By Pradeep Khanna

In a flatter world, cost of services in Australia could potentially be impacted by how organisation culture is blending with Indian and Philippines national cultures

In Europe, Greece’s parliament approved an austerity package. One wonders though whether financial instability will be replaced by financial and social instability.

The European crisis continues to directly and indirectly impact the Australian economy through slowing global growth and funding pressures for the banks. Significant interest rate differential between Australia and other countries is encouraging carry trade (borrowing at low rates in other countries and investing in relative higher rates in Australia) thereby keeping the A$: US$ exchange rate high. The net impact of all this is a structural change in the Australian economy where cost focus is the dominant theme in practically all sectors of the economy except the resources sector.

However, the major growth engine of the Australian economy (resources sector) employs only around 2% of the country’s workforce. Like most developed countries, Australia’s service sector is has more than 75% of the country’s workforce. Services share of the workforce is even higher if we consider embedded services.

The structural changes in the Australian economy are resulting in onshore job losses, jobs moving offshore or both. The challenge for Australian corporates is now how best to balance benefits of globalised service delivery against additional complexity and associated higher risk. If managed properly, services globalisation can work very well for an organisation. On the other hand, if not managed properly, it can also become a nightmare.

Working well with different cultures is now emerging as critical success factor for globalisation of services. In this context, it is often presumed we are referring to working well with different national cultures. However, in reality, it is a blend of national and organisational cultures – one that can vary significantly from one services provider to another.

A lot of research has been done on culture – both national and organisational culture. By appreciating there is no right or wrong culture and groups of people behave differently (for a variety of reasons) helps in a better understanding of and working with different cultures.

Let’s look at how this combination of organisational and national culture impacts a service provider of globalised service delivery.

Professor Nancy Adler (In her book International Dimensions of Organizational Behaviour), cites researcher André Laurent’s finding – cultural differences were “significantly greater among managers working within the same multinational corporation than they were among managers working for companies in their own native country. When working for multinational companies, Germans seemingly became more German, Americans more American, Swedes more Swedish, and so on.”

Likewise is the culture of Indian service providers like TCS, Infosys, Wipro, HCL, Tech Mahindra more dominantly Indian or an appropriate blend of their national and organisational culture?

Let’s have a look at two leading service providers – Accenture and TCS. I have chosen these two as TCS’s global headcount is now around 90% of Accenture’s and in times to come, it may well equal or be higher than Accenture. A similar analogy will equally well apply to other organisations as well.

Table 1 below gives some comparative information of Accenture and TCS

Table 1 : Accenture and TCS – Global Presence, Comparative Global Headcount * , Annual Revenues **, and People from India & Philippines as % of Global Headcount

* Global headcount above is comparative headcount with Accenture as a base of 100
** Accenture’s revenue is for FY ended 31 Aug 2011 and TCS revenue is for FY ended 31 March 2011
Source – Accenture and TCS websites

Looking at Table 1 – columns (2) & (3) ONLY, it could be inferred that both Accenture and TCS are geographical well-diversified global organisations with TCS being relatively smaller of the two. As presumably none of them appears to have a dominant nationality (when looking at column (2) and (3) only), it could possibly be inferred that both have a dominating organisation culture which appropriately takes cognizance of differing national cultures in the countries these two organisations operate.
However, Looking at Table 1 – column (4), Accenture’s revenues are almost three times TCS’s revenues. It could therefore be inferred that Accenture is more into high end consulting with higher charge out rates. So Accenture’s culture is probably more innovative as required by a successful consulting company.

Now, Look at additional information in column (5) in Table 1 – People from India and Philippines as % of global headcount – this does indeed provide more insights.

In Accenture’s case, people from India and Philippines now account for 40% of their global workforce – with India headcount being almost three times Philippines headcount. These two countries are a major part of Accenture’s Global Delivery Network (GDN). Accenture GDN’s rapid growth has come almost entirely in the last 8 years and more so in the recent years. GDN accounted for 13% of Accenture’s global headcount in 2003 and this has now grown to almost 60% in 2011.

These numbers become important as market feedback indicates global organisations are now including global delivery in almost all deals wherever possible.

So, we come back to the key question we asked earlier in this article – i.e. – in case of global organisations like Accenture, IBM, HP, CapGemini etc., do Indian employees become more Indian and Filipino employees more Filipino when dealing with their counterparts and their customers in other countries ? Or is global service provider’s organisational culture so strong that it becomes the dominating culture in spite of large number of one or two country nationals in their global workforce. While I could answer these questions, for the time being I will leave them with you as some points to consider and to ask global services provider.

In TCS’s case, people from India and Philippines account for almost 93% of TCS’s workforce. However, it comes as no surprise that its workforce consists predominantly of Indians. People from Philippines are less than 0.5%.

So, do Indian organisations like TCS, Infosys, Wipro, HCL, Tech Mahindra have a dominant national (Indian) culture which possibly blends with its organisational culture. Some points to consider and to ask these organisations when you have them as a service provider. And presumably an understanding of and an ability of working with Indian culture would be helpful when they are the service provider. Again, some points to consider and ask your Indian services provider.

Note: There are other aspects of culture that are equally important and these will be discussed in subsequent articles later this year. Also, working well with different cultures is just one of the critical success factors in managing a successful globalised service delivery

This services globalisation insight has been brought to you by GLOBAL MINDSET.

We have a new guest columnist – Eric Hochstein, Managing Director of Highstone Associates, Inc., a business and economic development consultancy based in Chicago, Illinois, has been involved in the outsourcing industry for more than 10 years, and previously worked in the telecommucations, contact center, and Internet software industries. He was also a Legislative Assistant to members of the United States Congress.

By Eric Hochstein

Outsourcing bothers many Americans. You hear it when politicians talk about the loss of “American jobs” to places like India, China, and the Philippines. A lot of Americans, particularly working-class Americans who are suffering through a devastating recession, feel that outsourcing is evil and call it one of the causes of the economy’s problems.

President Barack Obama has begun to capitalize on the public’s anger by pointing towards companies that have “outsourced American jobs”. He’s promoting “insourcing”, which combines “reshoring” of jobs that had been sent offshore and “homesourcing” jobs that could have gone to another country. And he’s promoting insourcing as a trend, which is helping to put Americans back to work.

The President pits “insourcing” against the “outsourcing” evil, while the issue is not really “outsourcing” but “offshoring. The President isn’t against outsourcing – he probably doesn’t care who is doing the work as long as it is being done in the United States. And he also combines supply chain/ manufacturing offshoring and technology services/business process offshoring. It’s all about U.S. jobs moving offshore.

In January, he hosted a White House Forum on Insourcing and he talked about insourcing in his State of the Union address. Just this week, he went to America’s heartland to laud Master Lock, a world’s largest maker of padlocks, for bringing 100 manufacturing jobs back to the company’s headquarters in Milwaukee, Wisconsin. It’s a theme he’s bound to return to this year as he simultaneously tries to reboot the economy and runs for a second term in office.

It’s one of the few no-lose political issues for the President in this election year. He can applaud companies that bring back jobs that they shipped out a few years ago because they could not compete profitably. He can vilify companies that continue to send jobs overseas, promise new tax incentives for businesses that keep jobs in the U.S. instead of sending them offshore, and threaten to eliminate tax breaks for companies that send work and jobs offshore.

And political opponents can’t oppose insourcing. Jobs are returning.

It’s just that homeshoring and reshoring may be (re)creating jobs in the U.S., but are not going to be the only answer to America’s economic ills.

The once-vibrant manufacturing sector in the U.S. struggled around the millennium. Employment in manufacturing decreased by almost 6 million jobs from 1999 to 2009. Companies shifted work overseas to meet competition and take advantage of lower costs, while also meeting demands in emerging markets.

Now, it appears that manufacturing in the U.S. is bouncing back. 237,000 new jobs were added in 2011, the most in the sector since 1997. In January 2012, 50,000 jobs were added. A very small portion of these jobs appears to be from work being brought “home”, but some are.

In fact, at Master Lock, the 100 jobs that returned from China, were only a small portion of the jobs that were lost to factories in Mexico and China. In the 1990’s, the Milwaukee plant ran at capacity with about 1,300 employees. Today, the company only needs about one-third that number. The President highlighted the 100, and ignored the larger number.

Yet despite that math, President Obama’s economic fortunes may be brightening at the right time in his first term. With about 9 months left before the election, and with four Republican candidates battling desperately for their party’s nomination, the U.S. economy is slowly gaining momentum and Obama’s approval ratings have just nudged above 50% for the first time in more than eight months.

Until recently, most pundits had hypothesized that American manufacturing was doomed due to lower cost offshore production and were resigned to the “fact” that most American technology jobs could be done by people in lower cost emerging economies at one-third the hourly cost.

Now, realities have hit home –companies are finding that there are things that are better done closer to the customer in both the supply chain and information technology. Distance apart and time zones away hinder innovation, flexibility, responsiveness and time to market. Investments in productivity technology have reduced costs (and perhaps eliminated the need for assembly-line workers), making domestic production more efficient and competitive. Costs are increasing rapidly in both India and China, and the once abundant supply of qualified labor is being stretched thin. As a result, it appears that the velocity of offshoring from America is slowing.

But only a few of the jobs that were lost in the past two decades will ever be reshored. There are still many types of work that can be done cost-effectively and satisfactorily anywhere in the work. Few of these will return to the U.S. And American-based global firms are finding that their customer bases are spreading rapidly around the world and some things are better or more cost competitive when they are produced closer to the customer, who may turn out to halfway around the world from Milwaukee.

By Chris Zappone

Westpac employees are bracing for the loss of as many as triple the number of job losses already announced this week as the bank adjusts to a weak economy and higher funding costs.

As many as 1500 more positions could be at risk, adding to the cuts of 560 already announced.

“We’re conducting consultations to a number of our employees around changes to our staff,” said a spokeswoman for the bank.

The bank has been cutting jobs since the end of last year, when it shifted about 200 back-office jobs offshore.

On January 19, a spokeswoman for the bank said the bank planned to cull more positions this year.

“We can expect that staff numbers will decrease as we reduce higher cost contract-based staff and reduce duplication in roles at head offices,” she said.

Analysts from UBS tip that as many as 7000 banking jobs may be shed in Australia in the next two years, as demand for loans slows and households reduce debt levels.

Read more: http://www.smh.com.au/business/westpac-set-to-announce-job-cuts-20120202-1qulx.html#ixzz1lBm7oHKx

By Martin Conboy, Editor – The Sauce

We spoke on many occasions last year about the rise and rise of the Australian dollar. It’s hard to believe that in the year 2000 one Australian dollar would buy a miserly 55 USA cents. Fast-forward to today and one Australian dollar will buy you a whopping US$1.06. Over the same period the A$ is worth twice as much in Indian rupees and 70% more in Philippines pesos. This started to accelerate in the last 2-3 years and partly explains the rapid uptake in BPO work being shipped off to Asia. From an economics point of view it’s to financially attractive not to consider it. In the last two years, the Philippines has grown to 17,000 seats that service Australia, there has been renewed focus since the GFC as operating costs have become extremely important to companies looking to tidy up their balance sheets.

The Australian mining boom started to become a factor in 2003 and since then, except for the GFC our dollar has steadily grown to be more expensive when measured against other currencies.

This year we’ll see more painful evidence of Australian businesses accepting the new reality: our dollar is likely to stay uncomfortably high for years, even decades. There are causalities as the high dollar is killing our tourism, retail and international education sectors – of that there is no doubt. As I said above, the A dollar is now worth US106¢, compared with its post-float average of about US75¢. But that’s not the full extent of its strength. Currently at about 81 euro cents and 67 British pence it’s the highest it’s been against those currencies for at least the past 20 years. Australians are taking advantage of this and going on overseas holidays in droves.

“We have to face it, Australia is now a high-cost destination,” the former Qantas chief executive Geoff Dixon told the Australian Financial Review a fortnight ago. “We can talk about it, we can wring our hands, but to spend too much time complaining about the currency is self-defeating.”

However by lowering the prices of imports i.e. BPO services purchased in the Philippines or India, it spreads the love to these countries. In effect, it transfers and distributes income to all those Asian businesses that supply BPO services. In terms of social justice that’s a good thing as it makes these countries less dependent on foreign aid as they learn to support Australian businesses and the multiplier effect, as the money ripples through their economies and reaches into all corners of their economy, means that everybody gets a taste. There is no doubt that it helps to float the economy boat in the countries that have BPO service providers.

Australia does not have a people shortage problem, what we have is a skills shortage problem. The mining and construction boom, mainly in Western Australia and Queensland has acted like a giant vacuum cleaner, sucking up all available labour resources to fuel the insatiable demand. Not only do we have a skills problem our young people also have an adversity to working in the service industry, somehow it’s beneath them. So even if their was no mining boom gobbling up all of our human resources we still can not get people to work in call centres and local outsourcing shops.

So what choice do Australian businesses have, they cannot get people and they cannot get people with the right skill sets and the right motivation. Yet their customers still expect first class customer service, telephone calls answered in less than 3 rings by a happy chirpy operator.

This creates pressure for resources – capital and labour – so when Australian companies look at places like the Philippines all they see is plenty of people who are ready, willing and able to work and at about half the price to employ them compared to Australia and with a university education. Once they take the first tentative steps and get going with their projects these companies realise that the quality of the knowledge workers is a on a par with local home grown agents if not superior to them and it all becomes far to easy.

This helps to change the structure of the Australian economy in response to Asia’s “comparative advantage” – the things we do best among ourselves compared with the things other countries do best, like BPO services.

As businesses recognise the rise in the dollar is more structural than temporary and start adjusting to it, painful changes occur, including laying off Australian workers. As I mentioned last week, we need to consider softening that blow. One place to start is to think about retaining our workforce and reskilling them for the new normal.

By Mark Atterby – Senior Staff Writer

A range of countries are aggressively competing for a slice of the global BPO market, which is expected to grow at an annual rate of 5.4 percent to $93.4 billion in 2015, according to analyst Ovum. As India becomes more expensive, the Philippines, , Africa and Latin America are rolling out the welcome mat for outsourced business processes at the low to mid-point of the value chain.

Providers, industry groups and governments at all levels will ally to develop incentives to attract BPO jobs. Lures will include breaks on taxes and fees, as well as free or low-cost courses to improve residents’ business English skills and technological know-how. New locations in South America, Africa and Asia Pacific have emerged where providers have developed global delivery networks to address requirements centred on language skills, time zone proximity, and cultural sensitivity.

BPO is among key sectors the South African government has identified to grow the economy and create jobs. In 2009, South African BPO sector was estimated to be directly employing more than 60,000 people and accounting for a further 75,000 indirect ones. Time zone wise, South Africa is ideal for Europe.

Over the last couple of years a number of UK companies have repaticated projects out of India over quality of service issues. South Africa provides ideal positioning to Europe in terms of time zones and is being promoted as a destination that claims to offer quality had very affordable rates.

Yusuf Timolfrom the South African High Commissioner in London, said in a recent news article that there were huge opportunities for capturing India-based BPO work in 2012 and beyond. “South Africa is well positioned to fill this void as we are able to provide quality at an affordable price.” In 2009, the South African government launched an R1.1bn support programme to enhance the competitiveness of the BPO sector.

English-Spanish language skills, a young, highly skilled BPO workforce, cultural similarities and a good time-zone fit with north America is making Latin America a very attractive outsourcing destination for North American companies. Brazil, Mexico and Argentina have been showing signs of becoming serious contenders as key outsourcing destinations in recent years

Closer to home the Philippines has become a major destination for BPO operations.

The Philippines Government works extensively in offering investors incentives and opportunities. The Philippine government launched a range of fiscal and non-fiscal incentives to attract BPO investors as part of the 2007 Investment Priorities Plan. This plan has helped turn the Philippines into a growing BPO powerhouse.

Since 2007 the BPO industry in the Philippines, according to figures from McKinsey Quarterly, the BPO industry has experienced 46% annual growth and is now valued at over $US 6 billion. The BPO Association of the Philippines estimates that over 600,000 are employed in the BPO industry. 17,000 service the Australian market.

The Philippines is a convenient location for Australian organisations. It fits relatively well into Australia’s time zone and it is not that far to travel to. A highly skilled and motivated workforce that has very competent English skills is available. And it’s in expansive compared to Australia.

According to a recent study by CB Richard Ellis, the Philippines is one of the most cost-effective outsourcing destinations in Asia. Comparing 15 central business districts in Asia Manila was ranked second cheapest with lease rates of $US 19.1per square foot/annum, next to Jakarta’s $16.3. This compares to Sydney CBD, which ranges form $450 to $1,100 depending on building and location.

The Philippines government has developed special economic zones in various cities across the Philippines and are being put in place to serve as central hubs of activity, where the agricultural, industrial, commercial, and recreational aspects of everyday life can work together. Enterprises operating within these zones are offered substantial tax cuts to invest and grow their business.

It seems everyone wants a slice of the BPO pie. The competition between the new and emerging destinations shall fuel the future growth and evolution of the industry. As existing locations become overheated and the availability of sufficient talent dries up, the emergence and development of new destinations will be eagerly fostered by governments looking to give their citizens access to jobs.