The last post on Horses for Sources – "Has the Lou Dobbs factor faded?" – certainly got several people voicing their opinions on the outsourcing of jobs to India (and please feel free to air your views publicly on this site rather than email them directly to me!). Personally, I think the whole argument about the pros and cons of offshoring services has been done-to-death, but one issue that has been raised, concerns the allocation of H1B Visas to offshore outsourcing suppliers looking to bolster their onshore workforces to improve their service delivery: Should offshore firms have the right to "import" their labor into the US in addition to "exporting" US jobs oversees?
I’m probably not the best person to provide an balanced argument here, being an H1B Visa-holder myself (but I don’t work for an outsourcing provider), so I am inviting you to cast your vote to the left of this post. Personally, I have thoroughly enjoyed my experience working in the USA and helping some US firms develop their services – and hope I am adding some value along the way – and I strongly encourage skilled US workers to apply for temporary work visas to experience working in the UK (my country), Europe or Asia, if they have the opportunity. Working in dynamic business environments across the globe is such a great developmental experience for people in today’s economy. However, the key issue now is whether the offshore outsourcing providers should be entitled to create onshore jobs for foreign workers to help run and develop outsourcing services. So have your say!
I did want to relay some key facts regarding temporary work visas that outsourcing providers typically use for skilled immigrant workers. There are two types of Visas outsourcing suppliers use to bring skilled immigrant workers over to the US:
1) The L1 Visa: This applies to an employee working within a foreign subsidiary of a global firm, has over a year of service with that company already completed, and wants to be transferred to a US office of that organization. The requirement is simply that the firm was unable to find a local US worker who could do that exact job, and that job required a specific qualifying expertise, or was a unique management position that fulfilled certain (strict) qualifying criteria. The sponsoring firm will have to prove they advertised the job first in the US and was unable to find a suitable candidate. There is no cap on L1s, and 7 of the top 10 L1 users in 2006, according to the US Senate – were Outsourcing providers that were either headquartered, or had their largest employment base, located in India.
2) The H1-B Visa: H1B visas apply to skilled individuals applying for jobs with US companies. As long as the US company is a registered corporation or LLC, the visa is dependent on the university qualifications of the individual to fulfill a specialist role within that US company. Unlike L1s, H1Bs are subject to a cap for commercial workers, and this allocation of H1B Visas has been dramatically reduced from 195,000 in 2003 to only 65,000 in 2008, with an additional 20,000 made available for worked with US Masters degrees. This is an exceedingly minute percentage of the US working population (of the fractions of a single percentile). Like L1s, 7 of the top 10 H1B users in 2006, according to the United States Citizenship and Immigration Service – were Outsourcing providers that were either headquartered, or had their largest employment base, located in India.
It was only three years’ ago that I recall speaking at an Outsourcing conference in New York…there were a couple of hundred vociferous protesters outside the hotel, journalists armed with stories of woe about impending doom for the US economy…and that Lou Dobbs guy stirring it all up on the TV at dinner time with his "Exporting America" feature. How times have changed…
In the last few days, we’ve seen both the New York Times and the BBC produce reports on outsourcing that compliment each other to drive a compelling argument: Western firms can embrace the global labor pool to focus on delivering higher-value services – which is not having a significant impact on domestic job losses. The New York times discusses the IBM business model:
“We couldn’t keep building out labor,” Samuel J. Palmisano, the chief executive, said. “The long-term strategic answer was not to have a half a million people working for I.B.M.”
Today, the company’s global work force is organized in clusters of business expertise and connected by high-speed communications links. Project managers can search worldwide for the right people with the right skills for a job. One tool is Professional Marketplace, a Web-based database of people and expertise.
The idea is to build networks for producing and delivering technology services much like the global manufacturing networks that have evolved over the last couple of decades. Look inside a computer or automobile and the parts come from all over the world. High-end technology services projects increasingly will follow that formula, combining skills from across the globe and delivered on-site or remotely over the Internet.
The Times also picks up on one very crucial point:
Jobs in technology services may be particularly vulnerable because computer programming can be described in math-based rules that are then sent over the Internet to anywhere there are skilled workers. Already, a significant amount of basic computer programming work has gone offshore to fast-growing Indian outsourcing companies like Infosys, Wipro and Tata Consultancy Services.
As they increasingly compete for higher-end work, the Indian companies are hiring thousands of workers this year in the United States, adding an odd twist to the offshoring trend. Tata alone plans to recruit 1,000 workers in America, said Surya Kant, president of the company’s American unit, for “the near-shore work that requires regular contact with clients in person.”
The Times makes a compelling argument that only certain IT jobs can be moved offshore and the offshore providers are having to bolster their onshore workforces to compete effectively for the high-end work, otherwise will be left competing for lower-value work on a price competitive basis. So while offshoring in IT created a wide pool of labor talent, it has only fueled the demand for the high-touch labor needed to work close to the customer. Creating these types of jobs onshore only serves to keep IT professionals on their toes to focus their skillsets on more client-centric work, while a lot of the programming work is done offshore.
Meanwhile, the BBC reports on a study by the Work Foundation, a not-for-profit body that aims to promote best working practice, which claims that job losses across Europe due to outsourcing to India are exaggerated:
"Concern over off-shoring has become a surrogate for wider issues about economic insecurity," said Work Foundation chief economist Ian Brinkley. "There is something about exporting jobs to foreigners that does press all the wrong buttons. Fears have been stoked by claims that the Chinese and Indians are coming to get your lunch, but the reality is that it is not happening." He said that figures showed that just 5.5% of all jobs lost across Europe in the first quarter of 2007 were due to work being sent abroad. "Self-serving claims from consultancies and aggressive PR from outsourcing companies themselves has tended to drown out the careful analysis of data regarding off-shoring," added Mr Brinkley.
Lou Dobbs is a first-class political commentator and personality, and there is no doubt he has the US’s best interests at heart. The early phase of outsourcing was clearly focused on body-shopping, with companies eager to slash costs looking to find providers to do the same work at a fraction of the cost through cheaper labor. Lou has every right to stand up to protect US interests in these circumstances. However, times have changed and businesses and governments are changing with these times. You can’t fight innovation, and the outsourcing model has evolved to the provision of business services, not products. Offshoring provides a cost-lever to enable providers to be more innovative and client centric, and while it does impact some onshore jobs in some cases, the wider picture is a developing global IT industry. Moreover, is the job market swamped with unemployed IT professionals? I don’t think so….The next big questions will be how outsourcing to China will impact the global engineering industry, and India the accounting profession. If these follow suit the way the IT outsourcing industry has developed, then it’s not going to be all doom and gloom for the future.
Having spent the first half of my life living in Wimbledon, I have been privileged to follow some historic matches – especially the Borg/McEnroe/Connors golden age. I never thought we’d see anyone emulate Borg’s 5 consecutive Wimbledon titles, but today we saw the "Fed Express" dig deep to achieve the unachievable. Does this make him the greatest player of all time – to win 5 Wimbledon titles on the bounce in this era of physical and technical perfection?
My vote goes to Bjorn Borg – for two reasons:
1) Borg also won the French open 6 times (and 3 times concurrently with Wimbledon). To dominate clay court and grass for such a long period is the true test of class and having the complete game. Federer hasn’t won in France. Neither did Sampras, McEnroe or Connors.
2) Borg had to contend against other great players….McEnroe, Connors, Vilas, Nastase to name a few. Federer’s only real competitor is Nadal.
Feel free to cast your vote (see the sidebar to the left)….
It’s official, I have come out of the closet and am confronting my addiction.I will be available for group therapy and counseling sessions to all you fellow recovering addicts.(In fact, I actually dropped mine into a bathtub a few weeks’ ago which finally got me on the wagon, but that’s another story…..).Here are some telltale symptoms:
1)Onboarding a new job.Your chief concern is your new firm’s PDA policy.Will they support Blackberry?Will they buy you that latest model that has you salivating, or will they force you to use some bug-ridden Microsoft pocket PC thing?You really don’t want to look at the new Health plan, that 401K, or expense policy until that all-important PDA issue has been resolved.You proceed to spend your first afternoon selecting your preferred PDA, and the majority of your fourth day (when it arrives) talking to tech support getting the thing working.Then you worry profusely that you didn’t select the right model (that suretype method sure is tricky) and that leather pouch just don’t look quite as sexy clipped to your belt as you had envisioned…
2)ADD.You knew you had a latent case, but now it’s fully rampant.Conversations can barely last 2 minutes before you have to have a sneak.You start to hang out with other addicts at work to avoid feeling awkward…
3)Driving.You have mastered the art of one-handed emailing on the dreaded device while changing lanes on the tollway at 75 mph.Oh – and the quick “two hands off the wheel routine” to switch between applications is a little risky, but you have already resigned yourself to the fact that crackberrying comes with death-defying risks.
4)Flying.A) You have already been busted on several occasions by flight attendants for taking a sneak-peak after the “turn off all your electrical devices” warning.I mean – are you really going to derail your plane just ‘cause your pilot’s got some annoying feedback going off in his headphones?and B) Upon your plane hitting the tarmac you are primed and ready with your finger at the “on” switch for the very moment the pilot pads his breaks.You thank the Lord for the invaluable extra 120 seconds of Crackberry time you created for yourself as a result of your precision timing, before staring intently at the little screen to watch those new memos pop into view….
5)Social occasions.Your spouse has specifically warned you about Crackberrying in front of the guests.The conversation is caught in a vociferous debate between the merits of the ’86 Margaux and that great run of ’99 Cabs…. You can’t take it anymore… you sneak to the washroom…just one reception bar, but that’s enough to get those little memos popping in….phew.
6)The Bedroom.Your spouse has banned it…you have resorted to hiding it in the bedside table drawer….you wake up at 4.00am in a cold sweat….”just a quick hit” you think, sneaking it out of the drawer….you feel a slap…you turn around and there she is – a look of ferocious hatred on her face….oh no, this isn’t good….
7)Brickbreaker.You have a colossal problem here – you have spent more time on this mind-numbing game that you did with the ‘Cube in the ‘80s…you start having conversations about the infernal game with complete strangers also playing it on planes…”I just can’t get past that level with all the bricks blah blah”.
8)Power-precautions.You have a spare battery (always fully charged) and a spare charger.Now that is serious….even I wasn’t that bad J
A Crackberry addict spotted earler. This one clearly has issues….
Am sure you heard the whispers regarding an Infosys / Cap Gemini merger last week – and I don’t see this happening. While I agree that the bold Indian-centric offshore suppliers will – and should – make moves to acquire Western suppliers (and vice versa), I don’t buy this one. Infosys wants to develop a strong presence in North America to cement further its ITO and BPO businesses and Cap Gemini’s one challenge is to strengthen its US business – which it is addressing, but will take time (the firm is already very strong in Europe and Asia). Having said that, CG is an excellent ITO/BPO firm with some innovative solutions that would add considerable strength to Infosys’s global presence (outside of the US). Infosys has so far proven to be a "build", as opposed to "buy" focused firm, and there doesn’t appear to be a compelling reason why it would derail its so-far-successful growth strategy. Surely the firm would prefer to invest in taking on global clients’ shared services and captive operations, as a means to expanding its footprint?
At a future point, consolidation between BPO and ITO firms is inevitable as suppliers vie for high-end outsourcing deals of increasing complexity, scale and scope. We are increasingly seeing more intricate and unique requirements that span IT and process requirements across finance, HR, procurement – and other process areas. And while it may make sense for some companies to work with a multitude of suppliers, the increasing capability of global outsourcing firms to broaden their delivery scale and capabilities across multiple processes, languages and technologies is simplifying the equation for companies looking for longer – and more strategic – outsourcing relationships.
My personal view is we’ll see some alliances between some of the middle-tier ITO and BPO vendors – be them partnerships or mergers, as these firms seek to bid on more complex deals. Moreover, there is no reason why outsourcing vendors can’t be successful with strategic partnerships, as opposed to outright acquisitions. We will likely also see one or two major takeovers over the next year involving the leading Indian and Western outsourcing providers, but the aggressive evaluations of offshore firms at presence is holding back a lot of the acquisitive strategies – which are only likely to happen when we have a valuation correction in the Indian market.
Predicting the future in a global market as truly unique as outsourcing is a science unto itself – as companies today have unique options and challenges to strip out costs and focus on their core businesses. One thing is certain – Rome wasn’t built in a day, and neither were outsourcing suppliers’ global delivery capabilities…
Discussing the merits of offshore captives versus outsourcing last week
The role of the outsourcing advisor has shifted significantly over the last couple of years. Outsourcing has become such a core issue facing almost all companies today – becoming extremely complex in many cases – that companies are depending more than ever on trusted informed advice upon which to base their crucial decisions – decisions that will impact them for the next decade and beyond. Until recently, there weren’t too many independent outsourcing advisory firms which had the niche specialty to quantify the possibilities, source a supplier and broker a deal. However, the old sourcing advisor mentality of “going in to do a deal and slipping quietly out of the back door” is well-and-truly over. The secret sauce behind assessing vendors, getting a good price and doing a quick deal, is now pretty much a standard practice – there are at least 15 advisory businesses out there, of varying sizes, claiming they can do this for you. The level of competency of these advisors is open to interpretation – but how can you assess how good these firms are if their core practice is helping make outsourcing deals happen, and their clients then try and manage the transition all by themselves – right through to the operational end-state?
Companies should seek advisors which can be held accountable. Outsourcing buyers need to be able to declare in 5 years’ time: “XXX did a great job helping us through this process, and we still keep them close to our business for advice on how to govern our provider(s), manage our internal operations and cultural change.” However, advisors can only be held accountable if their clients decide to make them so – and that means they need to engage an advisor which will be with them for the long haul. If you buy an expensive car, for example, you will more than likely always go back to the same mechanic when you have an issue…so when you have car trouble in the future, you can always go back to the same garage and get them to take care of your problem. The garage has become accountable for the general performance of your vehicle – and no matter how many problems you may have along the way, they will be on hand to try getting you back on the road again. Moreover, wouldn’t you prefer to use a garage that you know has sufficient expertise to take care of more than merely the basic problems and will be in business for the long haul?
In the today’s intricate global sourcing environment, the role of the advisor is becoming almost as important as the capability of the outsourcing supplier. Companies should have an advisor helping them through their entire business lifecycle – and outsourcing is simply one change agent of several scenarios geared towards achieving operational excellence and core business focus. What’s more, the outsourcing decision is becoming more challenging with the newer wave of companies evaluating their options. Most of the earlier adopters made decisions based on short-term cost considerations, and went for the least complex outsourcing arrangement that had the quickest cost benefits. Nowadays, an increasing proportion of companies considering their global sourcing strategy are faced with more complex decisions, for example, many of these firms already have existing shared services operations and multiple outsourced point solutions; multiple IT systems and applications; multiple language needs and specific country laws and issues with which to contend; compliance requirements; cultural issues…the list of requirements goes on and on. There have been too many past occurrences of buyers who engaged with sourcing advisors that came in to make an outsourcing deal happen, and then allowed that advisor to exit the equation, leaving them to fend for themselves to manage unparalleled transition challenges and cultural change within their organization. In many cases, the advisors’ specialty skill was to broker the deal, and the reason why they exited the relationship was simply that they did not have the depth and breadth of expertise to warrant their continued presence.
I always respect someone who has the focus and discipline to write a book – especially a particularly insightful book on "Outsourcing and Management". Thomas Tunstall Ph.D. has enjoyed a colorful career, highlighted by his running KMPG’s IT operations in Afghanistan (nice work if you can get it…). Tom now serves as co-chair of the Dallas chapter of the International Association of Outsourcing Professionals (IAOP) and is Advisory Liaison for ACS (but we won’t hold that against him). I asked Tom to give us a brief outline of his book, which you should consider reading now Gray’s Anatomy, Lost, 24, Sopranos, Ugly Betty and Desperate Housewives are all off the air:
"To understand why outsourcing – specifically the outsourcing of services – is completely overhauling management styles, we need to take a step back to see how we got here in the first place.
"As the large corporation blossomed in the late 1800s, it was first modeled as a stiff hierarchy, not much different than a sole proprietorship writ large. It then evolved into a multi-divisional form in the 1920s, which left finance and strategy functions at headquarters, but pushed operations and other tactical functions into the hands of field personnel. Although the structure of the large organization changed, the old hierarchical, manufacturing-oriented management styles endured for decades. A lot of those old school boys are still with us.
"Such antiquated management styles may have been okay during the manufacturing era, but the emphasis on services changes everything. When services used to be classified as merely overhead, they made up a small percentage of overall costs relative to raw materials and direct labor. They were safely ensconced within the walls of the old style organization.
"Now services are the products, and they contain a huge people component. The ability to readily outsource services, which now comprise over 80% of the economy in terms of employment, will strip down the old corporation to its core. All of the attendant functions and non-related processes will be turned over to specialists. This means that more and more work will get done outside corporate boundaries.
"This change in governance may seem unremarkable, but it will have a huge impact on management practice. Management behavior will be forced to change at long last – not because of goodwill or altruistic intentions on the part of management – but rather through the discipline of the market, the nature of the new rules of competition and the pervasiveness of services outsourcing. And make no mistake – the lessons will be harsh.
"Because the old governance mechanisms won’t work anymore as outsourcing and cross-organizational relationships become far more important, new management competencies will be required. Working with other organizations requires skills that many traditional managers just don’t have. Internal departments, for example, can be managed by whim or fiat. External suppliers can’t and won’t operate in such a fashion. The upshot will be that old authoritarian management styles will prove ineffective. Even laughable.
"Greater collaboration will become a must because it improves coordination. Management will be focused on outputs, process interfaces, and clear rules of engagement – all of which go part and parcel with outsourcing. Strong working relationships will win the day; idiosyncratic, ego-driven personalities will be an expensive luxury that few can afford.
"In the years ahead, watch the old school managers and executives retire early or be forced to bring new mindsets to the game. Many old school boys have become casualties already. Will you be next?"
Adapted from Outsourcing and Management: Why the Market Benchmark Will Topple Old School Management Styles by Thomas Nelson Tunstall (Palgrave 2007)
Thomas Tunstall Ph.D. addressing the IAOP in Afghanistan
The recent discussion between BusinessWeek’s Steve Hamm and Tata Consultancy Services’ (TCS) CFO S. Mahalingham reveals some fascinating insight into how TCS has managed to maintain profit margins at the 25% level, despite intense pressures from wage inflation, employee attrition, aggressive competition and rupee appreciation against the dollar and other leading currencies. Some key thoughts I took away from the dialog:
Creating an environment for staff to develop their soft skills, technical expertise, and global experience is the answer to improving employee retention. S. Mahalingham explains "There are points when a person decides to make a choice, perhaps in the first two to three years. They are look at their career aspirations and they might leave the company. But if we can cross that hump, and go beyond that period to say seven or eight years, we do find that people want to stay with the organization. At that point, if they do leave, they will become an executive in another organization". From my experiences working with suppliers, the key issue for them is employee retention in offshore locations. Some suppliers prefer to hire experienced staff, who are likely to be more settled and less likely to jump ship in a year or two – which has the drawback of higher wage costs; other suppliers – especially the ambitious offshore providers headquartered in India – prefer to hire college graduates and work on intensive programs to retain them through the early years of their career to a stage where they will be more likely to stay with their employer as a settled manager-level employee when they mature. It is plainly apparent that the more successful offshore providers are those which have developed successful training programs for their new hires, in order to keep their wage costs at a minimum through lower attrition. Moreover, an experienced outsourcing provider employee who has three years plus experience working with their firm will have far higher productivity than a brand new employee – due to the simple fact they are familiar with their company’s and clients’ processes. S. Mahalingham also points out that college graduates in India are not only looking for technical or process training, they also understand the need to develop their soft skills (business development, relationship-building etc) and get global experience. This indicates to me that the established large Indian outsourcing providers are far more attractive places to work than the smaller Indian firms seeking to increase their market share, as they can offer the best graduates the environment they need to develop. This also means that the established firms also have a better handle on keeping their employees’ wages in check (but rupee appreciation is another issue out of their control…). Hence, we probably have our established Indian offshore giants for the next couple of decades now… I cannot see many of the smaller vendors on the sub-continent finding room to grow and compete when you analyze the tough competitive climate nowadays. The next wave of offshore mammoths are more likely to spring from the Philippines and China, as they become more experienced in providing global outsourcing services.
Multiple technical environments, servicing multiple languages underpinned by low cost offshore labor is the key to keeping margins high. Steve Hamm points out: “Over the past few years, Indian companies have become more like Western companies and Western companies are becoming more like the Indian companies.” The lines between what constitutes and "Indian" versus "Western" company are blurred: they are all "Global" firms now, with delivery infrastructures that often resemble each other. The key advantage the Indian firms hold is that they are scaling outward from their Indian bases, with sound understanding of the next locations where they need to establish themselves (Latin America, China, Eastern Europe etc). Hence, they are in a great position to keep a lid on their costs, whereas the Western suppliers have been forced to re-engineer their entire global delivery infrastructures in recent years to move away from high-cost locales and establish themselves in offshore territories, which comes with many new challenges and costs. As these two sets of outsourcing supplier continue to become closer in infrastructure, the profit margins will eventually become more comparable, but for the medium-term, the Indian giants will continue to enjoy these high margins. The wild card is clearly the rupee – if it appreciates out of control, this will clearly impact profits, but India’s sheer scale is currently keeping that in check.
The last post on Horses for Sources – "Has the Lou Dobbs factor faded?" – certainly got several people voicing their opinions on the outsourcing of jobs to India (and please feel free to air your views publicly on this site rather than email them directly to me!). Personally, I think the whole argument about the pros and cons of offshoring services has been done-to-death, but one issue that has been raised, concerns the allocation of H1B Visas to offshore outsourcing suppliers looking to bolster their onshore workforces to improve their service delivery: Should offshore firms have the right to "import" their labor into the US in addition to "exporting" US jobs oversees? 
