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http://www.businessweek.com/articles/2012-03-15/outsourcing-a-passage-out-of-india

Outsourcing: A Passage Out of India

By John Helyar March 15, 2012 For years there was pretty much one choice for U.S. companies seeking to move jobs offshore: India. Outsourcing grew to a $69 billion business there and transformed backwaters such as Chennai and Hyderabad into teeming cities. That wave has crested. In 2011 companies in Latin America and eastern Europe opened 54 new outsourcing facilities, vs. 49 for India, according to industry tracker Everest Group. The two regions are challenging the subcontinents dominance in outsourcing as American corporations increasingly ship higher-level jobs offshore. India had substantial advantages in offshorings rst phase: plenty of English speakers to staff call centers and enough tech talent to run remote data-processing and computer support centersall at about a 60 percent discount to stateside workers. But having wrung substantial costs out of back-ofce functions, U.S. companies are exporting skilled white-collar jobs in research, accounting, procurement, and nancial analysis.

Because these jobs arent mass-processing functions, Indias forte, there are greater opportunities for countries such as Argentina and Poland, which have higher labor costs than India. Using an outsourcing rm to hire an entry-level accountant in Argentina, for example, costs 13 percent less than a similar U.S. worker, while an Indian worker would cost 51 percent less. But many employers moving higher-end jobs offshore care about more than just getting the lowest wage. The higher-value outsourcing jobs require a greater understanding of business context and a higher amount of interaction with clients, says Phil Fersht, chief executive ofcer of HfS Research, a Boston outsourcing research rm. Cities such as So Paulo have large groups of young people with engineering and business school degrees who speak English and are capable of doing everything from developing video games to analyzing mortgage defaults for U.S. companies. Brazil has the most Java programmers in the world and the secondmost mainframe (COBOL) programmers, according to Brasscom, a technology trade group in So Paulo.

IBM (IBM) located its ninth research center in the city in 2010, the rst since 1998, when it opened a center in India. It helps that the regions time zones are more in sync with those of North America. Thats why Copal Partners (MCO), which since 2002 has built up its investment-research outsourcing business in Gurgaon, India, added an ofce in Buenos Aires. Its only a two-hour time difference for Copals clients in New York. If youre working with a hedge fund manager where you have to interact with him 10 to 15 times a day, having someone in about the same time zone is important, says Rishi Khosla, Copals CEO. Even Tata Consultancy Services (TCS:IN)Indias outsourcing leader, with estimated sales of $9.8 billion in 2011has 8,500 employees in South America, including Peru and Paraguay. And Genpact (G), the subcontinents biggest business-process outsourcer, opened a nance and accounting center in So Paulo last year for U.K. drugmaker AstraZeneca (AZN). Such nearshoring of jobs is also beneting eastern Europe. The economy of Wroclaw, Polands fourthlargest city, revolved around heavy industry during the Communist years. Now its an outsourcing center, with 30 local colleges providing a skilled labor pool. Local outsourcing jobs doubled from 2008 to 2010, when centers were opened there by IBM, Microsoft (MSFT), and Ernst & Young. The auditing rm in 2011 added a second center in Wroclaw, where workers provide legal, real estate, and human resources services to European clients. E&Y employs 1,300 people in six Polish centers. Polands Gen Y population is highly educatedabout 50 percent of its 20- to 24-year-olds are in college, says Hersht, vs. 10 percent in Indiaand prolically multilingual. The 26 languages spoken at HewlettPackards (HPQ) Wroclaw center make it ideal for serving its European, African, and Middle Eastern operations, says Jacek Levernes, who oversees outsourcing for those regions. The Wroclaw center employs more than twice as many workers as HP expected when it opened in 20052,300, vs. 1,000 and they perform higher functions. The Polish workers originally provided basic nancial and accounting support; now they handle marketing services and supply-chain analysis as well. Frances Capgemini (CAP:FP) has staked much of its outsourcing future on nearshoring, including nancial and accounting centers in Guatemala City and Krakw, Poland. Bottler Coca-Cola Enterprises (CCE) pulled jobs out of its Tampa, Dallas, and Toronto ofces in favor of Capgeminis Guatemala center, for instance, and out of Paris, Brussels, and London in favor of Krakw. HfSs Fersht, whos visited both, says each could pass for a U.S. ofce, except for the rich stew of languagesmore than two dozen in the Krakw center and conversations in both English and Spanish in Guatemalaand the workers nearly uniform youth. The average age is 26, reports Capgemini, which hires from the pool of 30,000 graduates produced annually by Krakws colleges. Capgemini has staffed up from 180 business-process outsourcing employees there in 2003 to 2,500 now. Hansjrg Siber, head of Capgeminis global business-process outsourcing operations, says the Guatemala center employs college graduates who can analyze the bottlers vendor agreements and optimize its procurement costs. Such jobs also require interacting with clients, an area in which he says nearshoring beats offshoring. The Guatemalans speak English with an American accent, which is very well accepted, he says, and not an Indian accent, which is not. Fersht cites another benet: Capgeminis clients get the services of Polish and Guatemalan college graduates for the price of U.S. high school grads. The bottom line: As U.S. corporations try to outsource more-skilled white-collar jobs, theyre looking beyond India. Savings can reach 50 percent. With Mehul Srivastava Helyar is an editor-at-large for Bloomberg News in Atlanta.

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