Global Outsourcing
Today India still remains as an IT outsourcing powerhouse, with $87 billion in software exports compare with $2.6 billion for China and $1.1 billion for Russia (2009 data). The outsourcing market estimated at $ 2 trillion dollars are still growing despite the global economy crisis. That is why many countries are following India's model to enter into this outsourcing market. The simple reasons: It does not cost much to enter this business, it is a clean industry, highly profitable, it creates a lot of jobs and the only investment is good education and training.
According to Gartner, a consulting firm specializes in Information technology "Ninety percent of all outsourcing deals in the market today have been structured around skilled workforce and cost reduction. Every three to four year, after reducing all the costs possible, companies will find new location and new suppliers with lower costs than previous one". However, moving software to new lower cost countries is a big risk with language and cultural differences and geopolitical instability, but the biggest risk is the knowledge and skills of newer suppliers. "If they don't have experience and don't do it well, it can negate all cost reductions,"
Today Eastern Europe is the major destination for many European companies who need high skilled workers and lower costs. Countries like Poland, Romania, Hungary are very aggressive in getting outsourcing business. When Bob Gett, CEO of Optaros, a company in Boston decided to outsource overseas, he visited seven countries and finally settled on a company in Bucharest, Romania. Gett found Romania attractive because of its good education system, multilingual population, and abundance of technical talent. The outsourcing deal helps reduces costs by 60% and allows Optaros to offer better prices to its customers.
Russia is another key place for outsourcing due mainly to its excellent education system. While their software workers are more expensive than India or China but they have the skills that other countries do not have. Indian and China are cheaper but there is limitation on what they can do. If company needs top scientists, top engineers with lot of experience, Russia is the place.
In China, Dalian, is turning out to be an ideal center for outsourcing, because of its closeness to both Korea and Japan has a large number of IT people who can speak fluently Japanese and Korean. Dalian is also a competitor to Bangalore, India because it has skilled software workforce, lower costs and especially easy to do business. Local government has streamlined all paper works for foreign companies invested in Dalian. According to government source, foreign company can get permission to open business in Dalian within two days as compare to sixty five days in Bangalore, India. In 2009, there were three thousand foreign companies invested or relocated to Dalian making this city "The fastest growing city in China" with three million software jobs created in less than one year.
South America is another attractive option because the time zones are similar to U.S and the infrastructure is strong. Brazil is a newcomer with $ 300 million software export last year but it is growing fast. Companies are drawn to Brazil's modern infrastructure, with airports and highways that are first class. Good transportation, strong education systems are among the key factors even software workers in Brazil cost more than India or China.
Africa is probably the newest comer. Several countries in Africa are now set up their infrastructures and ready for outsourcing business. They probably have the lowest cost of doing business as their software workers are willing to work for much less. However their education systems still need a lot of improvement before they can really compete. Cost alone will not be a key factor anymore.
While outsourcing industry is growing fast and competitive is everywhere, the picture isn't so good for the Philippines. Few years ago, It had a major piece of the market due to the language advantage but its education systems slowness to change, making its workforce technological obsolete. Today many companies are leaving the Philippines when their contracts end for better places and better skilled workers. The major works remain are mostly back-office help desks and supports. Instead of competing with just India, now Philippines workers have to go up against workers all over the world that have better education and better skills.
Sources
- Blogs of Prof. John Vu, Carnegie Mellon University
