Media Blast -- India Addition

Have had a very busy few days in India.

First, lots of interactions with our MBA MAP teams.

• First team up is working in Noida, focusing on Drishtee's microenterprise lending strategy.
  
• Spend the weekend in Hyderabad working with a second team focusing on Acumen Fund's healthcare strategy.
  
• Next up is two days of Ross alumni events (Delhi then Mumbai/Bombay).
  
• Then back to Noida Wednesday Thursday for some work with the Perot Systems team, working on skills

The real news, however, is promoting the book. For those of you who've read it, you know that Perot and India play a large role. Anurag Jain, Perot's MD for Asia Pacific and Head of the firm's Business Process Solutions business, had his team organize an absolutely fantastic couple of days.

• I appeared on Power Lunch, the midday program on NDTV, India's version of CNBC to discuss the book and President Obama's comments re: offshoring (sorry, no video)
• Had one-on-one interviews with a series of financial publications (The Financial Express, The Economic Times, Global Services Magazine)
• Then a "Wine and Wisdom" event where Anurag and I spoke about offshoring with a group of Perot executives and another dozen or so journalists.
• In Hyderabad, three more interviews, with Business Line, The New India Express, and the Deccan Chronicle.

I was on cover of the Saturday Economic Times. The article was about Obama's offshoring comments in the town hall meeting and the quote from me were pretty minor. There was a huge picture of Obama on the front page, with a pull quote from me directly responding to him. Wish the book was already released here in India. You can't buy press like that.

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Interesting contrast with the US journalists I have been interacting with over the past few months. Not saying one is necessarily better than the other.

1. My experience is that most US journalists are focusing on the story of the day. They want provocative quotes and I have to push to get references to the book included in the writeups. Here, nearly all the dozen or journalists who interviewed me had spent time with the book. Many had read substantial portions. The focus was very much on the book -- why I wrote it, what was the target audience, engaging me on the key messages, etc.
2. I have the sense that the book will be huge here in India. Judging by the journalists, it seems to hit on a set of issues that are top of mind here. All wanted to stay in contact for future stories. They were happy to work with me and the PR firm on timing release to match the book launch (unfortunately, not for a couple more weeks here in India). Several forwarded requests from their editors about whether I could do guest, or regular columns in their publications. We're doing fairly well in the US, but this market feels ripe. We'll see.

All in all, a very productive few days on the book front. Several pieces coming out in the US next week as well. Look for something in Forbes.com, and a guest blog on Horses for Sources. Also have a piece accepted in Financial Executive Magazine that should be in the May edition.

Today's News

New Job and Cost Reduction Opportunities Emerge as Manufacturers Contemplate Migration Back to the U.S.
A report was issued in Smart Brief that shows a number of companies are contemplating the re-establishment of manufacturing domestically, amid rising costs and other strategic challenges within the off-shoring model. As companies reassess their manufacturing and supply chain strategies for today’s global economic environment, the trend may create significant job opportunities in the U.S., according to the recent study.

“For years, the concept of off-shoring, or moving production and/or sourcing operations to a foreign country, has been the mantra of any supply chain manager looking to cut costs,” said John Ferreira, Principal and Global Manufacturing Industry Practice Leader, Archstone Consulting. “Now, amid volatile oil prices and an uncertain global economic future, this analysis no longer is a certainty. Furthermore, companies that will commit to domestic manufacturing can spur much-needed improvements in customer service, innovation and job creation – especially when servicing the large domestic market.”

TCS to Absorb RR Donnelly Staff
Sify.com reported that approximately 80 employees working with the India unit of Chicago-based RR Donnelley & Sons will join the rolls of the country’s largest software exporter, Tata Consultancy Services, starting June 1. The reason: Both RR Donnelley and the back-office unit of TCS provide third party transaction processing services to a US-based financial services company. The US firm has embarked on a vendor consolidation drive, as a result of which it has decided to move some of the BPO assignments from RR Donnelley to TCS.

Generally whenever a client company moves work from one vendor to another, both vendors have to come together to ensure smooth transitioning of knowledge and processes from the incumbent vendor to the new vendor, say analysts. Whether a company is initiating a new off shoring activity or transferring work among vendors the key to a successful event is clear communication of the roles, responsibilities and expectations of all concerned parties. This point is brought home in chapter 3 of Bob's book.

Newsworthy Items

Two US Companies adjust to the changing market to offer outsourcing services.
A report in Smart Brief stated that OnForce and Autotask have expanded their collaboration making, and deploying local IT services quicker, easier and more cost ffficient. Autotask is extending its integration with the OnForce platform to make it easier for customers to outsource their service needs by tapping into a virtual nationwide network of service technicians and matching and deploying IT service projects from start to finish.

China's Neusoft Gained 18.2% Net Profit Growth and 29.6% Overseas Outsourcing Increase in 2008
Smart Brief reported this morning that Neusoft Corporation, a leading IT solutions & services provider as well as the largest offshore software & service outsourcing provider in China, published its 2008 Annual Report recently. The report indicates a continuously high-speed growth in its two core businesses, industry solutions and product engineering solutions, based upon its overall business strategy in both domestic and international markets. More evidence that India is not the only country with growth in the off shoring arena.

India inc. gets White House meeting on H-1B Visas
An article in Computer World.com reported that a delegation from one of India's largest business groups visited Washington to make a case for the H-1B visa program, among other political topics. Apparently it was a group with enough clout to meet with top White House officials. In India, these visas are seen as critical to that country's IT services industry. The Obama administration has yet to outline its plans for the H-1B program, but the White House has given some signals that it might support an increase in the annual visa cap — primarily via the appointment of officials who have advocated cap increases in the past, such as Janet Napolitano, the former governor of Arizona and now secretary of the U.S. Department of Homeland Security.

When Obama was a U.S. senator, he supported a comprehensive immigration reform bill that was proposed in 2007 but never voted on after its sponsors failed to get enough support for a procedural motion to end debate. That bill would have raised the annual H-1B cap from 65,000 regular visas to as many as 180,000, while also authorizing additional visas for foreigners with advanced degrees from U.S. universities beyond the 20,000 that currently can be issued each year. Since 2007, Obama has continued to urge support for comprehensive immigration reform, but without being specific on the issue of raising the H-1B cap.

The Need to Redefine Ourselves:

An article in the New York Times reported that in the past, Kettering University has "honed its reputation as the West Point of the automobile industry, offering valuable work experience for its students at car companies and parts suppliers, and then virtually assuring them lucrative jobs upon graduation." Now, however, the school's students "are finding this fast track to a career shut down because of the crisis in Detroit," with some being "laid off from their student jobs at places like General Motors." Other students "are quickly switching their minors to fields like medicine, the environment and aerospace," and "even those who are clinging to their dream of an automotive career find the atmosphere to be grim at employers, where they alternate six months of work with six months of studies." The school itself is working "with a broader range of employers," including the United Parcel Service, museums, and the US Central Intelligence Agency. Bob has been advising us that if the US workforce intends to survive we will need to reinvent who we are. This article clearly shows that changes in the global economy have affected our young students currently enrolled in programs at US universities.

"The Services Shift" is Reviewed by The Hindu Business Line.com

The Hindu Business Line.com web site reviewed Bob's book in its March 29, 2009 edition. The review references Bob's 7 predictions for offshoring which are covered in chapter 7 of the book. Two of the seven predictions are quoted in the article. The interviewer closes the piece with the following comment: "A book with insights that can make you shift in your seat". Please use the above link to read the complete review.

Obama Town Hall: Partial Sanity on Offshoring

I'm still traveling in India (more on that in another post), so I'm running a bit behind.

An interesting development in President Obama's on-line townhall meeting. A woman named Harriet, from Georgia, asked the following question (all quotes from the NYT transcript ):

When can we expect that jobs that have been outsourced to other countries to come back and be made available to the unemployed workers here in the United States?

The president gave a surprisingly coherent response -- at least for a liberal democrat. Here it is:

Now, a lot of the outsourcing that was referred to in the question really has to do with the fact that our economy -- if it's dependent on low-wage, low-skill labor, it's very hard to hang on to those jobs because there's always a country out there that pays lower wages than the U.S. And so we've got to go after the high-skill, high-wage jobs of the future. That's why it's so important to train our folks more effectively and that's why it's so important for us to find new industries -- building solar panels or wind turbines or the new biofuel -- that involve these higher-value, higher-skill, higher-paying jobs.

So I guess the answer to the question is, not all of these jobs are going to come back. And it probably wouldn't be good for our economy for a bunch of these jobs to come back because, frankly, there's no way that people could be getting paid a living wage on some of these jobs -- at least in order to be competitive in an international setting.

So what we've got to do is create new jobs that can't be outsourced.

[He then went on to talk about "Green jobs" and having union workers building a smart grid, making $80,000-90,ooo. In the interest of space, I am leaving that out because it's very long and kind of wandering]

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I offer a few thoughts:

1. First, he didn't take the bait and make references to "our jobs" or "American jobs." That's progress.



2. He didn't roll out the "no tax breaks for companies that export jobs" line that nativists seem to like so much. There are no such tax breaks for "exporting jobs," and if the people who use such lines think they can take away other breaks for companies they don't like, they will run into the problem of identification and designing a program that actually works (discussed below Offshoring and Public Policy -- a Conundrum )



3. He seems to be somewhat mistaken about the nature of the work going offshore. From 10 to 5 years ago (as BPO gained steam) much of work was medium skilled -- things like call center jobs, accounting and finance, and claims processing.

What the president misses is that software jobs (in India, a bit more than half the total) are fairly high skill, certainly much more so than the union construction and electrical positions he talks about. Furthermore, the fastest growth today is in high skilled KPO (knowledge sector offshoring) work. Things like engineering services, business analytics, product design, teleradiology, and others.

My overall position is that, while disruptive in the short run, this is ultimately beneficial in the long run.

Bottom line: The president gets a B+. He didn't fall into the typical political trap of mischaracterizing the trade as win-lose (or zero sum). That puts him ahead of 75% of politicians, and 95% of democrats in Congress.

On the other hand, he doesn't understand (or at least communicate) the real nature of what's going on. It will be interesting to see what actions he takes going forward. One of the first tests will be how his administration treats the auto companies. Will they force them to cut back on software offshore outsourcing (GM does huge amounts of work offshore), or on back office stuff (Ford is ramping up its business analytics unit in India). Time will tell.

Offshoring News Today

BPO puts Sri Lanka on the Global Sourcing Map
A recent posting in the outsourcingbpo.cbronline.com stated that although Sri Lanka is some way down the list of global sourcing locations its newly created outsourcing trade association believes that the country has the necessary attributes to become a leading center for business process outsourcing.

Sri Lanka’s budding offshore industry has inevitably been overshadowed by its larger Indian neighbor, which has been the world’s leading sourcing hub for the last decade. However, the market situation is now more favorable, as vendors are increasingly looking to offer services from multiple locations, often using India as a central hub while also delivering services from satellite facilities in Eastern Europe, Latin America and Asia. The entire article can be read via the above link.

Offshoring Curbs to Hurt US Badly
Infotech.Indiatimes.com posted a story regarding how protectionist measures will seriously hurt the US. A Duke University professor and Harvard researcher Vivek Wadhwa was interviewed in the piece and made the following comments:
"The US will see many times more job losses if it raises protectionist barriers as most of its top companies derive a major chunk of their revenues from foreign markets. As far as the issue of lawmakers trying to stop TARP-assisted companies from outsourcing, they will simply have to give these companies more. After all, the reason companies like JP Morgan are sending work abroad is because it is cheaper,”
“The protectionist measures will backfire if they get out of control. Right now, this is just noise. The last time the US did this was in 1920 and this led to the depression,”

The article also delved into the fact that the US is not alone in making anti-outsourcing noises. The economic slowdown has led to concerns over job losses in other markets and any move to outsource jobs is being met with resistance and paranoia. The complete article can be read by using the link above.

Newsworthy Items

IBM and the Rebirth of Offshoring
Time.com Business & Tech ran an article that parallels the discussion Bob had with the WSJ today. The article explains that offshoring may be making a big comeback as word leaked that IBM would cut about 5,000 jobs in the U.S. and move the work to India. This may be the beginning of a new wave of moving work to developing countries which have large pools of well-educated workers.

India's GDP grew at a rate of 7% or better the last two years. The IBM news is troubling because labor costs in the U.S., even among highly educated adults, are falling. American workers should be available for employment at salaries much lower than they were two years ago. It appears that IBM has elected to move jobs offshore rather than keep them in the U.S. despite the trend of more tech workers losing their jobs here. But, the cost of labor in India, which was already below that in the U.S., is likely to be falling even faster than it is in the U.S. While labor prices drop in the U.S., they are probably dropping faster in countries like India and China. India's official unemployment rate is 8.2%, but is expected to rise throughout the balance of the year.

IBM clearly arbitraged the joblessness in the U.S. and India as it made its decision about where to employ several thousand people. To put it crassly, IBM is looking for the equivalent of the lowest cost bidder.

Bob has been saying for a long time that the US workforce will need to redefine themselves in order to compete in the global economy. It is a tough realization to come to grips with but it is a fact of life today.

Offshoring Outlook: Latin America
A story posted in CIO.com discusses the growth of outsourcing to Latin American companies. The author states: "With an estimated population of 559 million, a growing percentage of which is multi-lingual and well-educated, Latin America has become increasingly attractive for all types of business. Its IT services sector has grown rapidly—nearly doubling in the past five years. In Brazil alone, IT has become a more than $9 billion per year market. While such growth rates may not be sustainable during the current global economic crisis, Latin America is a logical place for IT to flourish, especially as the services industry scrambles to recover and regroup following the disastrous terrorist attacks and financial scandals in India.

The author does caution the decision makers with the comment: " Now, in all fairness, when it comes to global services outsourcing, Latin America should be considered as playing a complementary—not replacement—role to mitigate what a leading analyst calls "India fatigue." Each Latin-American country presents different opportunities for buyers, and none can meet all needs". As Bob has stated in the past. The right match needs to be made between service providers and the company needing the outsourcing services. We welcome comments on this posting.

Maylasia Promotes Offshoring from Singapore

Berhama.com reported today that approximately 20 Malaysian outsourcing companies are looking to "Turn bad situation into better opportunity!". This is probably the most quoted phrase now among many during the current global economic recession that it has almost become a cliche. The phrase has become a good strategy for them to look for new businesses in the current dimmed business climate.

Outsourcing Malaysia chairman, David Wong Nan Fay, said this was the first and right timing for companies to enter the Singapore market which was much affected by the economic slowdown, and promote their outsourcing businesses.Wong told Bernama the companies were offering IT help desk, software development, data, banking and payroll processing services, multi-lingual contact and disaster recovery centres. The goal is for these companies to reduce their operation expenditure to 30 percent if they outsource their operation to Malaysia.He stressed that by venturing into Malaysia, the Singapore companies would not only cut their business costs but could also access to talents that Malaysia had.He said the outlook of the outsourcing business in Malaysia was positive and he expected it to grow by 15 percent during the economic crisis this year.

Bob expresses the same belief in his book that the global economy is driving companies to look for way to become more competitive. Offshoring and outsourcing allow them to find expertise they are missing and reduce costs.

Offshoring and Public Policy -- a Conundrum

Big news from IBM. Multiple sources are reporting that IBM will lay off about 5,000 positions in the United States, while expanding hiring overseas (Reuters story). Also did an interview with the WSJ, but they story is behind a subscription wall.

This story illustrates several of the challenges facing firms and policymakers as they grapple with the Services Shift.

First, the advantage that developing countries have in services for medium skilled positions is much larger than the advantage they enjoy in manufacturing. This is primarily because services are so labor intensive. If you save 60% on labor, but labor is only 20% of your cost base (as in auto parts) that gives you a 10-12% advantage. If labor is 75% of your cost base, a 60% savings gets you a 45% advantage.

Second, unlike with manufacturing, it is very difficult to match jobs lost in the US to jobs gained elsewhere. If Delphi closes a plant in Michigan and opens on in Mexico, you have about the same number of people doing the same tasks. It's easy to say "these jobs replaced those jobs." With services, however, it's rarely so simple. Say IBM hires lots of SAP and networking specialists in India in 2007-08. These people service many markets, including the US. Now in the midst of the financial crisis, they lay off systems engineers and COBOL programmers in the US. Is it really accurate to say "the SAP people replaced the COBOL programmers."?

The positions are not matched up in either time or function. So is one really replacing the other?

I'm sure the anti-trade, nativist zealots would respond that "there is a US programmer 'willing' to do the job," but that's a far cry from saying that person is qualified. Is it reasonable to ask IBM to spend tens of thousands of dollars retraining an expensive and under qualified US worker? Does this make sense even if the person will be serving global markets (including India)? Does it make sense if doing so will cause IBM to become uncompetitive with rivals who do not follow a policy of giving preference to US workers?

Third, services offshoring is much more disruptive than trade in manufactured goods. Why? Because the advantage that developing countries have is much larger in services (see above). Also, many more people are affected by globalization of services. Manufacturing accounts for approximately 15% of US employment. Services for about 70%. Tens of millions of people who thought they were safe from global competition are finding out that they are not. They want the government to do "something," but no one is exactly clear on what.

Fourth, what can the government do? Actually, very little. As mentioned above, it is very difficult to identify which jobs are displacing which other jobs. Foreign workers account for 71% of IBM's global workforce. Foreign sales account for just over 2/3 of IBM's sales. So, the workforce and sales distribution are roughly in alignment.

But say your congressman wanted to do "something." What would this be? It is unlikely that Congress is willing to cut IBM off from the Internet or satellite communication? Does anyone think congress can micromanage IBM's (or any other firm's) global resource allocation. Beyond making a fuss, there is little that policymakers can do without crippling the very firms that prop up their home economies.

Bottom line, Congress is impotent.

There are really two issues at play here.

1. In the long run, does the globalization of services raise of lower living standards in the rich countries? Almost everyone agrees that it is disruptive and inconvenient in the short run. I believe that the long run benefits outweigh the short run costs (as do most economists, the McKinsey Global Institute, and many others). But intelligent people can disagree on this.

2. What policies can the government put in place to slow of stop services offshoring? Even if you believe offshoring harms the United States, the onus is on the opponents to suggest a policy that would be effective. I can't think of one. Sputtering and whining won't cut it. Most policies (such as the Grassley-Sanders fiasco on H-1B visas) cause more harm than good.
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So, it's a tough problem. Everyone wants to focus on question #1. But without addressing question #2, it's just whining. Still waiting for an answer on that.

Today's News

Unisys Wins IT Outsourcing Contract with Chicago Park District
Unisys Corporation (NYSE:UIS) today announced, in Earth Times that it has received an extension to its information technology (IT) outsourcing services agreement with the Chicago Park District. The six-year contract, signed in the fourth quarter of 2008, has a value of $9.3 million.

Under the terms of the contract extension, Unisys will provide infrastructure management and support services to a growing number of Park District facilities and employees throughout the city of Chicago. Those services include help desk support; management of local-area and wide-area networks (LAN/WAN); hardware support for desktop, laptop and server computers; software support; and asset management. Unisys will also continue to provide support for the Park District's administrative software applications.


The Ugly And Dangerous Prejudice Against Outsourcing
An article in Information Week.com raises an interesting point: "If American businesses yield to the anti-outsourcing caterwaulers, then don't be surprised to see them go after other equally legitimate business tools next."

The author ,Bob Evans asks: "... explain this one to me: When great IT companies develop new products and services that offer significant value to CIOs, we call it innovation. But when CIOs employ outsourcing to remain competitive and create new customer value, the outrage industry calls it anti-American and screeches about the loss of " our jobs. He goes on to cite specific examples of how companies have developed leading edge cost savings that have benefited our economy. He also points out that for us to turn our back on the enormously valuable partnerships and collaborations established, and to attempt to turn the clock back 50 years and magically define what "our jobs" are, will only ensure that today's hard times stay with us for many years to come. Please click on the above link to read the entire article.

UN Bars Satyam From Outsourcing Work

A report in Information Week.com announced that the United Nations plans to terminate its out sourcing contracts with scandal-plagued Satyam and will bar the outsourcer from bidding on future work. Increasingly nervous Satyam customers are looking for alternatives in case the scandal-scarred outsourcer is unable to restore internal stability or find a buyer with pockets deep enough to see the Indian company through its current crisis.

Bob devotes a significant portion of his book to the importance of choosing the right partner and performing due diligence during the partnering process. Pertinent information can be foind in chapter 3 Making it Real and chapter 4 The Supply Side.

Newsworthy Items

Gartner Predicts Outsourcing Price Drop
Sourcingmag.com reported that Gartner has predicted a fall in outsourcing prices of up to 20 per cent by 2010, in what could be good news for companies that outsource their IT.
The analyst firm forecast a reduction of between five and 20 per cent based on the continued economic downturn, which will increase competition and prompt cost-focused buying behaviour.

In Defense of the H-1B Visa

In an op-ed in Forbes Lily-Hayes Kaufman writes that Section 1611 of the stimulus bill, also known as the Employ American Workers Act (EAWA), serves to minimize "an international mix of perspectives and minds in the workplace" and "is the first step towards diminishing the opportunity to discover a solution, which might actually help us get out of this mess". Ms. Kaufman argues that "It is irresponsible to cut out talented people with valuable minds at a time when our country and failing businesses need it most. While the U.S. taxpayers may, arguably, be the source for the bailout funds, there is no reason that we should limit who is hired to provide the solutions."

World to US Business Schools: Thanks, but No Thanks

An article posted in Business Week.com raises concern for the future of the US Business Schools and the ability of domestic companies to maintain a competitive edge in the global market place. The possible restrictions of H-1B visas and the down turn of our economy are driving potential foreign students to rethink their position regarding attending Business Schools here in the US.

The article states that for years, American business schools have effortlessly attracted a diverse body of international students, eager to come for a top-rate business education and the chance to work in the U.S. after graduation. But diversity at top B-schools across the country may take a hit this year, as a growing number of international students put off plans to attend school or decide to attend schools in their home countries instead. Though it's still too early to tell what the impact will be on next year's class, a growing number of students from China, India, Europe, and the Middle East say they are considering, or have already decided, to decline their acceptance offers to prestigious U.S. business schools.

This trend could further hurt the US economy. While we have a lot of bright and talented young people here in the US the loss of prospective foreign students could seriously impact the future of college programs (loss of income from students attending schools from abroad) and a reduction in the pool of talent for US companies. Some may argue that this will open opportunities for US students to get domestic jobs. While this may be true on a smaller scale I for one am worried that without the diversity of an international student population and workforce the US is headed for an even greater economic down turn. Your comments are welcome.

Today's News

The Era of the Mega Outsourcing Deal Isn't Over
Business Week.Com posted a story that discusses the fact that large outsourcing deals are not a thing of the past. Even though outsourcing deals created over the past couple of years have become steadily smaller a few companies are still working on a larger scale. The article references two major outsourcing events by Readers Digest working with HCL and Kaiser Permanente setting up an arrangement with IBM. The following link will connect you with the article.

Recessions Fuel Off shoring Fears
Computing.co.uk presented an article that referenced a national strike in France in protest of President Sarkozy’s economic policies. Mark Kobayashi-Hillary writes; "The relevance for those working in international sourcing is clear. People on the streets are calling for tax cuts to be reversed, for public sector jobs to be preserved, and for jobs to remain local. There is a tidal wave of nationalism sweeping Europe and the US and I have not seen anyone in the industry getting prepared for this." His point is that there is going to be a lot more unrest in the future and companies involved with outsourcing [and off shoring] need to be careful of how they present their strategy. As we have all seen it is very easy for consumers and business leaders to misunderstand what is going on.

Off to India

Will be spending the next two weeks in London, Amsterdam, and (mostly) India. Conference in London for the EU launch of the Aspen Network of Development Entrepreneurs (ANDE). Interesting embership group that works to bring three groups together:

• Social investors -- such as The Gates Foundation, Lemelson Foundation, Omidyar Network, The Rockefeller Foundation, The Skoll Foundation, the Shell Foundation, and others.
• Intermediaries -- such as Acumen Fund, Agora Partners, Dahlberg, E&Co, Root Capital, SEAF, TechnoServe, WDI (of course), and a few others
  
• with small and medium size businesses in developing countries.
  

The idea is that SMEs can drive development more effectively than micro enterprises, and the group is looking to promote that.

From there, on to Delhi, Hyderabad, Mumbai (Bombay) and back to Delhi for some student work. We have a set of interesting MBA projects this year -- with Drishtee, Acumen Fund, and a skills development initiative by Perot Systems.

I will also be doing the song and dance routine for two Ross School alumni clubs -- in Delhi and Mumbai. Actually, these events are a lot of fun. Well connected people. Looking to engage with the school. And really excited about cutting edge work.

So, great trip coming up. The only downside is that I'll be staying in eight different hotels over the next 11 nights. Ugh!!

Blogging will continue, but will likely be at strange times (India is 9 1/2 hours ahead of the east coast). In the meatime, Lou will hold down the fort.

First cut at a blog list

I've added a first cut at a blog list in the left sidebar. Over the past few months, I've spent quite a bit of time searching out and communicating with other bloggers who cover global sourcing for services. Here are some of the blogs I find are worth a regular visit:

Blog focused specifically on offshoring (i.e. global sourcing of services):

• Horses for Sources -- written by Phil Fersht, the Research Director of AMR Research
• Inside Outsource -- by Tom Hickman, an industry veteran and current consultant
• Provocations and Cogitations -- by Mark H. Roninson, Chief Operating Officer at advisory firm Equaterra.
• Consider the Source -- Group blog from industry advisory firm TPI.
• Pragmatic Outsourcing -- wideranging blog by industry veteran Nick Krym.
• The Dao of Outsourcing -- blog focused on the Chinese Offshore providers. Not very active, but the best view of the China market.
• Sourcing Insight -- from Australia-based consultant Michael Rehkopf, a partner at TPI
  
  

More general blogs that sometimes touch on offshoring issues:

• Innovation & Web Globalization -- Steve Hamm of BusinessWeek covers a somewhat eclectic set of issues, ranging from IT services to social enterprise in Rwanda. Always a good read.
• Marginal Revolution -- Tyler Cowen's very active and always interesting economics blog. Not offshoring heavy, but provacative and informed.
  
• Enlightenment Economics -- excellent blog on economics books. Run by British Economic Diane Coyle.
• WSJ Digits Blog -- a joint effort from the Wall Street Journal's technology team.
  

See the list in the left sidebar. Happy reading.

And so it begins. . .the war over jobs

We've been having some discussion, both on and off the blog, about the short-sighted notion of trying to "save" jobs for locals by discriminating against foreigners. Senators Grassley, Durbin, and Sanders put the toxic H-1B visa restriction in the TARP renewal, and now we're starting to see the fruits of this bad policy.

• Protests and wildcat strikes in Britain and Ireland over the employment of foreign workers in the construction and energy sectors.
• Bank of America has withdrawn formal job offers made to MBAs in the United States
• The government of South Korea is cutting work permits for foreigners by 66%.
• Mexico retaliates on trucking restrictions with tariffs.
  

I'm fairly confident that protectionist moves like this make the nativists happy. But the thing to remember is that the United States has much more to lose from a trade (or jobs) war that most other countries. Our firms are much more global than those of virtually any other country (with the exceptions of the U.K. and the Netherlands). Most large firms (Fortune 500) earn at least a third or their revenues in international markets. For many, the figure is more than two-thirds.

If India restricts U.S. presence (sales by firms, employment of US citizens), we have much more to lose than most trading partners. This is a classic prisoners' dilemma. It's tempting to think one country can impose restrictions in the interest of "fairness" or some other excuse. But other countries retaliate. And the downward spiral begins.

While the details differ, this is all reminiscent of the Smoot-HawleyAct -- which led to plunging global trade in the 1930s and made the Great Depression much much worse.

I hope we can pull back in time. But I'm starting to doubt it. If and when unemployment goes to 11 - 12% because large, global firms are slammed in foreign markets, I hope the nativists look back and realize what they've wrought. But I doubt they will. They'll just identify and mobilize against another convenient scapegoat.

South Korea to Slash Labor Permits

According to a report in Industry Week.com South Korea is planning to reduce the number of work permits it approves for foreigners to just one third of last year's figure to safeguard existing jobs amid the global downturn. The Korean ministry has been quoted as saying "The reduction in foreign labor is needed to protect job security not only for Koreans but foreigners as well who are already staying here."

This past March Bob referenced a discussion posted in a Growthology.org publication that stated the loss of skilled immigrants to the US would result in an economic catastrophe that will hurt US competitiveness for decades to come, if H-1B visas be restricted . I wonder if the Korean economy will be adversely affected in a similar manner by their ministry's decision. Check out the two articles above. I would be interested in any comments.

Industry Updates

"Obama's Anti-Outsourcing may Hurt Global Trade"
A report in Outsourcing News and Top Outsourcing Trade today explained that many US Corporations are saying Barack Obama's anti-outsourcing policies are impractical and could adversely impact world trade. However some analysts do not see such policies making a big impact. “Companies won’t give up offshoring strategy because of this,” said Suvojoy Sengupta, partner at consultancy firm Booz & Company. For the complete article please connect via the above link.

Research Shows Brazil Presents Strong Business Case for Outsourcing
Outbound Call Center.tmcnet reported today that the contact center industry in Brazil has been growing, in large part as a result of its close proximity to American businesses. Many companies looking to reduce operating costs, improve quality and deploy resources towards core activities are turning to outsource agencies that have attained a level of process maturity that can offer skilled, bi-lingual agents, catering to a diverse and growing customer base for many companies. For the full article please click on the above link.

AT&T Bringing Thousands of Tech / Contract Center Jobs Back to U.S.
Outbound Call Center.tmcnet ran an article that discussed the return of over 5,000 jobs back to the U.S. by AT&T. The bulk of these jobs are now located in broadband support contact centers in Alabama, Florida, Kentucky, Louisiana, and North Carolina with most of the others scattered across states in the Southeast. To read the entire article please click on the above link.

More on H-1B Visas

Phil Fersht over at Horses for Sources has an interesting post today on the H-1B visa issue. He cuts into the issue from a somewhat different direction than I did in my Feb 20 Detroit News editorial (link), but makes some points that are complementary to the argument I made there.

As you may recall, the Grassley/Durbin ameendment to the TARP program would make it extremely difficult for US firms receiving TARP program to employ H-1B visa workers. The H-1B visa program is designed to allow foreign workers withspecialty skills to come to the United States on a temporary basis when US firms can not find Americans to do the job. Note that the program requires the employer to pay prevailing wages.

My op-ed piece argued that the H-1B visa program helps save US jobs. The logic is that work is mobile. If firm's can't bring the people they need here to do the work, they will simply move the work to the people they want to employ.

The piece has created some hysterical backlash -- largely from message board nativists using pseudonyms. I'll deal with that in another post.

Phil makes two important arguments.

1. Durbin/Grassley will have a negative impact on US businesses.

The main point being that offshoring already exists. In most cases, H-1B staff are bringing skills into the country that are shared with onshore IT and operations staff to create a stronger learning environment for the host business.


2. We need to avoid isolationism, or businesses will move backward.

Hobbling firms from upgrading their IT systems, or managing their global operations by cutting them off from global talent will be counterproductive.

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A somewhat different take on things, but largely pointing in the same direction.

I heartily recommend Phil's blog (Horses for Sources). Check it out.

Today's News

Lawmakers Cry Foul Over Chase’s Rumored Outsourcing
The Columbus Business First Journal reported that a group of more than three dozen members of Congress, led by U.S. Rep. Mary Jo Kilroy, asked the CEO of JPMorgan Chase & Co. to explain reports that the company plans to spend hundreds of millions on outsourcing work to India. A letter sent Tuesday to Chase CEO Jamie Dimon and signed by Kilroy, D-Columbus, and 41 other members of Congress comes after published reports in India indicated that the bank would spend $400 million on work outsourced to that country to improve information technology. Please click on the above link to review the entire article.

Methode to Cut Nearly 25% of Work Force, Posts Quarterly Loss
A recent article in the Wall Street Journal (subscription required) revealed that Methode Electronics Inc. has decided to offshore 850 jobs due to the downturn in the North American auto industry. The company said it would move manufacturing operations to lower-cost regions to cut costs. After the restructuring, all its manufacturing will be in Mexico, Malta and China. The company said automotive-segment revenue was hurt by the continued softening of the global economy, especially its effect on the auto industry, and by "negligible Chrysler sales volumes. For a full review of the article please click on the above link.

A Gateway to Legal Outsourcing Learning
An article in IP Preview.com noted that the National Outsourcing Association (NOA), a UK based trade organization has predicted that education will be a critical factor in 2009 for ensuring that outsourcing professionals maintain quality and continuity in their industry. NOA Director Yvonne Williams stated; "About three years ago, we noticed that people were coming into outsourcing from all sorts of backgrounds, such as legal, procurement, IT and sales, and people seemed to be working in silos of specialism. Outsourcing is a very complex business, and the NOA thought that understanding of end-to-end contract management would help to improve the industry in general." To see the complete article please click on the above link.

Sad News: Bill Davidson Passes away at 86

Some readers of this blog may be familiar with Bill Davidson and others may not. Bill was an extremely successful businessman, generous philanthropist, and loving family man. He is one of the main reasons I came to the University of Michigan.

Most people know Bill as the long-time owner of the Detroit Pistons, one of the most successful professional sports franchises ever. Bill was the majority owner of Palace Sports and Entertainment, which includes the Piston's The Palace of Auburn Hills, the Detroit Shock (Women's National Basketball Association) and DTE Music Theater, a world-class entertainment venue, as well as management of Meadow Brook Music Theatre. Less well known was that he built Guardian Industries into one of the world's leading industrial companies -- a truly global leader in float glass and fabricated glass products.

Bill was also extremely generous with the wealth he created. He was one of the country's most notable philanthropists, responsible for more than $200 million in donations to local and international charities and universities.

Organizations and municipalities that have benefited from his generosity include:
- The Detroit Symphony Orchestra,
- The Jewish Theological Seminary of America,
- The University of Michigan,
- Technion-Israel Institute of Technology,
- The Weizmann Institute of Science in Rehovet, Israel,
- The Karmanos Cancer Institute, and
- Children’s Research Center of Michigan,
- The city of Detroit’s Parks and Recreation Department,
- Hadassah Ein Kerem Hospital in Jerusalem and countless others, and
- The William Davidson Institute at UM, which I have the privilege to run.

Here are several write-ups on this amazing man:

From the Davidson Institute's website: story
From the Detroit Free Press: story
A great slide show from the Free Press: photos
From the Detroit News: story
From the Piston's website: story

Mr. Davidson was a great man to work for and I'm happy to have had the chance to know him. He lived a full and successful life. He'll be missed greatly.

News of the Day

Hewlett Packard to Create 500 Jobs in Ireland
Hewlett Packard announced in a recent edition of Industry Week.com that it is planning an expansion at its global service desk operation in Leixlip, County Kildare southwest of Dublin. "The expansion will initially result in the creation of 500 highly-skilled multilingual technical support positions over 12 months, with the recruitment of 300 of these positions to commence immediately," the IDA said. "A substantial part of the growth plans will include the creation of a research, development and innovation capability for HP's global service desk environment," it added. For a complete review of the article please click on the above link.

Book Review of the Services Shift

Diane Coyle runs Enlightenment Economics, out of the UK. She does some very interesting advisory work on global and technological issues. She has written some very interesting books -- The Soulful Science: What Economists Really Do and Why it Matters, and Sex, Drugs, and Economics: An Unconventional Introduction to Economics.

The reason for this post, however, is that Diane also runs a blog that reviews economics books.

She reviewed The Services Shift on her blog on Tuesday. Generally positive, with some questions about how the financial crisis affects The Services Shift. You can read the review here, followed by a comment from me.

Happy reading. Thanks to Diane.

Employment in Silicon Valley falls

A story in the LA Times reported that employment in the region surrounding San Jose dropped 1.3% late last year. The key reason cited is the lack of "enough skilled workers needed to drive the next decade's innovation". This specific issue is addressed as one of the 5 key drivers of globalization in chapter two of Bob's book. Bob states; "An interesting trend that was witnessed this year at the Indian School of Business was that a number of students have chosen to opt for domestic offers over international offers." International companies are also pushing hard to recruit American students for jobs overseas. This trend will have a significant impact on the future of offshoring.

News of the Day

Will border violence hurt offshore outsourcing into Mexico?
An analyst at Datamonitor posted this story on Local Techwire.com. The author poses the question as to whether or not recent media reports of drug-related violence at the U.S.-Mexico border will cause companies to rethink their offshoring to Mexico. He does not think outsourcers and their clients should make hasty decisions. For the entire article please refer to the link above.

JPMorgan to up outsourcing to India by 25%
JP Morgan Chase announced it will increase its outsourcing to India by 25% this year to nearly $400 million. The report from Economic Times India Times.com states that as of now, JP Morgan outsources $250-300 million worth of IT and back-office projects every year to Cognizant, TCS and Accenture, apart from to its own captive centre in Mumbai. The entire article can be found via the link above.

Outsourcing: China vs. India
This story in Offshore - Outsourcing World Blog.com explains that during the current global recession, due to the downtown in the manufacturing and export sector, China has selected outsourcing as a new arena for economic growth. China’s exports dropped rapidly in the fourth quarter of 2008. In December, China’s export growth was -2.8%, bringing the growth rate for 2008 to 17.2%, which is 2.1% lower than the growth in the first 11 months of that same year. However service outsourcing grew pace of 54.3% to US$1.6 billion by the end of 2008. The growth in the whole year was 6.2% higher than the growth in the first 11 months. Given these results China is now eager to promote outsourcing, but the question is, can China’s outsourcing be competitive with that of India. Please click on the above link for the entire story.

LLP Act to Drive Legal Outsourcing Competition
A recent article in IP-Review-Online states that a liberalised Indian legal system may be on the horizon, following the long-awaited publication of the Limited Liability Partnership Act. First proposed in 2006. The author states that the LLP Act could transform India's legal market into one of the fasting growing in the world. The author advises that the legislation had 'important implications for legal outsourcing companies' by cementing the 'bond of trust’ between them and their law firm clients. For a complete review of the article please click on the above link.

Survey Finds Little Decline in Outsourcing Despite Economy
IT Business Edge posted a story about the expected trend in outsourcing given the current state of the economy. The author cites the results of a survey taken at the annual conference of the International Association of Outsourcing Professionals. The consensus is that they will do the same amount of outsourcing or more in this down economy. For the complete story please click on the following link.

The Financial Crisis and Offshoring

A few interesting posts over at Horses for Sources (H4S) on how the financial crisis is affecting the offshore trend. As we’ve discussed previously, the political and economic trends are moving in opposite directions.

• Politics –more and more defensive posturing by politicians introducing “buy American” provisions in legislations, restricting H-1B visas, etc.

• Economic – the crisis is pushing offshore projects forward.

H4S offers two interesting posts. First, he indicates that the level of interest in obtaining offshoring advice has never been higher. But budgets are tight, so firms are trying to do this on the cheap.

The money quote:

I have never (I repeat never) witnessed such an intense level of interest in global sourcing than the current environment. I simply am struggling to find the time to do anything but take calls from companies in desperate need of working out their sourcing options.

This was followed by a guest post from Lee Ann Moore, of Equaterra. Lee Ann relates that “doing nothing is not an option,” and goes on to discuss how financially distressed firms have changed the way they work with their advisors. Equaterra is one of the firms I worked with on The Services Shift.

Offshoring Everything: Procurement Edition

ThinkGlobal comments on the rapid rise in offshore procurement sourcing. From almost nothing a few years ago, the latest figures show that nearly 70% of procurement work is now being offshored to India, with 30% going to the US and 29% to EU providers.

Procurement has traditionally been a laggard in the Services Shift because it is difficult to standardize -- i.e. every firm does procurement in its own unique way. This lack of industry standard platforms or processes limits the opportunities for straight labor arbitrage.

AMR Research (which runs the blog) cites three factors for the recent acceleration of offshore procurement:

• Service providers have successfully shifted their delivery resources to India;


• The onshore vs offshore mix for procurement is successfully materializing;


• Procurement BPO is being taken on by new customer sectors

This is a phenomenon discussed in Chapter 4 of the Services Shift -- specifically the discussion around Figures 4.6 and 4.7.

The idea that most commentators miss is that when firms engage in offshoring, they learn by doing. Moving a few processes offshore builds capabilities (internal skills, familiarity with potential providers, new IT systems etc.), and makes sequential moves easier. That is, small initial steps expand your options in the next period.

This is a powerful argument for testing the offshore waters. If you don't and your competitors do, you find yourself behind in the current period, but also in all future periods as well because of lack of capabilities.

Putting Americans First?

Bob was quoted in a recent article posted on Human Resource Executive Online [hreonline.com]. The article discusses the ongoing issue of how companies should manage layoffs when they have employees working for them under the H-1B visa program. Bob explains that reducing H1-B workers first during layoffs -- and limiting H-1B visas in general -- will force global providers such as Microsoft, IBM and others to perform the work remotely when the economy recovers. He goes on to say; "It is extremely unlikely that limiting or reducing H-1B visa workers will redirect work back to U.S. workers solely," he says. "The logic is that Indian nationals [or those from other developing countries] can do the work more cheaply and often more effectively." To read the entire article please click on the above link.

Industry Updates - March 4, 2009

Survey: U.S. Gains Favor as Outsourcing Location:
This article posted in ZDNet.com takes a different perspective on where the U.S. stands in the outsourcing arena. Chief financial officers at technology companies are increasingly seeing the US as one of their most favored outsourcing destinations in 2009, according to a survey by consulting firm BDO Seidman.

India: Worries Grow about Obama Outsourcing Policies
This article from Business Week.com discusses President Obama's position on offshoring and H-1B visas. Indians are worried that President Obama's new Administration—and the slowdown in the global economy—will cast a shadow over one of the fastest-growing sectors of their economy. Obama's $787 billion stimulus plan will make it increasingly difficult for U.S. companies receiving bailout money to hire foreigners on temporary work permits known as H-1B visas.

More on H-1B Visa Restrictions

The Detroit News editorial got quite a response. The comments on the DetNews site were amusing ("Kennedy is an idiot," or ""you wouldn't feel that way if Professor jobs were offshored.") The comments were undoubtedly heartfelt, but basically emotive primal screams.

Much more amusing were the emails that came to the WDI site. Apparently I'm a "traitor," a "corporate shill," an "elitist," and an "ivory tower idiot." Good to see that my correspondent's thesauri are getting a workout.

Back to the issue at hand, The Kauffman Foundation (which focuses on promoting entrepreneurhip) issued a report that agrees with the position outlined in the DetNews Op-Ed-- Genius Need Not Apply; We'll Take the American Guy Instead.

The money graphs:

Immigrants have contributed disproportionately in the most dynamic part of the US economy - the high-tech sector - co-founding firms such as Google, Intel, eBay and Yahoo. In addition, immigrant inventors contributed to more than a quarter of US global patent applications. Immigrant-founded US-based companies employed 450,000 workers and generated $52 billion in revenue in 2006.

"Losing these skilled immigrants is an economic catastrophe that will hurt US competitiveness for decades to come," said [Vivek] Wadwha.

It's worth a read. A worthy counterpoint to the furtive emoting that passes for policy discussion these days.

Interesting Offshoring Blogs

Have been swamped with grading, but plan to get back to more regular posting. Kudos to Lou for keeping up the (almost) daily "In the News" items.

The more I get into the blogosphere, the more interesting blogs I find on the topic. Here are a smattering:

Inside Outsource (mentioned previously). Active in spurts. Good book reviews.

Horses for Sources -- active, wide ranging

The Dao of Outsourcing -- focuses on China. Not particularly active, but has a unique view.

Think Global -- (from AMR Research) focuses on global business, supply chain and IT outsourcing strategies.

Growthology -- mostly about entrepreneurship, but occasional posts about global talent and offshoring.

Innovation and Web Globalization Blog -- by Steve Hamm at BusinessWeek.com. Lots of globalization topics. Frequently mentions offshoring and outsourcing topics.

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There will clearly be many more, but this is a start. Happy surfing.

A Nation Seeks Employment

Bob was quoted in a recent article posted in the Innovation section of the Irish Times.com. The crux of the article is that Ireland, like many other countries is finding out that they need adapt to the changing economy. In the article he says "Most firms will move to consolidate their administrative functions within the EU. Ireland is extremely well-positioned to capture a disproportionate amount of this work, as it has a highly skilled labour force, a flexible labour market in contrast to core EU countries, and an attractive business environment". Please click on the above link for the entire story.

Industry News Today

Indian Outsourcing Companies Top H-1B Visa List
Four Indian IT outsourcers topped the 2008 list of companies obtaining H-1B visas, followed by Microsoft as the top U.S. user of the controversial temporary work visas. Leading the list of 2008 H-1B permits was Infosys Technologies with 4,559 visas granted by the U.S. Bureau Citizenship and Immigration Services. For a look at the entire article please click on the above link.

Outsource more from India: Airbus parent to suppliers
European aerospace major European Aeronautic Defence and Space Company (EADS), parent company of India’s largest aircraft supplier Airbus, has directed its European tier-1 outsourcing partners to direct a larger portion of their outsourcing orders from India. The full article can be read by clicking on the above link.

Today's Items in the News

Will temporary workers haunt Indian outsourcers?
The author of this article in computing.co.uk is voicing his concern about the process UK companies use in granting their own work permits. In his opinion "Indian IT companies should hire people in the country where they operate, rather than flying in cheap workers for extended periods of time. Non-UK companies such as Capgemini, IBM, or EDS, just don’t have this tendency to resource projects by bringing waves of staff into the UK from India".


Will Eliminating Tax Credits for Outsourcing Help U.S.?
An article in today's IT Business Edge.com independent IT consultant Paul Massie believes that the economy, more than any thing President Obama does, will have a greatest impact on outsourcing.

Posting his analysis on The Expert Network of Gerson Lehrman Group, he says the large organizations -- such as IBM's presence in India and China -- won't be dismantled quickly, if at all. Eliminating tax credits for them might slow their growth, but it won't stop them, he says. For a full review of the article please click on the above ink.

Update on IBM Lansing, MI Center

In an earlier industry news update on the book web page we referenced a decision by IBM to open a Global Delivery Center at Michigan State University in Lansing, MI. State government officials recently estimated the move will create up to 1,500 new direct and indirect jobs in Michigan over the next 5 years, with 100 new direct jobs opened by June of this year. The entire story can be found at cityofeastlansing.com