The two sides of offshoring

Yesterday was the start of the National Outsourcing Association annual sourcing summit – it continues in London today.

I was chairing a session that included an examination of the economic benefits of offshoring. Ian Brinkley, Knowledge Economy Programme Director of The Work Foundation, and Peter Skyte, National Officer of the trade union Unite, were both speaking. They each gave a position statement for a few minutes followed by a debate.

What I noticed immediately was that Ian focused entirely on traditional economic indicators, GDP, exports, and imports… that kind of thing. And his information was all correct and valid, in particular he reminded the audience that the UK exports more knowledge services than it imports, and service imports from India are actually a tiny percentage of all service imports.

Ian had some useful data, reminding the audience that the general fear of offshoring usually overplays the size of the issue. But Peter took a different approach and talked about the political, cultural, and social changes associated with offshoring. He was concerned about structural unemployment in the UK and enforced changes to society in places such as India.

Neither was rejecting the value of offshore outsourcing, but they had very interesting and different approaches to examining the value of international service exports.

After the talk, I met someone I know at Cognizant and he said that my own blogging on offshoring has become very negative in recent months. I was surprised. As we spoke he elaborated on what I had been writing in earlier blogs and I think that his complaint is that I have been writing more from Peter’s view, rather than Ian’s.

Rest assured, I’m generally in favour of working internationally and finding expertise wherever it exists using strategies such as offshoring. But I also agree with Peter – there are longer-term consequences we should be thinking about because the development of hi-tech international services is still in its infancy.

The societal changes we are seeing go far deeper than just economic gain and it’s not being negative to suggest we explore further.


 

Don't get bitter, Twitter

I was at the Philippines business forum yesterday, and I was thinking last night about some of the issues raised by the visiting companies.

One of the key messages I found from the event actually came out in discussions over lunch, rather than at the event itself. The small and medium six businesses from the Philippines are all trying to reach out and find an audience that is interested in their services, yet they find it hard to get people to listen.

Without meaning to be ungrateful to the organisers of the event yesterday, I said to them that some free coffee at the Sheraton hotel on a Monday morning is unlikely to change anything. Which small company boss is going to give up a day to come out and listen to firms who are actively trying to sell?

Then, I found myself today in a quite different environment, the O2 arena in London’s docklands at the 140 characters conference. The conference was focused on Twitter and how it is being used.

And of course, after the obligatory chat from celebrity Twitter users such as Stephen Fry, the event was stuffed full of people demonstrating that companies can use a medium like Twitter for engaging with customers, commentators, advisers, and analysts. It’s clearly going to force some companies to wake up to the real-time conversation that people expect these days, in addition to providing a way for some organisations to finally get noticed.

Kodak is one great example of a company that has reinvented itself for the digital age and Jeffrey Hayzlett, Chief Marketing Officer of Kodak, gave a very emotional talk about how he sees customer engagement changing.

Hazlett said: “Engagement is the new ROI. A lot of people in business still refer to ROI as Return On Investment. We think about it as Return On Ignoring – not watching, not playing, and not interacting with the customer.”

Hazlett went on to explain that Kodak is now actively creating staff positions around the online space: “We have a chief blogger, and we are now hiring a chief listener to just listen to what is going on out there and to ensure messages are directed immediately to the right people within the company.”

Kodak representatives were handing out copies of their social media strategy as a favour to other companies who might not have the resources to construct a policy.

It’s interesting stuff and listening clearly works well for a large brand such as Kodak, but how about the small suppliers trying to demonstrate their capabilities?

Well, imagine this. If there is a way of jumping into conversations about IT, services, and business in general, with journalists, analysts, customers, and commentators, then why are these small companies taking part in government-sponsored trade missions and not engaging in the online debate that would clearly help them to increase visibility?

If it works for Kodak, it can work for the little guy too.

Why the Philippines is the place to be

A Philippines business forum took place in London yesterday, where the Philippines ambassador to the UK opened procedings by handing me a certificate of appreciation because the National Outsourcing Association here in the UK awarded the Philippines the "Offshoring destination of the year" award last month.

Peter Beckingham, former British ambassador to the Philippines, then opened the discussion by talking a little about some of his experience working with British companies in the Philippines. In fact, he only just left the Philippines three months ago so his knowledge remains quite current.

Beckingham started by saying: “Why are a lot of British companies investing in the Philippines? It’s the cost factor. It’s comparable to China and Vietnam, and probably India too. And particularly for call centre work, the Filipino aptitude for English is second to none. Sometimes there is an issue finding enough people, but the way in which Filipinos answer questions is exactly what the European market appreciates.”

It’s interesting that his first observation is on the cost of operating in the Philippines, and now Manila itself has become the largest business process outsourcing (BPO) centre in the world. With a quarter of a million workers all focused each day on BPO, there is a lot of support for the industry.

Beckingham went on to say: “Finally, and most fundamentally, there is the quality of the workforce. This applies widely, not just in outsourcing. Managers I have worked with in the past (and who have also left the Philippines) said to me that they felt enormously privileged to work with the people in Manila, as they are better than many of the people they have worked with in other locations.”
Beckingham is talking as an independent observer, but clearly if the Filipinos wanted him to be more "on message" I guess he might have reversed his statements.

Greg Russell, Senior Vice President Asia of Australian Telco Telstra, gave some real-life examples of why his firm has started working with people in the Philippines. One of the comments that really stood out was over collections – chasing people who don’t pay their phone bill. He mentioned that the success rate for collections was quite poor when managed locally by Australians, but when they used people in the Philippines it increased four times. That’s not just extra cash in the bank; it’s also maintaining a relationship with the customer by helping them to pay the bill, rather than chasing them until they avoid any relationship with the company. It was an interesting example and did demonstrate less of an emphasis on the low cost resource.

Oscar Sañez, CEO of the Business Processing Association of the Philippines, then delivered a talk focused on the benefits of working with the Philippines.

And there is a really strong case there, as I’ve written before. Nearly half a million students graduate every year in the Philippines and there is a huge skew towards business, technology, and accounting degrees. Only 7,000 people study anything in the humanities, so you can see how the student body observes where their future jobs are located.

Apart from the usual talk on how great things are in the Philippines, Sañez gave some interesting information on niche areas such as animation. A lot of Japanese anime is now produced in the Philippines and American animators such as Hanna Barbera have been working there for a couple of decades now.

The prospects for growth have all been reviewed because of the global economic slowdown, but even the present revisions show an expectation that the market for outsourcing hi-tech services will almost double between now and 2011.

Considering what’s happened on major outsourcing markets, like India for example, that’s incredibly strong and a very positive prediction for the Philippines. Let’s hope they make it happen.

Americans in China learn the benefits of globalisation

I noticed a US newspaper in Kansas reporting on expat observations from China - kind of like advice from the expat dim sum café to president Obama.

It was interesting to observe from the newspaper column, that the expat Americans in China see constant cultural issues. They can’t get used to the traffic, or the people spitting in the street, but once there they do finally realise that there are 1.3 billion Chinese people – all potential consumers of American products.

The negative debate over outsourcing normally focuses on the displacement of people in wealthy western nations. The issue is usually that they need to find new jobs because someone in a lower-cost economy has taken that job.

What’s worth remembering is that places like India and China are also huge potential markets. The article describes an American working for Ford's offshore team in China who comes to the realisation that Ford is not destroying jobs in the US, but is actually exploring new markets around the world.

It’s a subtle observation, but worth repeating. We don’t talk very often of the flat world these days, but as the old world looks to recover from the economic collapse of the past two years, it will look more and more to the new world for growth.

Vote for me!

Arch rival to Computing, Computer Weekly, has shortlisted this blog for the IT consultant and analyst blog of the year award. Perhaps it’s just a vote of sympathy, getting a blog from a rival magazine on their shortlist, or perhaps they will engage in some Simon Cowell-like skulduggery to ensure I can’t win. But either way, I’m shortlisted for the blogger award so I hope that you – dear reader – can help me win! I need your vote.

I would note that my editor, Bryan Glick, finishes work at Computing at the end of this week and is moving to be the boss at Computer Weekly so I would dearly like to see myself voted to win an award from his new magazine while I am writing for his former title!

You can vote for me now by clicking here. It only takes a moment and is entirely pain free so click now…

Bringing a smile back to Irish eyes

Every time I’ve heard about Northern Ireland in the past few months it has been linked to a depressing story of decline and redundancies. Usually the BBC is calling me up out of the blue and asking for some comment on another call centre that is laying people off.

So, it’s good to see Firstsource hiring extensively. They recently announced another 100 jobs in Derry and just announced a further 150 yesterday.

I saw the team from Firstsource in London recently at the National Outsourcing Association annual awards – one of which they actually won – and they seemed upbeat about prospects.

Northern Ireland does have a great story to tell, as I kept on reminding the BBC during those bleak on air radio discussions about redundancy. Perhaps those Irish eyes will be smiling again with this latest news and a resurgence of confidence in the services market there.

It's not all doom and gloom in the banking sector

Lloyds banking group just announced 5,000 more jobs will be slashed before the end of 2010. This comes just after the news that 4,000 or so jobs will be going at the Royal Bank of Scotland.

It’s worth noting that the areas most affected are IT, collections and payments – typical areas where outsourcing can be used.

I’m not suggesting that Lloyds is creating job losses because of outsourcing, but take a step back and look at what’s happening in UK retail banking at present. The government is selling off their stake in Lloyds and RBS, the money pumped in to save these banks that eventually meant they became public property. That’s meant to encourage more competition on the high street.

And it will. Within the next five years, there will probably be at least three new names on the market – new national bank chains that never existed before, with Tesco as frontrunner, but how are they going to ramp up so quickly?

All these new banks will need to create the infrastructure needed for a national bank almost overnight. That means they will assemble the best-of-breed systems and connect the dots – it’s going to be outsourcing heaven for retail banking analysts in the UK.

But in any case, one thing is sure and it happened about one year ago. Tesco hired Sandeep Dhar to head up their back office in India, and Dhar has a background in retail banking at Citigroup and ABN AMRO. Is Tesco one step ahead of the game again?

How India's IT industry is changing

The London School of Economics (LSE) Asia Research Centre has just published a paper by a friend of mine, Raja Mitra, titled IT Industry in Transformation: Opportunities and Challenges for India.

I know few people have time to read 100+ pages of academic consideration of what’s happening in the outsourcing business, but Raja has done a good job of making this paper relevant to what is really happening.

Some of his observations on the outlook for the next decade are:

• Global spending on IT and offshoring will grow significantly, creating more opportunities for countries such as India;
• Growth in India, China, and other Asian economies will eventually make these societies very large markets, ready to consume IT services rather than just export them;
• Indian firms in IT services will no longer be primarily servicing clients from India, the firms will offer far more global delivery.

The paper is an excellent overview of what’s happened to the sourcing industry in India since the recession started to bite. And Raja is particularly critical of the lazy habit in India of predictions becoming gospel. We have all read plenty of media stories about growth targets for this company or that company, or the industry in general. Often these targets end up reported as achievements, so Raja is quite critical of the quality of data the Indian industry produces to measure itself.

It’s well worth a read, with some really good observations on recent trends in the industry.

You can download a free copy of the LSE paper here.

When not to outsource

There is an interesting case study for Blank Label shirts in the latest edition of Forbes magazine.

As a new venture designed from scratch, Blank Label outsourced both manufacturing of the shirts and the design of its web site. After months of troubles, now only the manufacturing is outsourced.

The owner of the company found it too difficult to specify exactly what he wanted on the site and so design decisions were left in the hands of the development team, who invariably made poor choices. It’s a nice example of what can be easily specified and outsourced and what’s more difficult to pin down.

Blank Label found developers from sites where the individuals advertise their skills - freelance techies for hire online. Clearly this model works for small pieces of code that can be put together then sent by email, but is it possible for a small startup to outsource software development at a very early stage? I’d suggest that while the platform is still being designed, as a part of the development process, it’s a mistake to use people who don’t have any motivation other than cash. You need people who want to see the entire project, or company, succeed.

In this example, that’s how they proceeded, by bringing the tech work back in-house, but I’d be interested in some more ideas on how it could be managed better in the case of a small company.

The blog of the video of the launch of the book of the blog

Last month I launched a book of this blog. Many readers showed up at London South Bank University (LSBU) to see me talk about the blog and what’s contained in the book – thanks to all of you who did come that evening and I hope you enjoyed the hospitality of Steria who funded all the food and drinks that evening. I can never say thank you enough to people who supply a free bar.

If you failed to show up at LSBU that evening for the launch then you missed:

• Monopoly money being scattered all over the audience as I talked about the recession;
• Me playing football with the audience when talking about outsourcing to Africa and the FIFA 2010 World Cup;
• Me changing shirt four times while still delivering the talk;
• Audience members waving placards to declare whether they are trying to buy or sell services;
• Me serving audience members with McDonald’s food to describe the impact of the cloud and software as a service.

Don’t believe me? Why not take a look at the edited highlights below: