• HP announced plans to restructure its Enterprise Services business in Germany. Under the proposal presented to the German Supervisory Board, the planned changes in Germany will affect approximately 1,100 positions and the company will close its site in Rüsselsheim, Germany, by the end of October. As part of the closure of the Rüsselsheim site, approximately 850 positions will be eliminated due to efficiency gains, local partner outsourcing and consolidation with other HP global service delivery hubs.

• In the latest annual ranking of the top 100 global outsourcing destinations by Tholons, a services globalisation and investment advisory firm, Manila claimed the number three slot, following Indian cities Bangalore and Mumbai. Manila, ranked number four in 2012 has overtaken Delhi, India. Cebu, formerly number nine also went up one rank and pushed Dublin Ireland from the eighth spot. Read more about it here.

• Congrats to @LinkedIn for reaching 200M+ members! http://linkedin.com/200million

Here there and everywhere

After decades of sending work across the world, companies are rethinking their offshoring strategies, says The Economist’s Tamzin Booth

Early next month local dignitaries will gather for a ribbon-cutting ceremony at a facility in Whitsett, North Carolina, USA. A new production line will start to roll and the seemingly impossible will happen: America will start making personal computers again. Mass-market computer production had been withering away for the past 30 years, and the vast majority of laptops have always been made in Asia. Dell shut two big American factories in 2008 and 2010 in a big shift to China, and HP now makes only a small number of business desktops at home.

The new manufacturing facility is being built not by an American company but by Lenovo, a highly successful Chinese technology group. Founded in 1984 by 11 engineers from the Chinese Academy of Sciences, it bought IBM’s ThinkPad personal-computer business in 2005 and is now by some measures the world’s biggest PC-maker, just ahead of HP, and the fastest growing.

Lenovo’s move marks the latest twist in a globalisation story that has been running since the 1980s. The original idea behind offshoring was that Western firms with high labour costs could make huge savings by sending work to countries where wages were much lower (see article). Offshoring means moving work and jobs outside the country where a company is based. It can also involve outsourcing, which means sending work to outside contractors. These can be either in the home country or abroad, but in offshoring they are based overseas. For several decades that strategy worked, often brilliantly. But now companies are rethinking their global footprints.

The first and most important reason is that the global labour “arbitrage” that sent companies rushing overseas is running out. Wages in China and India have been going up by 10-20% a year for the past decade, whereas manufacturing pay in America and Europe has barely budged. Other countries, including Vietnam, Indonesia and the Philippines, still offer low wages, but not China’s scale, efficiency and supply chains. There are still big gaps between wages in different parts of the world, but other factors such as transport costs increasingly offset them. Lenovo’s labour costs in North Carolina will still be higher than in its factories in China and Mexico, but the gap has narrowed substantially, so it is no longer a clinching reason for manufacturing in emerging markets. With more automation, says David Schmoock, Lenovo’s president for North America, labour’s share of total costs is shrinking anyway.

Second, many American firms now realise that they went too far in sending work abroad and need to bring some of it home again, a process inelegantly termed “reshoring”. Well-known companies such as Google, General Electric, Caterpillar and Ford Motor Company are bringing some of their production back to America or adding new capacity there. In December Apple said it would start making a line of its Mac computers in America later this year.

Choosing the right location for producing a good or a service is an inexact science, and many companies got it wrong. Michael Porter, Harvard Business School’s guru on competitive strategy, says that just as companies pursued many unpromising mergers and acquisitions until painful experience brought greater discipline to the field, a lot of chief executives offshored too quickly and too much. In Europe there was never as much enthusiasm for offshoring as in America in the first place, and the small number of companies that did it are in no rush to return.

Firms are now discovering all the disadvantages of distance. The cost of shipping heavy goods halfway around the world by sea has been rising sharply, and goods spend weeks in transit. They have also found that manufacturing somewhere cheap and far away but keeping research and development at home can have a negative effect on innovation. One answer to this would be to move the R&D too, but that has other drawbacks: the threat of losing valuable intellectual property in far-off places looms ever larger. Also, a succession of wars and natural disasters in the past decade has highlighted the risk that supply chains a long way from home may become disrupted.

Third, firms are rapidly moving away from the model of manufacturing everything in one low-cost place to supply the rest of the world. China is no longer seen as a cheap manufacturing base but as a huge new market. Increasingly, the main reason for multinationals to move production is to be close to customers in big new markets. This is not offshoring in the sense the word has been used for the past three decades; instead, it is being “onshore” in new places. Peter Löscher, the chief executive of Siemens, a German engineering firm, recently commented that the notion of offshoring is in any case an odd one for a truly international company. The “home shore” for Siemens, he said, is now as much China and India as it is Germany or America.

Companies now want to be in, or close to, each of their biggest markets, making customised products and responding quickly to changing local demand. Pierre Beaudoin, chief executive of Bombardier, a Canadian maker of aeroplanes and trains, says the firm used to focus on cost savings made by sending jobs abroad; now Bombardier is in China for the sake of China.

Lenovo, as a Chinese company, has its own factories in China. The reason it is moving some production to America is that it will be able to customise its computers for American customers and respond quickly to them. If it made them in China they would spend six weeks on a ship, says Mr. Schmoock.

Under this logic, America and Europe, with their big domestic markets, should be able to attract plenty of new investment as companies look for a bigger local presence in places around the world. It is not just Western firms bringing some of their production home; there is also a wave of emerging-market champions such as Lenovo, or the Tata Group, which is making Range Rover cars near Liverpool, that are coming to invest in brands, capacity and workers in the West.

Such changes are happening not only in manufacturing, but increasingly in services too. Companies may either outsource IT and back-office work to other companies, which could be in the same country or abroad, or offshore it to their own centres overseas. Software programming, call centres and data centre management were the first tasks to move, followed by more complex ones such as medical diagnoses and analytics for investment banks.

As in manufacturing, the labour-cost arbitrage in services is rapidly eroding, leaving firms with all the drawbacks of distance and ever fewer cost savings to make up for them. There has been widespread disappointment with outsourcing information technology and the routine back-office tasks that used to be done in-house. Some activities that used to be considered peripheral to a company’s profits, such as data management, are now seen as essential, so they are less likely to be entrusted to a third-party supplier thousands of miles away.

Coming full circle

Even General Electric is reversing its course in some important areas of its business. In the 1990s it had pioneered the offshoring of services, setting up one of the very first “captive”, or fully owned, offshore service centres in Gurgaon in 1997. Up until last year around half of GE’s information-technology work was being done outside the company, mostly in India, but the company found that it was losing too much technical expertise and that its IT department was not responding quickly enough to changing technology needs. It is now adding hundreds of IT engineers at a new centre in Van Buren Township in Michigan.

This special report will examine the changing economics of offshoring in the corporate world. It will show that offshoring in its traditional sense, in search of cheaper labour anywhere on the globe, is maturing, tailing off and to some extent being reversed. Multinationals will certainly not become any less global as a result, but they will distribute their activities more evenly and selectively around the world, taking heed of a far broader range of variables than labour costs alone.

That offers a huge opportunity for rich countries and their workers to win back some of the industries and activities they have lost over the past few decades. Paradoxically, the narrowing wage gap increases the pressure on politicians. With labour-cost differentials narrowing rapidly, it is no longer possible to point at rock-bottom wages in emerging markets as the reason why the rich world is losing out. Developed countries will have to compete hard on factors beyond labour costs. The most important of these are world-class skills and training, along with flexibility and motivation of workers, extensive clusters of suppliers and sensible regulation.

The rises of China and India as two key emerging markets provide enormous opportunities to both multinational drug companies and professional outsourcing service providers. However, there are significant differences between these two countries, in particular in the areas related to drug R&D. Although multinational companies now could have more choices than ever, China and India each actually play different roles in the long value chain of drug R&D.

We recently conducted an in-depth study and analysis on the drug R&D capability of China and India. This article summarized part of the results found in our study.

Current Service Capabilities

At present the most popular services offered by majority Chinese CROs are early-phase drug discovery research, such as lead generation and optimization, assays and assay method development, etc. Only a handful of them are able to provide advanced discovery research services, such as high-throughput/content screening, computer-aided drug discovery (CADD), and structure-activity relationship (SAR) study. However, more CROs in India than in China are able to provide integrated discovery services besides the routine medicinal chemistry research services that are also offered by the Chinese CROs. A number of Indian CROs also have internal R&D programs. They thus generally have stronger capabilities and richer experiences than their Chinese counterparts in the SAR-based lead optimizations and pharmacological property optimizations.

However, the service features in preclinical development in these two countries seem just opposite. China is currently leading over India in drug testing in large animals such as nonhuman primates, as a large number of Chinese CROs possess good capability in this area. But in the in vitro studies and in small animal in vivo testing, the two countries have almost equal service capabilities.

In clinical development, India currently is a more ideal choice than China in terms of the service capability, experience, and CRO choice. However, if considering the factor of the attraction of the local pharmaceutical market, China seems to be more attractive than India as its current pharmaceutical market is much larger than the Indian market and, more importantly, poised to still grow faster than India.

Besides the professional CROs, a number of Indian major pharma companies are also involved in R&D outsourcing services. In contrast, at present, none of the Chinese major pharma companies have dedicated divisions that provide R&D outsourcing services to multinational companies. As they started R&D earlier than Chinese companies and currently have products in middle-to-late development stages, many Indian drug companies have gained experience in most stages of the drug R&D value chain, whereas the majority of the Chinese drug companies are currently still significantly inexperienced, in particular in terms of their ability of moving a drug from one development stage to the next. However, China currently is becoming one of the most focused countries for global pharmaceutical and biotech companies to look for outlicensing or co-development opportunities for their new products, largely because of the attraction of its pharmaceutical market.

Major Pharma’s Different R&D Strategies

Attracted by the fast growth of the pharmaceutical markets in both China and India, coupled with the fact that the skills and experiences of the scientists in these two countries are fast catching up and have become acceptable, it appears to most major pharma companies that the full-scale drug R&D outsourcing practice in these two countries has now become not only feasible but also meaningful. However, major pharma companies have also been implementing different outsourcing strategies in these two countries.

For example, China has so far been the main place for global drug companies to source focused compound libraries, especially those derived from the natural products isolated and purified from the Chinese herbal medicines. In the past few years almost all major pharma companies have sourced various sizes of compound libraries from China through hiring hundreds of scientists in Chinese CROs. On the other hand, almost at the same time many major pharma companies have also forged long-term, close partnerships with a number of Indian companies including both professional CROs and drug companies for both discovery research and early phase development. Their collaboration even included risk-sharing components.

As the life science research and technologies in China are better advanced than in India, China possesses advantages for conducting drug R&D over India in that it provides ease for major pharma to form a networked partnership with a variety of desired local capabilities while it is still easy for them to establish their own R&D facilities in the country, a similar operating model to what they have been doing in their home countries. This advantage has indeed been attracting more and more major pharma companies, making them willing to be committed to big R&D investment in China. In contrast, in India they more tend to conduct R&D in a model of partnership with local companies. To a large extent, to these major pharma companies, China seems to be aligned better with their long-term growth goals than India.

Future CRO Market Growth Potentials

Figure. Growth trends of Chinese and Indian CRO markets

The last several years have witnessed the fast growth of the CRO markets in both China and India. According to our research, the current market size of the Chinese CRO industry is about $1.58 B. It has been growing in a CAGR of about 31% in the past five years. The current market value of the Indian CRO industry is about $1.3 B. Its CAGR in the past five years was around 21.5%. In the global CRO market, which, according to our research, is about $42 B at present, the Chinese and Indian CRO markets currently account for about 3.8% and 3.1%, respectively, or about 7% if combined together.

As both China and India currently still possesses a number of advantages over other emerging countries, there is almost no doubt that the CRO markets in both countries are expected to still experience healthy growth in the foreseeable future. However, as the Chinese pharmaceutical market is currently larger and still exhibits stronger future growth potential than the Indian market, and as targeting the local market will still be the key motivation of major pharma companies in all emerging markets, it is thus expected that the Chinese CRO market will likely still experience more robust growth in the near future than its Indian counterpart.

We thus forecast that the Chinese CRO market will likely grow in a CAGR of around 16% in the next five years or so and the Indian CRO market will likely grow in a CAGR of around 9% during the same time period. Accordingly, the market value of the Chinese CRO industry will likely reach close to $4 B by 2017 and the Indian CRO market will be likely around $2.2 B by then (Figure). According to our research, by 2017 China and India combined together will likely account for about 10% of the global CRO market.

Source: gen eng news　

By Sameer Murdeshwar

With different accounting standards being used across the world, financial experts have felt the need to use a common, global standard in an electronic format to easily capture and communicate financial information between businesses and other users. These users include analysts, investors and regulators.

Four years ago, a common platform was developed using XML syntax to define and exchange financial information such as company financial statements. This standard has been defined and developed by XBRL International Inc. The benefits of this standard are numerous. Currently, financial statements are stored in various formats such as PDFs, word documents and excel statements. XBRL uses standard accounting definitions across all companies. All information will be machine-readable, which will make data collation and analysis much simpler for analysts and investors.

Starting in 2010, international regulators such as the Securities and Exchange Commission (SEC) in the US, the UK’s HM Revenue & Customs (HMRC) and the Companies House in Singapore have begun to require companies to use it, with other regulators following suit. The SEC’s deployment began in 2010 and was launched in phases, beginning with the largest companies. By 2013, the IFRS standard is expected to be compliant with XBRL.

In India, XBRL is in its infancy stage, with the Ministry of Corporate Affairs having begun its mandate for XBRL conversion in 2010-11. The first batch of companies to file their financial statements in the XBRL format are:

•    Those registered under the Companies Act, 1956, and having a paid up capital of INR 50 million or a turnover of INR 1,000 million or more
•    All companies that are listed in an Indian stock exchange and their Indian subsidiaries irrespective of their capital or turnover

The remaining companies are expected to convert their financial filings to XBRL from the following financial year. This transition is proving to be a challenge, especially for smaller companies. Last year, being the first, these companies faced problems such as a general lack of clarity and awareness about the conversion process and its benefits.

Conversion of financial statements requires an integration of the format within their existing financial record structure. This involves a high degree of co ordination and confusion between the technology, finance and accounting departments. Quality of data was another challenge with smaller companies filing data either incorrectly or in incorrect data fields. This required multiple stages of validation checks in-house. Investments in terms of training, recruitment of skilled resources and software investment were some of the other roadblocks.

Currently, most companies are keeping this exercise in-house. A different approach would be outsourcing this process to a dedicated service provider. Over the past year, many third party service providers in the financial segment have begun offering XBRL conversion services at competitive prices. Engaging with a third party outsourcing partner will result saving a lot of time and effort for the finance team. Service providers in this space have years of expertise in the finance and accounting, and are armed with the latest tools and technology to process large amounts of financial data. They have strict quality control standards that will ensure that there is no error in data entry. With XBRL set to be the benchmark for storing, recording and transmitting financial information, companies must consider outsourcing as a viable mean while filing their returns.

- Sameer Murdeshwar, Analyst, ValueNotes Sourcing Practice

XMG Global Releases Mid-Year Review and 2012 Year-end Forecast 
Analyst cites factors impacting global outsourcing and projects year-end revenue forecast

By Anna Juanillo

The outsourcing industry worldwide is celebrating the recent initiative by the U.S. Senate to reject the anti-outsourcing bill. Continued growth is expected, though at a marginally lower rate than the previous year. Revenue increased 13.9% to $425 billion, as compared to last year’s figures, which showed a 14.4% increase from the previous year, to a total of $373 billion.

Growth has been tempered by global economic issues, and the American bill highlighted two concerns for the industry. 

Analyst Opinion: 
The industry needs to be viewed in a positive light (or, at very least, to not be viewed negatively) by the U.S. The defeat of this bill has, for the most part, takes care of that first concern. Looking at American political shape-shifting, it would be best to view this development as a, “for now” solution; meaning the ebb and flow of political will, seems very much a direct factor of which political party is in power. The long-term impact, of this new political dynamic, remains to be seen; but for now, it would suggest a change in U.S. political control and preferences could affect industry growth, every bit as much as recent floods in Manila affected the industry, and its perception in its ability to deliver.

A tangible example of this dynamic is reflected in the growth of China’s share of the global market. Current year growth for China showed the largest growth share, compared to the next two largest players (India and the Philippines). This reflects how political instability in the U.S. has a smaller impact on China, which has actively sought out customers in the Asian market. Industry volume for India and the Philippines has historically focused on gaining share of U.S. outsourcing.

The second concern addresses where the respective players fit into the recipient list of that global outsourcing. For example, the top beneficiaries of outsourcing include: The BRIC (Brazil, Russia, India and China) Countries, Indonesia, and the Philippines; however the lion’s share is clearly dominated by India remaining the pre-eminent power.

XMG Global forecasts the Philippine industry to grow from US$11B to US$12.7B in revenues from 2011 to 2012, respectively. The top rung still belongs to India growing from US$59B in 2011 to US$63.2B in 2012. A close second is China with revenues of US$45.7B in 2011 to US$53.8B in 2012.

To put that in perspective, the last three years (2010 to 2012 projections) have seen growth, in the Philippines, of 25.4%, 23.6%, and 15.7%, respectively (comparing annual change in revenue). This same period saw growth by the other two primary players. India showed 13.2%, 8.6%, and 7.1% during that same period, while China’s numbers were, 43.5%, 63.6%, and 33.0%.

These numbers collectively show a gradual chipping away of India’s stronger historical dominance; though time will tell if it will be significant. 
At this point, China and the Philippines are each showing “real growth”, in terms of total market share, as compared to India’s current dominant position.

In billions of dollars, India’s last three-year growth cycle was, 54.33, 59.0, and 63.2. China’s market share was 35.76, 45.7, and 53.8. In 2010, India’s revenues were $18.6 billion more than China, but by 2012 the difference was down to $9.4; a significant reduction. The Philippines modest contribution rose from $8.9 to 12.7 billion; a not-so-insignificant 43% increase in revenue. That is only slightly lower than China’s 50% revenue increase.

This trend suggests new opportunities for other players to gain market share as well since the growth of the offshoring outsourcing industry will remain relentless.

Bottom-Line:

 The offshoring outsourcing market is positioned to continue to thrive and grow, but the relative positions, of the respective players, are changing. If current trends continue, China is on target to overtake India as the dominant BPO player, potentially within the next two to three years. This shifting paradigm would also indicate room for new players aside from market leader India to gain a share of an industry, which continues to show growth potential.

Anna Juanillo
Research Manager
XMG Global Research and Advisory Company

The Asia/Pacific (excluding Japan) business process outsourcing (BPO) market is forecast to reach $9.5 billion in 2016, up from $5.9 billion in 2011, according to Gartner, Inc.

In 2012, BPO in Asia/Pacific is on pace to total $6.45 billion.
“The Asia/Pacific BPO market is still relatively underdeveloped and underexploited (with the exception of Australia and New Zealand) when compared with other markets or regions,” said T.J. Singh, research director at Gartner. “This presents opportunities to BPO service providers that are willing to invest in the region.

Key drivers for BPO buyers in Asia/Pacific are scalability, quality, best-of-breed process and technology infusion, and improved service levels. Cost continues to be a consideration in all deals. Asia/Pacific is an immature market for BPO services. No one provider dominates every type of BPO service, and very few BPO providers can successfully demonstrate true regional or Pan- Asia/Pacific BPO capabilities for multiple processes.”

The largest BPO market in Asia/Pacific in 2011 was Australia, with a market size of more than $4.63 billion, over 3.5 times larger than India ($1.26 billion), the second-largest consumer of BPO services.  According to the 2012 Australian BPO report the Australian BPO sector will grow by 20 percent over the next two years , which means that on these numbers there is nearly a billion dollars worth of projects coming down the pipe.

The fastest-growing BPO markets within Asia/Pacific will continue to be led by China and India. By vertical industry, banking and financial services, communications, government (both local and federal), technology, retail, and travel and transportation continue to be the largest consumers of BPO services in the region.

Asia/Pacific continues to present service providers with lucrative high-growth and profitable markets that are still relatively underdeveloped and untapped. Even during these trying economic times — the U.S. and European economic malaise — buyers in Asia/Pacific are still grappling with issues such as revenue growth, market share gains, scalability, quality of service and better cost management. Some negative impacts may surface as BPO grows across the region, including higher wage inflation and attrition, as demand for talent in the domestic market competes with offshore demand from the U.S. and Europe.

The BPO market consists of four segments that break down into many distinct submarkets. These four segments include:

• Customer management (sales, marketing and customer care, CRM)
• Enterprise services (HR, finance and accounting [F&A], operations and payment services)
• Vertical services (vertical-industry-focused processes, such as mortgage services and credit card services for the banking sector, claims processing for insurance, and billing services for telecommunications)
• Supply management services (logistics, procurement and warehousing)

Source: HP.com Blogs

By Sameer Murdeshwar

The global mining industry has been facing major challenges over the past three years, but the factors affecting the industry are moving to a new level of extremity. A study from Deloitte revealed that these challenges run from the usual such as:

•    Bringing costs down
•    Managing commodity price volatility
•    Enhancing corporate social responsibility

to newer ones such as:

•    improving capital project management
•    attracting financing
•    bridging the talent gap with older workers retiring and filling in younger employees
•    mitigating the risks of diversification and planning for unforeseeable events in the global economy

These issues are acting as a roadblock for mining companies to improve collaboration and streamline operations globally, comply with international regulations and enhance government and community relations.

In the past, mining companies have outsourced traditional BPO and ITO services to help address some of their challenges. These services include procure to pay and order to cash within finance and accounting, payroll and learning services within human resources, back office contact support, industrial automation, software and embedded development, and general IT support services. These services have helped automate a lot of the processes in the mining value chain. In spite of these investments, the earlier challenges as described in this article persist.

This is where outsourcing of knowledge driven services comes in the picture – traditional IT/BPO services help consolidate processes and save costs to an extent, but their ability to provide any value beyond the stated objectives remain limited. The industry, led by major player such as Rio Tinto have begun outsourcing key high value services such as sourcing new talent for specific functions, automating bid management, market research specific to the mining supply chain, financial research monitoring global indices tracking prices, master data management through analytics and a centralized expediting system.

Their outsourcing partner for these services is Infosys BPO. Infosys had a strategy to expand beyond the usual buyer markets of the US and UK and foray into the APAC region. They helped set up these processes for Rio Tinto, and through this partnership, they were able to integrate IT and BPO services as well such as SAP implementation and FAO services. Another strategic relationship from Rio Tinto, this time, with iGate Patni for data mining and analytics services, has resulted in the opening of an innovation centre, titled Rio Tinto Innovation Center, in Pune, India. This allows further collaboration between resources in both companies, Rio Tinto and iGate-Patni.

Taking a leaf from these outsourcing partnerships, other service providers focusing on KPO services to fuel their new wave of growth, must consider the mining industry as their next big untapped opportunity. The industry offers attractive benefit such as long-term sustainability, scalability across geographies and processes, and an integrated outsourcing framework with KPO as the main service offering, backed by the supporting base of IT and BPO.

-    Sameer Murdeshwar, Analyst, ValueNotes Sourcing Practice

[1] http://www.plunkettresearch.com/outsourcing-offshoring-bpo-market-research/industry-trends

By Martin Conboy

With the economic globalization and international industrial restructuring, the world service trade market has gained momentum and as a result industrial restructuring has gained speed.

As a result, emerging industries such as ITO, BPO, and KPO, have gradually become the mainstream forms of international service trade.

China’s service outsourcing is gradually expanding from basic transactional work to more advanced businesses. The Chinese service outsourcing sector have moved from low-end customer transaction work to biomedical R&D, hi –tech R&D, industrial design and other high-end processes.

In 2011, over 4,200-service outsourcing enterprises were established in China. This is on top of the 17,000 Chines outsourcing companies already in existence. Most of these companies have all of the now standard international certifications, such as CMMI, ISO27001/BS7799, SA70 and SWIFT.

Given the central governments policy to transition China into a service economy, the central government has designated some cities and industrial parks as the pilot locations. One such location is Wuhu City, which we visited late in August. These people are deadly serious about their intent to build world class facilities, what we saw beggars belief, the size and scale of the construction was truly amazing, we saw a city being built in front of our eyes where only months ago there were rice fields. Mark Atterby wrote last week about it. ‘Wuhu is absolutely open for business.”

Some years ago I heard the then Indian Minister for IT, say, “ My job is to turn India from a nation of snake charmers into a nation of mouse clickers.” Similarly China is moving from a ‘Made in China” tag line to a ‘Serviced by China” tag line.

Meanwhile back in comfy old Australia leading Australian business leaders including ANZ Bank head Mike Smith have warned that the country’s workforce is inadequately prepared for the opportunities of the coming Asian Century. This story was reported in the Fairfax media.

A study by the Asia link Taskforce, which includes some of the country’s most senior executives such as Doug Richie of Rio Tinto and Mike Wilkins of Insurance Australia Group, finds one of the biggest impediments for business’ push into Asia is the lack of capabilities among the Australian workforce.

Mr Smith said the taskforce had identified many areas of critical skills underdevelopment in Australia ”that are fast becoming an impediment to fully realising the Asia opportunity”. He called for closer co-operation between business, the education sector and government in developing Asia capability throughout the Australian workforce.

When asked about Australian readiness for Asia, Mr Smith said, ”I think it is quite clear that is something that needs a lot of work. But I think everybody is now beginning to see the opportunities and … that is the most important thing.”

Mr Smith, who is spearheading a super-regional strategy for the bank, said more than 60 per cent of ANZ’s new graduates could speak an Asian language.

The report estimates Australia has the potential to boost its economy by $275 billion (excluding the resources industry) in the coming decade if it has an Asia-capable workforce that is ready to exploit the large and growing Asian market.

Special prime ministerial adviser Ken Henry, who is leading the government’s Asian Century White Paper, said the country needed to improve its ”Asia-relevant capabilities” to lift Australia’s productivity.

He said there was strong interest in the importance of developing an Asia-capable workforce.

”This is clear from the submissions to the white paper team. More than a quarter of these were to do with building Asia-relevant capabilities of the Australian workforce,” Dr Henry said.

While I was in Wuhu I caught up with a ‘China Old Hand’ Jerel Bonne the Founder and Principal Consultant of Sharpen Axes. In his view what was missing was the government incentives to lure business to Wuhu. He said, “Wuhu has a tough road ahead to reach their planned goal of attracting 1000 BPO’s especially without an attractive investment promotion plan. There are two serious conditions that the government must address to meet their goals.”

“The first one is how will any outside organization, Chinese or Foreign find the talent to run the operations. This has nothing to do with work place language skill. It is hard to imagine that the local educational system will produce talent to execute the business functions.” (The Chinese government claims that 70% of the 3 million people currently employed in the outsourcing services sector have a college degree.) “This is leading edge high tech, and you can’t just pull farmers in from the fields to man the stations like a manufacturing plant. Even if the Wuhu government offered great incentive to Chinese employees from Beijing, Shanghai and Shenzhen to relocate to Wuhu, would they really pickup their things and come in droves to fill the critical leadership roles that are required for an aggressive plan as this.”

Bonner went on to say, “The second condition is what is the market opportunity for foreign companies to enter the Chinese BPO market. Can these organizations go it alone and beat State Owned Enterprises (SOE) who already have huge operations, brand awareness, government connections and talent. What would these Foreign companies have to give away when negotiating JV terms to get a footprint in Wuhu? Once they make the leap into Wuhu, will Wuhu have what it takes to attract a senior leadership team and their families to make Wuhu their home? “

Victorian Premier Ted Baillieu,  will next week lead Australia’s largest-ever trade mission to China, the trade mission will involve more than 600 delegates representing 400 Victorian organisations. Mr Baillieu said it would help Victorian businesses capitalise on a shifting pattern of demand in China from resources to quality goods and services linked to the rise of the middle class.
Read more: http://www.theage.com.au/business/we-are-not-ready-for-asia-says-banker-20120906-25h77.html#ixzz25jbPzhSp

By Shaun Polovin

Outsourcing Vs. Offshoring

Some people would call what we do ‘outsourcing’, but that couldn’t be further from the truth. Outsourcing refers to the process of allocating a portion of your business operations to an external entity or person. Most outsourcing organisations – for the sake of good business sense known to them – have their own agenda and probably a range of clients of which you are just one.

When an organisation decides to outsource a portion of their business, they understand that they are placing their business reputation in the hands of their outsource partner and rely on that external entity to have the correct processes, team and ability to deliver what you have promised to your client.

For the right organisations it’s a sure shortcut path to reducing operational costs but depending on the business’s transformation goals and its industry, it may not provide the long-term solution for growth. Relying on an independent company to supply you with core services is always a risk.

In our line of work, the questions clients ask about outsourcing their development work is what if they go under tomorrow? there goes the development arm of your business. I’ll admit, we tried it a few times ourselves before we went down the permanent route. We found an “ISO accredited” company in India and tried to have a small test project developed. What came back was worthy only of our big green garbage bin, but that’s not to say all outsourcing development companies are rubbish.  Decision makers just need to take the care and due-diligence in selecting a reputable partner to hand over a critical piece of their business, and this can take a lot of work.

When you offshore, you are setting up a brand business operation, however it’s in another country where a dollar generally goes a lot further. Our team in Sri Lanka has been hand picked and interviewed by both our local management team and our Sydney management team. Every team member has gone through both internal and most have also been offered external training and certification. They are all valued employees and members of the team and are greatly appreciated for their contribution at both a team and company level.

Why Offshoring your web development company makes sense for you and your clients

When we explain to clients the reason we have built our company in the above manner, our clients often nod their heads in agreement. It makes complete business sense if executed correctly and I’ll tell you why.

In Australia, the high living costs come with equally high salary prices. In our industry you are also faced with demand for quality digital staff considerably outstripping supply. Therefore, when you consider the cost of not only employing your team but also recruitment fees, training, taxes (e.g. Payroll) it comes as no surprise that the cost of delivering a large ecommerce website for clients, when all resources are locally based, would be astronomical. Achieving efficiencies in a service based, labour intensive business is never easy.  It’s almost impossible to apply Henry Ford style production efficiencies, however it is possible to reduce your operating costs through effective offshoring.

The other major benefit from running an offshore office is also the retention of IP. Consider the following scenario: After months of searching and paying a hefty sum to a recruitment agency you find a great web developer to work on a range of new client wins.

Nine months later, after investing heavily in this new staff member’s training so they have a deep understanding of a number of key projects, another firm swoops in and poaches your star developer. The poaching firm is prepared to pay well above market rates out of desperation and have made an offer that can’t be refused. There goes your investment and you’re back to square one – hunting for a replacement in a very competitive market. Compare that to our Sri Lankan office where we have achieved well over a 90% retention rate over the course of 5 years. Now that won’t be the case in every offshore office (as we have managed to achieve this through our continuous efforts to build the best culture for our team) but you’re far less likely to face the same dilemma.

Offshoring Tips

Having gone through the trials and tribulations, I have put together a few key points that I think would serve any business looking to offshore a portion of their business operations well. If done correctly you will reap the reward of delivering a product or service at the same level or even better than your local competitors but at a considerably lower cost – a win for you and a win for your clients. In our situation we’ve offshored our development team, but most of the same principle apply to any other business model – be it technical support, customer service or manufacturing.

1. Invest in your infrastructure

It may be far cheaper to set up an overseas operations in the Philippines, India or Sri Lanka but that’s no excuse to stint on the infrastructure. Ensure you have the best quality dedicated Internet lines (which are considerably more than what you pay locally), comms equipment and PC’s.

2. Invest in your team and training

There is an amazing talent pool of staff ready to commit to your cause. Ensure you hire correctly and offer both internal and external training programs. You will be repaid in spades. Provide them with a good orientation program to the ensure a successful on-boarding journey and retention.  Socialise them into your brand with your corporate values, events calendar, reward and recognition schemes, company policies and processes, career progression maps and other employee engagement programs

3. Run an Agile development methodology

Running your project in Agile ensures that there is far more frequent reviews of the project progress. I won’t go into the details of how Agile works but for those who are not familiar with it there are plently of articles on the topic and I recommend you have a read of it if you’re in the technology or software development space.

4. Transparency across the organisation

It’s very easy to forget to relay company news and messages with your team overseas. It’s important that they get to see where the company is heading and what opportunities you’re working on. Don’t forget to do this. Yammer is a great social networking tool for companies to use that can help bring any newsworthy items to broadcast across multiple offices.


5. Build a Trustworthy leadership and Management team

Here lies one of the real factors to your success in setting up an offshore office. Unless you or one of your partners is prepared to move overseas to run it, you will need to find a trustworthy team to be your representitive over there. Make sure you spend the time finding the right people as this could make or break you. We have been very lucky in  this area as our management team comprises of our longest serving employees and a referal from one of our Sydney team members who had originated from Sri Lanka.

The Fruits of Our Labour

What we set out to achieve those years ago was better cost efficiency with hopefully the same quality of output. What we got in the end was so much more:

• An engaged, dedicated, hard working and highly intelligent team.
• A family oriented team comprising of the friendliest people you are likely to meet.
• A scalable business model capable of catering to our growing clients needs.
• Retention rates that most Australian businesses could only dream of.
• A deep talent pool of well educated and experienced candidates for further expansion
• and last but not least – a great excuse to frequent an amazing country in a beautiful part of the world!

So the next time you think about jumping on Odesk or Freelancer to find that silver bullet, stop, reconsider and think about your long-term strategy.

About the author

Shaun Polovin is one of four founding directors at Sydney’s award winning ecommerce and digital marketing agency Netstarter.   Shaun has worked with B2B and B2C brands such as (Shaun to  fill in the blanks).  He’s passionate about and specialises in digital marketing strategies, creative web design and digital innovation that engages audiences; business and digital commercial strategies that lead to profitable conversion outcomes.  Shaun lives in Sydney, enjoys travelling, the odd spot of surfing and triathlon training.

By Indu Nandakumar & Akanksha Prasad

Information technology companies are being forced to subcontract more work than ever before in the US, as the measures adopted by that country have made it harder and costlier for Indian software professionals to travel on work to their main market.

For companies such as Tata Consultancy Services and Infosys, the use of staffing firms instead of their own employees for US assignments is resulting in higher costs and lower margins, further eroding their competitive advantage in a weak demand environment. Ironically, they are being forced to subcontract work to temporary consultants when an increasing number of their own software engineers are sitting idle on the bench.

At Infosys, subcontracting costs doubled to 3% of revenue in the first quarter of fiscal 2013, its highest level. For India’s largest IT company Tata Consultancy Services, they were at 5%, from less than 3% last year. Analysts expect the higher subcontracting costs to hurt margins at top IT firms by at least 30 basis points.

“We expect the impact to be industry-wide and not restricted to Infosys as the pressure to hire local talent mounts,” wrote Shashi Bhushan and Pratik Shah of brokerage Prabhudas Lilladher in a client note.

The US accounts for more than half of the over $70 billion in software exports from India. Under President Barack Obama, in particular, the US has made it increasingly difficult for Indian firms to obtain visas to send employees to work on projects at client locations. Visa fees have soared under Obama’s watch and so have rejection rates.

FEWER L1 VISAS BEING APPROVED

This is especially true for L1 visas for intra-company transfers.

IIn 2011, approvals for L1 visas were 28% lower, show data from independent public policy think tank National Foundation for American Policy. On the other hand, such visa approvals rose by 15% for applicants from the rest of the world, leading to concerns that India is being singled out for discrimination.

More than 25,000 Indians travel to the US every year to work on assignments for software companies. Up to 40% of work permits are usually under the L1 category.

Most people in the software industry believe there is a deliberate policy of discrimination against Indians, but they are wary of voicing their opinions publicly for fear of antagonising the American government, especially when a presidential campaign is on and unemployment is a major theme. Infosys, HCL, TCS and Wipro declined to comment for this report.

Software industry group Nasscom said it is “working with” the Indian government and US authorities on the issue of rising visa rejection rates. “While some part of the work gets contracted, some IT firms are now focusing on hiring locals for domain-specific work in the US,” said Ameet Nivsarkar, Nasscom’s vice-president.

In mid-2010, when the US increased the fee for some types of work visas used by Indian outsourcers, Nasscom had estimated the additional cost burden on Indian IT industry at up to $250 million.

But not everyone is complaining about the turn of events. At staffing firmTeam Lease, where over 70,000 employees work on contracted projects for various companies, revenue soared 30% last year due to the increase in subcontracting. Similarly, at Ikya Human Capital Solutions, another global staffing firm, demand from Indian IT firms for subcontracting work in the US rose 8-10% in the past six months.

“Any change in the economic conditions first reflects in the staffing industry. We are a springboard in good times and a shock-board in bad times,” said Ashok Reddy, managing director and co-founder of Team Lease.

Source: <a href=”http://economictimes.indiatimes.com/tech/ites/IT-cos-like-TCS-and-Infosys-take-hit-due-to-subcontracting-and-denial-of-US-visas/articleshow/15779444.cms”>Economic Times of India</a>