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| Source: Bloomberg Businessweek |
Firms Seek Alternatives to India for Outsourcing Higher-Level Jobs
In 2011, Latin America and Eastern Europe surpassed India in the growth of outsourcing facilities. According to Everest Group, India opened 49 new outsourcing facilities in 2011 while Latin America and eastern Europe opened 54 new facilities. The trend of shifting functions away from India and toward nearshore destinations is continues to grow as American companies outsource skilled white-collar jobs in research, accounting, procurement, and financial analysis. As many companies have capitalized fully on their savings potential in India, it is natural progression to seek savings in other functions and geographic locations. With higher-level functions that don't require mass processing or large numbers of workers, countries like Argentina and Poland are viable options. While you won't find critical mass in any one Argentinian outsourcing firm, the laborers are skilled and offer a valuable service at a lower hourly rate than companies can find in the U.S.
Outsourcing firms in India are catching on the the trend as well; Tata Consultancy has 8,500 employees operating in Peru and Paraguay. Genpact, India's largest BPO firm, opened and F&A (Finance and Accounting) outsourcing firm in Brazil. Outsourcing is becoming increasingly popular in Eastern Europe. Particularly in Wroclaw, Poland, 30 universities graduate a steady stream of skilled laborers each year. Firms including IBM, Ernst and Young, and Microsoft have opened up outsourcing centers in Wroclaw. Poland and other Eastern European countries offer a better environment for high-level outsourcing. About 50% of Poland's 20-24 year olds are college-educated, compared with a mere 10% of 20-24 year-olds in India. It's important to keep in mind that India's massive population means an incomparably larger number of college graduates; India has 109.4 million people between 20-24, compared with Poland's 2.9 million people in that age range. Though the sheer numbers may always be in favor of India, nearshoring offers valuable benefits that India can't match, such as cultural alignment, language capabilities, and the ability to interact with clients.
Hugo Chavez Seeks Cancer Treatment
Venezuelan president Hugo Chavez spent the weekend in Cuba to receive another round of radiation treatment. He intends to return to Venezuela in time to celebrate the ten year reunion of the failed coup against Chavez in 2002. No specific details surrounding Chavez' battle with cancer have been released, and the type of cancer has not been specified. Because of this, many have speculated about his political future.Earthquake Rocks Central Mexico
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| In Mexico City, people ran into the streets seeking safety when they felt the quake. |
MEXICO CITY 2:31 PM CST— A strong 7.6-magnitude earthquake hit Mexico on Tuesday, shaking central and southern parts of the country and swaying buildings in Mexico City. Plaster fell from ceilings and windows broke in the center of the capital, but the president said there were no immediate reports of major damage.
The initial quake in Guerrero state was followed by a less powerful, magnitude-5.1 aftershock that also was felt in the capital.
Frightened workers and residents poured into the streets of the capital just minutes after noon local time (18:02 GMT). Telephone service was down in the city and throughout the area where the quake was felt.
"I have problems with pressure, I felt I was going to faint," said Rosa Maria Lopez Velazquez, 62, outside a mall in Mexico City.
The quake was felt strongly in southern Guerrero state, where the epicenter was located about 15 miles (25 kilometers) from the city of Ometepec. Neighboring Oaxaca state also shook heavily, including two aftershocks.
"It was very strong, but we didn't see anything fall," said Irma Ortiz, who runs a guesthouse in Oaxaca. She said their telephones are down, and that the quake shook them side-to-side.
The U.S. Geological Survey set the intensity of the first quake at 7.6 and said the epicenter was 11 miles underground. The survey set the aftershock at 5.1.
Mexico City Mayor Marcelo Ebrard's Twitter account said the water system and other "strategic services" were not experiencing problems.
Brazil's Sluggish Economic Growth
Latin America's largest economy grew a mere 2.7% in 2011, far below the 4.5% GDP growth rate predicted by analysts. Last summer, when President Rousseff declared an official goal of 4% GDP growth in 2012, it seemed attainable. However, after a sluggish year in 2011, it is evident that the Brazilian government will have to work to creatively stimulate the economy to achieve the growth goals. The country's interest rates have served as a major obstacle to growth, and the Central Bank predicted that it would cut interest rates to 10.5% to stimulate the economy. However, after meeting yesterday and being presented with lower-than-expected data, the Central Bank president Alexandre Tombini decided to make even more drastic cuts, lowering the interest rate to 9.75%. In the past, Brazil has avoided lowering the interest rate because of inflation concerns, but the country leaders hope that the lower interest rate will stimulate growth and foreign investment.
Read it here at CNN.
Read it here at CNN.
Fewer Tech Companies are Sending Jobs Overseas
A new survey reports a three year decline in outsourcing in the technology industry. In 2009, 62 percent of companies outsourced services or manufacturing, but that number has dropped nearly by half to 32 percent. More tech jobs are moving back to the U.S., and 50 percent of CFOs plan to increase their U.S. based labor force in 2012. The survey predicts that despite the decrease in overall spend, Latin America will remain an increasingly popular sourcing destination. BDO Technology Outlook survey asked the CFOs who currently participate in outsourcing to choose one location for future outsourcing, and Latin America was the most popular option at 23%, followed by Western Europe (20%) and then China (19%). According to the survey, the advantages of proximity and skilled labor make nearshoring increasingly attractive to tech companies.
Read it here at Market Watch.
Read it here at Market Watch.
2011 Fourth Quarter Nearshoring Destinations Report Released
ThinkSolutions, a management consulting firm with thought leadership in outsourcing, offshoring, and nearshoring, released its second quarterly report of “The Best Nearshoring Destinations.” Each quarter, the firm ranks 19 Latin American countries based on their appeal as outsourcing and shared services destinations, scoring the countries on 19 objective criteria in three categories: Financial Incentives, Business Environment, and Labor Force.
Firms continue to leverage nearshoring as an effective strategy for both Information Technology (ITO) and Business Process Outsourcing (BPO). Executives continue to look to nearshoring for benefits in cost reduction, ease of management, and portfolio diversification, so the model aimed to reflect these interests of potential buyers. Nearshoring requires careful consideration of the business objectives and an effective governance approach to manage the relationships.
ThinkSolutions has strategically selected and weighted criteria to emphasize the unique characteristics of Latin America such as cultural affinity, time zone alignment, and language capabilities. Last quarter, the nearshoring landscape changed when the U.S. signed Free Trade Agreements with Colombia and Panama, so ThinkSolutions adjusted the model to reflect these added trade incentives. Other changes in the financial environment of countries in the index led to the shifts in the rankings this quarter. Mexico ranked first again this quarter, followed closely by Chile, Costa Rica, and Colombia. Due to increased wages and higher inflation, Argentina experienced the most significant drop in ranking in the fourth quarter.
This outsourcing index is unique in its objectivity and flexibility in response to changing environments. While other global sourcing indices are updated annually, the ThinkSolutions Nearshore Destinations Model is updated quarterly or more often to reflect major events or changes in a country’s economic landscape. The evaluation model is designed to be proactive as well as reactive, penalizing politically unstable countries with higher levels of risk of future turmoil, while also emphasizing criteria that depict the current state of a country. Tony Mataya, Managing Partner of ThinkSolutions commented on the flexibility of the index, “We also work with clients to tailor the model to reflect their risk profile and business objectives to help determine the optimal location for sourcing services or locating operations in Latin America.”
Request the full report here.
Rio de Janeiro Building Collapses
Source: CNN 8:11 PM CST 1/26
Three buildings collapsed in the historic center of Rio de Janiero last night, just steps from the Municipal Theater where President Obama gave an address last year during his visit to Brazil. Rescue workers have been working in the rubble all day, and so far four people have been confirmed dead and twenty two people are missing. The cause of the collapse of the 20-story commercial building and adjacent 10- and 4-story buildings is still unknown. The video below was produced by CNN on the morning of the collapse.
Three buildings collapsed in the historic center of Rio de Janiero last night, just steps from the Municipal Theater where President Obama gave an address last year during his visit to Brazil. Rescue workers have been working in the rubble all day, and so far four people have been confirmed dead and twenty two people are missing. The cause of the collapse of the 20-story commercial building and adjacent 10- and 4-story buildings is still unknown. The video below was produced by CNN on the morning of the collapse.
Can Brazilian President Rousseff Achieve 4% Economic Growth in 2012?
In general, Rousseff has made policy shifts during her first year that left foreign investors a little wary of Brazil's financial outlook. Updates will come as Rousseff provides more details surrounding the measures by which Brazil will achieve four percent growth.
Read it here at Reuters
Violence in Mexico City
"On a sunny afternoon this month, a group of gunmen drove into a slum in the north of Mexico City, the streets packed with shoppers and children leaving school. In plain sight, the killers lined three crack cocaine dealers against a wall and shot them in the head with AK-47 assault rifles. They then forced another two men into a black van and drove away past terrified onlookers." -Reuters
This striking picture is unexpected in Mexico City, which has successfully remained a peaceful place to live and conduct business even in the midst of highly publicized and violent turf wars between drug cartels in Mexico. Along the country's northern border, Ciudad Juarez holds the title of the most murderous city in the world in 2010 with a homicide rate of 133 per 100,000. According to Reuters, the Federal District has avoided cartel violence because cartels have collectively agreed to a truce in the city. But if the recent violent acts between La Familia and Las Zetas are the beginning of the end of this truce, this could have catastrophic consequences for the Federal District and Mexico's image as a whole.
Earlier this year, ThinkSolutions conducted an analysis of homicide rates in Brazil, Colombia, the U.S., and Mexico. We found that while perceptions of violence in Mexico are high, many of the most populated cities have lower homicide rates than cities in the United States. As you can see below, Mexico appears to be much safer than Brazil or Colombia, countries that receive significantly less negative publicity for violence.
| State/Department # | USA | Mexico | Brazil | Colombia |
| 1 | Massachusetts | Tabasco | Santa Catarina | BolÃvar |
| 2 | Wisconsin | Coahuila | Piauà | Boyacá |
| 3 | Washington | Nuevo Leon | São Paulo | Cundinamarca |
| 4 | New York | Veracruz | Maranhão | Sucre |
| 5 | New Jersey | Hidalgo | Rio Grande do Norte | Bogotá |
| 6 | Virgina | Jalisco | Rio Grande do Sul | Atlántico |
| 7 | Ohio | Guanajuato | Minas Gerais | Santander |
| 8 | Texas | San Luis Potosi | Amazonas | Córdoba |
| 9 | Michigan | Federal District | Ceará | Tolima |
| 10 | Indiana | Mexico | ParaÃba | Huila |
| 11 | California | Puebla | Goiás | Cesar |
| 12 | Pennsylvania | Tamaulipas | Bahia | Magdalena |
| 13 | Florida | Michoacan | Paraná | Caldas |
| 14 | Tennessee | Chiapas | Pará | Cauca |
| 15 | North Carolina | Chihuahua | Mato Grosso | Nariño |
| 16 | Arizona | Baja California | Distrito Federal | Norte de Santander |
| 17 | Georgia | Sonora | Rio de Janeiro | Risaralda |
| 18 | Missouri | Sinaloa | Pernambuco | Meta |
| 19 | Maryland | Oaxaca | EspÃrito Santo | Valle del Cauca |
| 20 | Illinois | Guerrero | Alagoas | Antioquia |
Sourcing F&A: Is It a Good Strategy for Us? And How Do We Do it Right?
by Tony Mataya
Of all the business processes to source, those in finance and accounting often raise the highest level of concern within organizations. Some firms refuse to consider F&A outsourcing (FAO) based on fears and doubts, and an overall risk-averse approach to outsourcing.
But how is the market for FAO doing? In a 2011 survey of buyers of outsourcing services by Hfs Research and the London School of Economics, demand for outsourcing core general and administrative services is reaching unprecedented levels.
In the survey, 31% of organizations are already doing FAO and 17% more groups plan to start within the next year. Meanwhile, the survey shows untapped demand, with half of those organizations still doing accounts payable and receivable, which are normally some of the first areas to outsource, in-house.
Increasingly, decision-makers are taking a second look and are seeking an approach to take advantage of the benefits of FAO while managing risks. In this article I will share some basic approaches and lessons learned from working with clients to source these services.
It is important to understand and clarify your objectives, systematically select the services to consider, and utilize some proven sourcing principles to get the most benefit and minimize risk while evaluating if FAO is right for you.
First Step: Achieve Understanding
The first step in considering FAO is to understand where you are and what you are trying to accomplish. This seems intuitive, but it is often the most overlooked step, and this sets the foundation for the processes to follow. Typical objectives for organizations considering outsourcing services include:
Start with this list and review it in the context of your organization’s situation. Add any objectives not here and remove those that do not apply. Review them and validate with key stakeholders. Then, prioritize the list to understand the importance of each objective relative to the others. This provides the foundation to consider the type of services you need and keeps the team focused during the evaluation process.
There can be a tendency for the team to get lost in the details of services, vendors, scoring, and contracts and lose sight of the simple question: Why are we doing this again?
Document Your Objectives and Solutions
It is a good idea to keep the objectives posted and visible to the team during activities and communicate them to vendors to help align objectives with proposed solutions. An interesting approach is to ask the vendors to document how their proposed solution addresses each objective. It keeps them focused and helps with the evaluation. Once your objectives are clear, validated, and communicated, ask: What services should be considered for sourcing?
FAO services and processes normally include: accounts payable, accounts receivable, general accounting, treasury, tax, financial planning/analysis, performance management, management reporting, compliance, order-to-cash, procure-to-pay, and record-to-report. In the past, conventional wisdom was to include all services or make the scope as large as possible to get the interest and best pricing from potential vendors.
However, in the area of FAO, we have found that a more strategic analysis can improve the quality of the decision-making and reduce the overall time to complete the process. The first step in the process is to define “filters” that will be used to screen out the services that should not be considered. Here is a typical filter process your firm might go through with a client:
Assess the scope of services against the filters you have defined and determine the appropriate mix of services to consider for sourcing. It is important to understand that this does not mean they will be outsourced; it means they will beevaluated for outsourcing.
It is not easy to add a service late in the evaluation process, so include the services that make sense to balance cost, schedule, resources, and risk. It is also important to consider that each situation is different, and using the different filters can help guide the process. For example, one client had a department that did complex accounting in the oil and gas industry where there was no offering in the market. Not a good fit according to the market maturity filter.
However, all the other filters indicated it was a good candidate. It turned out that suppliers were very interested in offering this service, so it became a win-win situation to include the service. Once the scope of services is completed, data collection and financial base case should be completed to prepare for the remaining sourcing process and detailed evaluation. Once the organization is prepared to move forward, what are some lessons learned you should consider?
FAO Sourcing: The Basics
There is a lot of help and information for organizations considering sourcing FAO. Our firm helps clients navigate through this journey, but whether or not you use external help or do it yourself, we recommend you utilize some sourcing basics and lessons learned. Establish a good data collection process for the service areas. This can help with sourcing as well as with general management. You should have an idea of the volumes, cost drivers, service levels, resources, regulations, and processes associated with each service.
In addition, take time to document these aspects of your operations up front and it will pay long-term dividends in the quality of the services delivery, governance, and contract. Due to the sensitivity of some of these services and their touch points and regulatory oversight, it is critical to involve both internal and external auditors early to obtain their concurrence with the scope, process, and risk profile. The suppliers in the market are not as well defined by service as IT outsourcing, so it may be wise to utilize an initial process to select the subset of suppliers that are the best fit for the scope being considered. Have the potential vendors provide their views on key deal points that are essential to the solution. It is critical to maintain competition throughout the sourcing process – but having too many vendors involved can be costly.
This initial process should select a diverse mix of vendors, but no more than four to balance cost with quality. It is a good practice to include offshoring and/or nearshoring vendors as well as domestic vendors to get a full set of options for different price and risk levels. Another good practice is to utilize a common pricing template for the suppliers to respond to in order to facilitate the evaluation and minimize adjustments and normalization.
Utilize a base case to fully understand the costs associated with the services; this is usually different from the budget, so make sure the costs tie back to the services. The pricing in a sourcing transaction can help improve variability of costs, but make sure you do sensitivity analysis on the pricing for different levels of volumes to understand the impact of change in the different vendor proposals. Consider the costs of sourcing (including the ongoing governance) in the analysis of the transaction.
The contract is always an important aspect of sourcing, but with FAO, some key contractual considerations deserve special focus: confidentiality, intellectual property, liabilities and indemnities, step-in rights, audit rights, responsibilities for penalties and fees, regulatory change, Sarbanes-Oxley compliance, and termination assistance.
More and more organizations are using FAO as a strategy to accomplish business objectives. This includes an increase in small to medium-size firms considering FAO that may not have extensive sourcing experience. Sourcing vendors are starting to implement repeatable sales and delivery models to meet this need and reduce the cost of transactions.
In order to really do this right, first establish, validate, and communicate the objectives. Then, take the time to select the right services for evaluation. Finally, follow proven processes to minimize risk and improve the quality of the decision and ongoing governance of the transaction.
Looking Forward: Top Nearshoring Trends for 2012
When Patrick Haller from Nearshore Americas asked ThinkSolutions for insight into how the nearshoring space will evolve in the next year, here's what we had to say:
Nearshoring Trends for 2012
1. India’s total cost of outsourcing (TCO) continues to increase and the advantage gap over Nearshoring continues to close especially due to inflation and attrition differences.
2. Remote sourcing from LatAm, such as remote monitoring, will increase as technology continues to support it and India TCO rises.
3. There will be an added impact of the recent Free Trade Agreements (FTA) that improve upon the WTO’s General Agreement for Trade in Services, especially in Colombia.
4. Brazil will struggle to increase export of services due to internal demand from domestic growth as well as attention in preparation for the Olympics and other events.
5. Colombia will have an increased profile, a growing economy, free trade, improving security and stability.
6. Crime in Mexico will stabilize due to increased government pressure and US attention but will remain problematic in localized areas.
7. Small and mid-size US companies will exploit the advantages of Nearshoring.
8. There will be a trend towards consolidation of smaller LatAm IT firms into medium and larger firms to meet the needs of US based clients.
9. More firms will seek out LatAm for shared service centers as an alternative to offshore locations.
10. Indian firms will continue to expand into the LatAm region as global IT delivery strategies more frequently include Latin America.
Convergys Opens Jamaican Call Center
Corvergys Corporation will create 1,000 jobs in Jamaica with the opening of a newly developed call center in Montego Bay.
Jamaica has long been a popular nearshore call center spot, with the largest English speaking population in the Caribbean. And while call centers might not be the first thing that comes to mind when you hear of Montego Bay, the tropical vacation spot is the home of most of Jamaica's 30 plus call center operations. This is due in part to Montego Bay offering one of three of Jamaica's Free Zones, areas where Jamaica offers tax incentives, recruitment and training, and discounted lease and realty agreements.
Convergys offers outsourced customer service centers serving industries such as financial services, pharmaceuticals, and e-commerce, and will offer
“We believe this center will benefit not only Jamaicans with attractive jobs, but also our clients with a new option for near-shore, agent-assisted English-speaking customer service, including traditional phone, email and chat support,” said Andrea Ayers, president of downtown Cincinnati-based Convergys’ customer management business, in a press release.
Convergys offers outsourced customer service centers serving industries such as financial services, pharmaceuticals, and e-commerce, and will offer
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