Q: Let’s talk a little about locations. We were discussing India a minute ago, and the idea that it might benefit a little from the downturn in terms of people postponing their decisions to move out of the country. Is it too early to pinpoint the winners in terms of locations that might come best out of the crisis?
Katherine Kawamoto: I think it depends on what you’re sourcing. If you’re talking about services, then I’d say whatever country has the largest talent-pool and the lowest wage inflation. From a wage standpoint you could look at the US and claim we would be one of the better countries as far as sourcing goes.
Charles Aird: I think India has a lot of issues that may cause them even greater pain during the crisis. I’ve lived in India, set up centers there, and am very acquainted with the environment there; but over the last few years the retention issues they have, the escalation in wages, and the perceived drop in quality in both IT and BPO, have caused a lot of frustrations with clients. So I don’t see clients knocking on our doors to say “let’s go to India”. More and more they’re looking at alternatives: China, Eastern Europe, South America, those countries that started making inroads into what India has been doing. I think the current crisis may cause even more of that to occur.
Brian Smith: I do think however that this will maybe cause a reduction in the attrition rate in India, which will be a good thing and one that will make people feel more comfortable. We may also see some change in the underlying economics of offshoring particularly from some of the less expensive regions within the US, and making the business case for doing this may get more difficult.
Tony Rawlinson: I think it’s got to be looked at through the lens of what the requirement is, where the point of service delivery is, where the point of service receipt is, and against that backdrop EquaTerra feels that India will continue to be the dominant market for these services. I think they’re going to be helped clearly by the move we’ve already talked about from captive to outsourced; I think some of the weakness in the global economy is going to feed through to lower wage inflation in India which might address some of the frustration that was mentioned a minute ago. We see China maturing but frankly not rapidly enough to be a universal service delivery response, and clearly Eastern Europe has its supporters mainly around continental European customers who take a more conservative approach to risk.
This is very much an Anglophone discussion and we’re seeing the emergence of places like Morocco serving the French market, for instance, and we’ve talked already about Brazil serving the US market. I think overall our view would be that India will continue to be the big player but we’d also see a “horses for courses” approach being taken by clients and a recognition that risk needs to be managed on a global basis: it doesn’t make sense to have all your services running out of one country.
Phil Fersht: I can add a little additional perspective on that: let’s look at the types of services that are being outsourced to different locations. When you look at IT, I think India has developed a very strong position now delivering high-quality programming, application development services, at labor costs often a quarter of what you’d find in places like the US or UK. I think that’s just going to go from strength to strength as that model matures. They have a real industry developing, with strong training programs and very strong footprints. I think a broader area where it’s still an open game is BPO, and when you look at the fact that you can hire BPO staff for $25-30,000 a year in rural areas of the USA, the arbitrage trade-off with India and other countries isn’t that great – and if Obama takes power and gives even further tax breaks to incent countries to onshore, I do think that nations like the US – and even the UK – are still in the game. And I think that that’s going to be the area where we’re going to see some change globally.
Don’t rule out the Latin American countries for providing voice services and employee services and things like that. But I think on the IT side it’s almost a done deal now: I think India has cemented their footholds, they’re moving into the European markets, they’ll develop virtual roundtables intelligent resources in the US and the UK and other places to service their clients. It’s more in the BPO area where we’re going to see more variety, and different countries offering different unique characteristics.
Katherine Kawamoto: It seems to me that wage inflation is such a key factor in these decisions; a couple of people have mentioned Brazil, but if you look at the inflation there that seems to be on the rise – or at least is trending in an upward direction. Globally these are really tough decisions to make because the economies themselves are so unpredictable at this point. We really can’t predict with any certainty what to predict in the way of wage increases. As to the point about Obama: I think it will have an impact; I don’t know how soon it will have an impact, however. I’m not as certain that these things will turn around as quickly as some of the panel have indicated. I really think this is a much longer-term issue that we’re faced with.
Tom Tunstall: I think there are some things that – no matter who’s in office – will preclude an easy repatriation of jobs, if you will. With the electronic mechanisms available, some of that stuff is going to be fairly difficult, and frankly a lot of the jobs that do get outsourced are on the lower end whereas jobs created through outsourcing often are managed in the US and tend to be higher up the value-chain. The idea that whoever happens to be in the White House will affect these things greatly is likely oversimplifying things a bit. Global macro effects override a lot of that.
Charles Aird: I think I’d agree with that. I’m pretty cynical about election campaigns – and we went through a lot of this same rhetoric in the last campaign; some of you may remember Lou Dobbs and all of those things. And then we didn’t see a great deal of change. Obama will more than likely win the election – I can’t imagine him not, given the way things are going these days – and I think the issues he will have to face when he becomes president are much larger than what’s happening in outsourcing around the world.
Tony Rawlinson: I think it’s maybe worth looking at this more holistically as well as from a service provider perspective. The Indian players are becoming global players, the MNCs have deepened their investment in India and other low-cost economies. I think the successful service providers are going to be able to load-balance their client requirements across multiple geographies – so actually it’s probably going to be smart in many cases for clients to let the service providers take those decisions and let the economics of the deals drive where the requirements are placed.