as India and China and among groups
like IBM, Accenture and [EDS], which have been
among the biggest beneficiaries of the outsourcing
trend... According to TPI, which tracks worldwide
deals worth more than $50m, outsourcing contracts
signed between July and September totalled
$13.4bn, a fall of more than 20 per cent on both
the previous quarter and the same period last year.
The weakness of the past three months has left
the total for the year at $55.3 bn, more than #26
bn below the figure for the whole of 2005....
--------------------
16. From WSJ, Monday, July 3, 2006, page B1,
entitled "Siting a Call Center: Check Out the
Mall First" by John Lyons.
Quote(p B3): "After Lehman Brothers moved its
internal computer help desk to India in 2003, the
mismatch between the investment bank's hard-charging
employees and their new Indian phone-support agents
created problems, say industry insiders, and the help
desk returned in house."
It is also interesting that most of this article is
about an Indian, Mr. Shankardass, a US citizen
("born to Indian parents in Nairobi, Kenya") who
works for ClientLogic, that sets up call centers as
an outsourcing business
and most of the article is devoted to his work
finding call center sites in Mexico.
--------------------
15. From Business Week/Small Biz, Summer, 2006 (may
be on the website:www.businessweek.com/smallbiz)
entitled: "Here or There" subtitle: Six entrepreneurs
explain why they outsource or not. Here is a quote
from the first page of the article (page 67):
"Some 24% of small manufacturers said they had
purchased goods or services from vendors outside
the U.S. in the past three years, according to a 2004
study by the National Federation of Independent
Business. For the rest, the best place to manufacture
is right at home, at least for now. The easy
rapport with vendors, relatively short plane rides,
and the quality of American-made goods keep these
business owners and their customers perfectly
happy."
---------------------
14. Subject: More India BPO failure
(in Business Week, June 19, 2006 issue, page 48):
title: "India: Why Apple Walked Away"
subtitle: "Plans for an Indian tech support center
have been scrapped. A cautionary tale"
by Manjeet Kripalani and Peter Burrows.
Quotes:
"Just three months back, Apple ...[was talking
about] hiring 3,000 workers by 2007 [in Bangalore]...."
These plans are now cancelled and most of the 30
existing employees in Bangalore have been dismissed.
The factors mentioned as working against the
original plan include "Entry level pay at tech and
outsourcing companies climbed by as much as 13%
annually from 2000 to 2004, while salaries for
midlevel managers jumped 30% a year during the same
period...." Also cited as a problem was high turnover.
Thus the financial advantage of sending work
to India has just about vanished.
--------------
13. Quote from CFO magazine, June 2006, page 17
(may be on their website, cfo.com): "Passing on India?
Rising wages in India are eating into some of the cost
advantages of sending work to the popular
outsourcing destination. Wages have increased
roughly 11 percent in each of the last three years with
little sign of abating, says Michael Spellacy,
vice president at The Boston Consulting Group. In
major cities like Bombay and Bangalore, inflation
has climbed as high as 14 percent, with worker
attrition rates now averaging 25%. A full time
worker in outsourced financial services in India earns
between $22,000 and $27,000, Spellacy says."
Also, in The Economist, June 3rd, 2006ssue is a
special report on India "A Survey of Business in India"
with the title "Now for the hard part" and on
page 6 of the special report (center section of the
issue) is a large article ("If in doubt, farm it out") on the
difficulty India is having finding workers for this great
expansion in BPO service to the outside world.
---------------------
12. The article "The H-1B Swindle" by Ephraim
Schwartz, appearing in Infoworld, October 31, 2005,
page 12, has the subtitle "A new study suggests
that companies hire foreign workers for cheap
labor, not skill." The article goes on to say: "It
appears there is hard evidence to prove that employers
are using the H-1B visa program to hire cheap
labor; that is, to pay substantially lower wages than
the national average for programming jobs
(infoworld.com/3449)" The article goes into
additional detail and cites data sources such as BLS
(infoworld.com/3450) and DOL's H-1B website
(infoworld.com/3451). Across the board, foreigners
were being paid less. As a general fact, companies have
a financial incentive to preferentially recruit foreigners
because they know foreigners will accept a job offer at a
lower wage.
---------------------
11. A study show that outsourcing really does not
save as claimed.
http://www.boston.com/business/technology/article
s/2006/04/13/
outsourcing_saves_less_than_claimed/
(this reference was posted on a newsgroup in early
2006, and was not checked)
--------------
10. Three more recent articles. First: the article
"Don't Offload Big IT Problems On Outsourcers" by
Rob Preston (VP.Ed-in-cheif) as appeared in
Informationweek, April 10, 2006, page 88 (may be
online at informationweek.com). Second: the large article
"How Do You Spell Relief?
O-U-T-S-O-U-R-C-I-N-G" by Bruce Boardman, appearing
in Network Computing, April 1, 2006, pages 30-36, and
a third article in the same issue on pages 39-48.
So what do these three articles say? The first is
a one page qualitative review of several outsourcing failures
and cites "Outsourcing Backlash"
(presumably at informationweek.com/650/50iuout.htm
[I have not checked it]) and explained that any problems
people have at home become magnified when
they offshore/outsource (many references to India).
The second walks people through the "process" of
outsourcing/offshoring work, including a discussion of how
to do this, but also has a sidebar on page 36 which includes
a summary of a Deloitte Consulting survey of 25
organizations (worth $1 trillion in market cap, and
with 1 mil employees, and spent $50 bil on operations
outsourced) and the sidebar says things like: one in four
brought functions back in house after realizing they could
do the work better, cheaper themselves, 33% of
outsourcing relationships failed in one year while 50% didn't
last five years, and 57% paid extra for services they though
were included in the original contract.
The third article also helps the IT specialist by
evaluating four data center packages (from Savvis, EDS,
Globix, and Infosys). There were a number of tables with data.
Bottom line results: Infosys was the cheapest, EDS
about three times more expensive, others midway;
quality of results- Savvis and EDS got A-, Globix got B+,
and Infosys got a C. You get what you pay
for.
----------------
9. Courtesy of "indiabpoking" are the following
reported negatives, failures and shortcomings of BPO,
2006
Date: 10 Apr 2006 15:36:37 -0700
From: indiaBPOking <***@yahoo.com>
Newsgroups: alt.computer.consultants,
alt.politics.economics,
alt.politics.bush, sci.research.careers,
soc.culture.british
Subject: Outsourcing seen as source of innovation
http://news.zdnet.com/2100-9595_22-6059512.html
"An IDC and Capgemini survey of almost 300
executives attending IDC's Outsourcing Forum East last
week found that top reasons for deciding to use Business
Process Outsourcing in a corporate strategy include
reducing costs, driving innovation, and the ability
to focus on core competencies."
[but see below]
"Additional [negatives, failures, drawbacks] survey
highlights include:"
"* More than one third (38.2 percent) of participants felt
the biggest downside to outsourcing is not getting the expected
results, followed by public/customer backlash (23.5 percent), and
anxiety over loosing control (20.6 percent)."
[note that 38.2 percent is much lower than other
figures cited from other sources farther down]
"* The three most important legal issues concerning
BPO today according to those surveyed were: governance
procedures (33.8%), business continuity (27.7 percent) and
intellectual property rights (26.2 percent)."
--------------------------------
8. More complaints about India:
from the article "View from Asia-India won't fully
benefit from the amazing productivity of its companies
unless it builds a better infrastructure for business" by
Tom Leander (Editor-in-Chief, CFO Asia). Appearing
in "CFO" magazine for April 2006, page 27 (may be at their
website: www.cfo.com/backissues).
Some quotes:
"... GE's CFO, Keith Sherin, told CFO Asia late
last year that he finds India frustrating. 'You get
excited and nothing happens,' he says. Three
years ago, GE did about the same volume of business
in both India and China. Today, China is a $3 billion
market for GE, triple that of India. So, it's no surprise
when Sherin sums up GE's Asian strategy by saying
that 'China is number one, two, and three for us'."
"His primary complaint is the lack of government
support for infrastructure improvements. Turn off any
highway in India and you'll know what Sherin is
talking about."
"It may be unseemly to criticise a government that
has to take care of so many poor citizens for not
building better roads to facilitate commerce, but
India's CFOs point out that infrastructure is a
social-welfare issue. Sumant Sinha, CFO of leading
conglomerate Aditya Birla Group, says that he spends
more on capital expenditure every year than peer
companies in other nations might. How many of them,
after all, must build their own power stations?"
"But its wishful thinking [despite all the positives of
India] to conclude that India's remarkable productivity
will translate into a thriving internal market any time
soon. In the eyes of most U.S. finance chiefs,
China remains number one, two, and three."
---------------------------------------
7. Backshoring...the new buzzword
Feb 13, 2006 issue of Infoworld, pages 8 (Efraim
Schwartz's column) and page 4, (editor's);
Developer poaching and rapidly rising prices are
causing US based companies to start pulling jobs back
to the USA. Read about it in the periodical.
------------------------------------------------
6. Subject: Deloitte Report: outsource failure
rates
From June, 2005, CFO magazine, page 19.
(it may be on their website, www.cfo.com/BackIssues)
Deloitte Consulting was said (by the CFO article)
to have said "'In the real world, outsourcing frequently
fails to deliver its promise.' wrote researchers who
surveyed 25 companies with average revenues of $50 billion.
The study reveals that 70 percent of its respondents have
had significantly negative experiences and are outsourcing
business processes and IT with increasing caution."
"...there is growning evidence that large comapnies
are rethinking massive outsourcing contracts. Big name
defectors that have unwound at least part of
their arrangements include Conseco, Dell, Capital
One, and Lehman Brothers."
"A sure sign that outsourcing isn't working is the
amount of renegotiation surrounding the vendor
agreements, says Deloitte senior strategy principal
Ken Landis. 'There wasn't a single participant in
the study where contract went to term,' he says.
'All of them had renegotiated prior to the contract
expiration date'"
"Companies are souring on outsourcing, the survey
asserts, for the same reason it has been criticised
for years: failure to live up to cost-reduction
promises, risks to intellectual property, and confidentiality,
and lack of transparency."
The article states that, so far, 25% of the companies
have brought services back (now called backsourcing).
-------------------------------------------------
-----
5. From Information Week, page 8, in the Nov 21,
2005 issue.
Sidebar: "48% of all companies will spend more
money on BPO this year than in 2004"
"55% of current BPO service delivery is conductend
inside the USA"
"41% of companies are satisfied with their BPO
services"
So, that sounds like 100 - 41= 59% are
dissatisified with their BPO services. And, there's
going to be more BPO?
Says the source is IW, Managing Offshore, and Equa
Terra study of 200 BPO customers.
-------------------------------------------------
4. "Offshoring isn't such a sure thing"
by Lora Kolodny, Inc. magazine, September, 2005,
pages 22-24
Quotes:
"Companies are finding that sending IT work
overseas can be more trouble than it's worth,
according to a new survey from DiamondCluster
International, a Chicago-based management
consultancy. The number of executives surveyed
who said they were pleased with their outsourced
IT vendors fell by 17 pecentage points versus the
previous year, marking the first decline since 2002.
Moreover, early termination of relationships
between buyers and offshore service providers
spiked to 51%, which is double the rate of 2004."
In other words, half of all relationships are
terminated before their first contract period is up.
In view of this, a spokesman for the consulting
firm says that "...tech buyers will think twice about
sending critical services abroad--at least
for now."
--------------------------------------------------
3. From "CFO" magazine, FALL 2005, special issue,
pages 40-44. (may be on www.cfo.com/Backissues)
article: "Customer Disservice: Critics say the
promised savings from offshoring come at too steep
a price, while companies say very little at
all"
by Norm Alster
This article starts by saying that on a recent talk
show where people could call in with comments and
questions, it was discovered that virtually everyone in
the USA does not like foreign call center representatives.
"But the practice of outsourcing customer service
to offshore call centers is beginning to look like a
classical idea carried too far. Critics of the
practice point to a growing body of evidence that
suggests faulty economics and customer dissatisfaction
are forcing a rethink of what once seemed a no-brainer."
"'The economic benefits of outsourcing customer
service are grossly overstated' according to Niels
Kjellerup, a senior partner with Australian
consulting firm Resource International and editor
of a Website devoted to call centers
(www.callcenters.com.au). Customer resistance, along
with data-security concerns and the unexpectedly high
costs of managing offshore call centers, offset and dilute their
promised economic benefits, says Kjellerup."
"There is already evidence that these factors have
combined to slow the offshore migration. Several large
firms, including Dell, credit-card giant
Capital One, and insurer Conseco, have shifted at
least some customer-support operations back to the
United States."
Gartner's analyst, Robert Brown, says that the initial
large growth in offshoring is expected to be, in the
future, much smaller.
"Companies with monopolistic or overwhelmingly
dominant market positions are more apt to risk customer
alienation where near-term savings can be realized."
"Alexa Bona, a Gartner analyst based in London,
predicts that during the next three years, up to 60 percent
of companies outsourcing customer-facing service will
encounter customer defections and hidden costs that will
either cancel or outweigh any perceived savings in such
arrangements."
"He [Chris Selland, at Covington Associates in
Boston]says executives at firms that have employed offshore
call centers keep telling him that 'it's harder, it takes more
management attention, and you have to be meticulous
about the way you structure the agreement.' As a
result of all this unexpected overhead, the projected savings
from offshoring can swiftly evaporate."
The article says there is huge turnover at Indian
call centers; it can be up to 70% per year. And, with the big
expansion, there have been recruiting wars in India and
escalating pay scales.
"Martha Rogers, a consultant and author of several
books on customer relationships, contends that the
metrics generally used to measure call-center performance
are flawed."
"Many companies that outsource customer service, in
fact, don't like talking about it, and more than a dozen
turned down requests for interviews. 'Companies are
looking to do everything they can to hide the
fact that they are using off shore call centers'
says Selland. 'From a political standpoint and a
customer-acceptance standpoint, it is something
they are trying to downplay.' At some Asian
centers, agents are actually trained to conceal their
real names and adopt phoney American monikers, a
practice that fools few and can further inflame an
already angry caller."
"One in three respondents in a British survey said
they would stop doing business with a bank that
relocates its call centers offshore. Another
study, conducted in 2004, reported that just 5
pecent of the British are satisfied with offshore
call centers. The Irish arm of Sweden's Tele2AG, a
telecommunications firm, recently switched its call
center operation out of India and back to Ireland,
citing consumer preference."
"In an unpublished data-theft case now under
investigation, a large U.S.-based technology
multinational contracted with a call center in India
without knowing that the company in turn subcontracted
a portion of the work to firms outside India, where
employees of the subcontractor apparently managed
to penetrate the American company's information
database."
"...growing outsourcing industries in Eastern
Europe and Latin America have been targeted by
criminals seeking access to customer data. "
"'For companies that regard customer service as a
key part of future revenue growth, bringing such operations
back to domestic shores is the way to go,' says Kjellerup."
---------------------------------------------------
2. From _Information Week_, page 60, Dec 19/26
issue, 2005
A short article by Paul McDougall reporting that:
"...companies operating in India, including local ones such as
Infosys Technologies, Tata Consultancy Services, and Wipro
Technologies, spend a lot of time and energy time stealing each
other's employees--and that's quickly driving up salaries" and
"'There's a lot of employee turnover [in India], and we weren't
interested in that,' says Martin Mellon, director of development at
applications vendor ASG Software Solutions. The company
chose Northern Ireland over India for its offshore development
work."
--------------------------------------------------
1. Subject: "Satisfaction Wanes for Offshoring"
On page 2 of the print issue of Processor.com for
June 17, 2005, volume 27, number 24:
"According to consulting firm DiamondCluster
International, the number of buyers satisfied with the
providers of their offshore outsourcing has fallen
from 79% to 62%. The firm's annual survey of IT
outsourcing also revealed that 51% of buyers are
terminating their outsourcing relationships earlier
than scheduled."