Wednesday, September 12, 2007

AnalysisFree trade and offshoring jobs are the problems, not China
By Paul Craig Roberts
Online Journal Guest Writer
Aug 20, 2007, 01:21

At a time when even the Wall Street Journal has disappeared into the maw of a huge media conglomerate, the New York Times remains an independent newspaper. But it doesn't show any independence in reporting or in thought.

The Times issued a mea culpa for letting its reporter, Judith Miller, misinform readers about Iraq, thus helping the neoconservatives set the stage for their invasion. Now the Times' reporting on Iran seems to be repeating the mistake. After the US commits another act of naked aggression by bombing Iran, will the Times publish another mea culpa?

The Times editorials also serve as conduits for propaganda. On August 13, a Times editorial jumped on China for "irresponsible threats" that threaten free trade. The Times' editorialists do not understand that the offshoring of American jobs, which the Times mistakenly thinks is free trade, is a far greater threat to America than a reminder from the Chinese, who are tired of US bullying, that China is America's banker.

Let's briefly review the "China threat" and then turn to the real problem.

Members of the US government believe, as do many Americans, that the Chinese currency is undervalued relative to the US dollar and that this is the reason for America's large trade deficit with China. Pressure continues to be applied to China to revalue its currency in order to reduce its trade advantage over goods made in the US.

The pressure put on China is misdirected. The exchange rate is not the main cause of the US trade deficit with China. The costs of labor, regulation and harassment are far lower in China, and US corporations have offshored their production to China in order to benefit from these lower costs. When a company shifts its production from the US to a foreign country, it transforms US GDP (US Gross Domestic Product) into imports. Every time a US company offshores goods and services, it adds to the US trade deficit.

Clearly, it is a mistake for the US government and economists to think of the imbalance as if it were produced by Chinese companies underselling goods produced by US companies in America. The imbalance is the result of US companies producing their goods in China and selling them in America.

Many believe the solution is to force China to revalue its currency, thereby driving up the prices of 70 percent of the goods on Wal-Mart shelves.

Mysteriously, members of the US government believe that it would help US consumers, who are as dependent on imported manufactured goods as they are on imported energy, to be charged higher prices.

China believes that the exchange rate is not the cause of US offshoring and opposes any rapid change in its currency's value. In a message issued in order to tell the US to ease off the public bullying, China reminded Washington that the US doesn't hold all the cards.

The NYT editorial expresses the concern that China's "threat" will cause protectionist US lawmakers to stick on tariffs and start a trade war. "Free trade, free market" economists rush to tell us how bad this would be for US consumers: A tariff would raise the price of consumer goods.

The free market economists don't tell us that dollar depreciation would have the same effect. Goods made in China would go up 30 per cent in price if a 30 per cent tariff was placed on them, and the goods would go up 30 percent in price if the value of the Chinese currency rises 30 per cent against the dollar.
So, why all the fuss about tariffs?

The fuss about tariffs makes even less sense once one realizes that the purpose of tariffs is to protect domestically produced goods from cheaper imports. However, US tariffs today would be imposed on the offshored production of US firms. In the era of offshoring, corporations are not a constituency for tariffs.

Tariffs would benefit American labor, something that the US Chamber of Commerce, the National Association of Manufacturers, and the Republican Party would strongly oppose. A wage equalization tariff would wipe out much of the advantage of offshoring. Profits would come down, and with lower profits would come lower CEO compensation and shareholder returns.

Obviously, the corporate interests and Wall Street do not want any tariffs.
The NYT and "free trade" economists haven't caught on, because they mistakenly think that offshoring is trade. In fact, offshoring is labor arbitrage. US labor is simply removed from production functions that produce goods and services for US markets and replaced with foreign labor. No trade is involved. Instead of being produced in America, US brand names sold in America are produced in China.

It is not China's fault that American corporations have so little regard for their employees and fellow citizens that they destroy their economic opportunities and give them to foreigners instead.

It is paradoxical that everyone is blaming China for the behavior of American firms. What is China supposed to do, close its borders to foreign capital?

When free market economists align, as they have done, with foreigners against American citizens, they destroy their credibility and the future of economic freedom. Recently the Independent Institute, with which I am associated, stressed that free market associations "have defended completely open immigration and free markets in labor," emphasizing that 500 economists signed the Independent Institute's Open Letter on Immigration in behalf of open immigration.

Such a policy is satisfying to some in its ideological purity. But what it means in practice is that the Americans, who are displaced in their professional and manufacturing jobs by offshoring and work visas for foreigners, also cannot find work in the unskilled and semi-skilled jobs taken over by illegal immigrants. A free market policy that gives the bird to American labor is not going to win acceptance by the population. Such a policy serves only the owners of capital and its senior managers.

Free market economists will dispute this conclusion. They claim that offshoring and unrestricted immigration provide consumers with cheaper prices in the market place. What the free market economists do not say is that offshoring and unrestricted immigration also provide US citizens with lower incomes, fewer job opportunities, and less satisfying jobs. There is no evidence that consumer prices fall by more than incomes so that US citizens can be said to benefit materially. The psychological experience of a citizen losing his career to a foreigner is alienating.

The free market economists ignore the fact that a country that offshores its production also offshores its jobs. It becomes dependent on goods and services made in foreign countries, but lacks sufficient export earnings with which to pay for them. A country whose workforce is being reallocated, under pressure of offshoring, to domestic services has nothing to trade for its imports. That is why the US trade deficit has exploded to over $800 billion annually.

Among all the countries of the world, only the US can get away with exploding trade deficits. The reason is that the US inherited from Great Britain, exhausted by two world wars, the reserve currency role. To be the reserve currency country means that your currency is the accepted means of payment to settle international accounts. Countries pay their oil import bills in dollars and settle the deficits in their trade accounts in dollars.

The enormous and continuing US deficits are wearing out the US dollar as reserve currency. A time will come when the US cannot pay for the imports, on which it has become ever more dependent, by flooding the world with ever more dollars.
Offshoring and free market ideology are turning the US into a third world country. According to the Bureau of Labor Statistics, one-quarter of all new US jobs created between June 2006 and June 2007 were for waitresses and bartenders. Almost all of the net new US jobs in the 21st century have been in domestic services.

Free market economists simply ignore the facts and proceed with their ideological justifications of open borders, a policy that is rapidly destroying the ladders of upward mobility for the US population.
Paul Craig Roberts [email him] was Assistant Secretary of the Treasury in the Reagan Administration. He is the author of Supply-Side Revolution : An Insider's Account of Policymaking in Washington; Alienation and the Soviet Economy and Meltdown: Inside the Soviet Economy, and is the co-author with Lawrence M. Stratton of The Tyranny of Good Intentions : How Prosecutors and Bureaucrats Are Trampling the Constitution in the Name of Justice. Click here for Peter Brimelow’s Forbes Magazine interview with Roberts about the recent epidemic of prosecutorial misconduct. Copyright © 1998-2007 Online JournalEmail Online Journal Editor

Friday, August 10, 2007

Outsourcing Articles

Two Businessweek articles on outsourcing have some interesting information, like for instance the rise of Estonia as a center of outsourcing (this is no joke!). These three things really caught my eye.


Industry analysts say Indian companies such as Infosys are hierarchical, and have an elitist view of their business and suffer from "conceptual Brahmanism," referring to the group at the upper echelon of the Indian caste system. There's a ring of truth in that. While the companies all employ Indians and some foreigners from across economic and social lines, the top rungs of both Infosys and Tata Consultancy are dominated by upper-caste South Indians.

I have been saying for years that Indian bodyshops are racist because they only hire Indian nationals of the Brahmin caste. They don't change their hiring habits when they move to the U.S. either. Of course I get called a xenophobe for saying such things, so it's nice to see an Indian writer say it for me this time. It never seizes to amaze me that companies like this can get away with such blatant sexism, racism, and ageism just because they are foreign owned.

The mainstream media never gets tired of ignoring the routine discrimination practiced by the Indian bodyshops. As an example, this propaganda masquerading as journalism appears in Fortune Magazine and CNN: "Indian call center lands in Ohio".

It would be easy to imagine Reno, Ohio, as the type of place that would be hit hardest by outsourcing - a small American town losing out to the invisible hand shifting jobs to places like Bangalore and Guangzhou. Instead, outsourcing is bringing the jobs to Reno. Across the street from an Army Reserve center and next to a farm, a customer-service call center hums, its 250 workers answering phones for online travel agency Expedia. The center's owner? Indian conglomerate Tata Group.

That article gives the false impression that the Reno office is full of American workers. I would have to see it to believe it because Tata isn't about to hire an office full of diverse Americans who are black, white, Hispanic etc. Anyone they hire will be from India and they won't have blonde hair or blue eyes -- and most importantly none of African descent. Brahmins consider dark skinned Africans as sub-human which is why in India they are called "untouchables".


Tata Consultancy, for example, is now mining deep for potential candidates, hiring not engineers, but math and science grads from colleges and putting them through a seven-month training course. "About 20% of our new employees are non-engineers, and that number will increase," admits TCS' Ramadorai. IBM solves the problem by paying higher salaries, but only recruiting engineers.

We have all heard the blurbs in the news about the huge numbers of engineers that India graduates. Those scare statistics are used to justify H-1B increases and to denigrate Americans. So here is the reality: not all of the Indians working at Tata are geniuses, and in fact many of them aren't even engineers with PhD degrees.


The consulting firm says that by 2010 about 30% of Fortune 500 enterprises will outsource to three or more countries, from less than 10% today.

Hopefully this is wrong because if it's true it means that the number of jobs we have lost to outsourcing is just the beginning of a stampede. Gartner research says that in less than three years the number of companies that outsource will triple.



Asia August 6, 2007, 7:49AM EST text size: TT Is the Party Over for Indian Outsourcers? Infosys, TCS, and Wipro still rake in profits, but they face challenges ranging from a stronger rupee to the likes of IBM and Accenture romping on their home turf by Manjeet Kripalani

In late July, rumors swirled that Infosys Technologies (INFY) might be readying a takeover offer for Cap Gemini (CGEMY) or another major tech-services player in the U.S. or Europe. So on July 25, when the company alerted the press and the markets that it had a major announcement, there was a great deal of anticipation.

Instead, Infosys unveiled a $250 million outsourcing contract with Royal Philips Electronics (PHG) of the Netherlands. It was an acquisition of sorts, the company said, at least of the outsourcing centers that belonged to Philips. "We're taking the model to a newer level," said Chief Executive Kris Gopalakrishnan.

Landing a new contract certainly isn't bad news, but the development was somewhat deflating for those who believe that Infosys needs to redefine and reposition itself in the multibillion-dollar arena for global outsourcing services. In fact, Infosys and other Indian outsourcers are facing a raft of competitive challenges that will require some dramatic new strategies.

Adversities Add Up True, India's biggest outsourcing firms continue to rake in the profits, at least judging by the latest earnings season. The top five players -- Tata Consultancy Services (TACSF), Infosys, Wipro (WIT), Cognizant (CTSH), and Satyam (SAY) -- reported robust profits in the quarter ended June, 2007. And executives generally forecast strong growth ahead.

"We're very happy with having beaten the forecast," said CEO and Managing Director S. Ramadorai of the $3.1 billion Tata Consultancy Services in Bombay. "TCS, as the leader, is doing well." Ramadorai predicts $60 billion in tech-services exports for the industry by 2010, nearly twice the current $35 billion, plus $20 billion in revenue from domestic business.

Yet behind this show of supreme confidence lurks deep unease. A confluence of adversities is at play. They include an appreciating rupee that is cutting into earnings, a severe shortage of qualified talent at home, and a cap on H-1B worker visas to the U.S., along with pre-2008 election protectionism threats.

Diminishing Returns On top of that, there is the end of preferential industry tax benefits at home and the growing success of multinational competitors such as Accenture (ACN) and IBM (IBM) on Indian turf. Perhaps most challenging for the Indian players is the pressing need to move up the ladder into business consulting, a domain that companies such as IBM have dominated for decades. Indian outsourcing firms need to invest heavily to secure a position in this arena, and that will erode their fat profits, at least in the short term.

For the first time, industry insiders are asking: Is the outsourcing game over for Bangalore? "The Indian IT companies have had an unusually long run in profits and growth," says Siddharth Pai, partner and managing director of global tech advisory TPI Advisory Services India. But that's "an anomaly," he adds. "As they mature, they can't expect the same kinds of returns."

And mature they must. For the past decade, Indian software-services firms, which pioneered the business of delivering tech services to the developed world from India efficiently and at 40% of the cost of companies such as IBM, have grown exponentially. Revenues exploded from a mere $1 billion in 1997 to $35 billion in 2007.

Outsiders' Edge At first, their multinational competitors such as IBM Global Services, Accenture, and Electronic Data Systems (EDS) were taken by surprise. But then they joined in the new game, setting up shop in India and leapfrogging by making local acquisitions, hiring aggressively, and offering similar services to their clients. As of June, the three multinationals alone have 100,000 professionals on their rolls in India. That's about a third of the top three Indian players, and the multinationals only began hiring three years ago.

Now that the competition is evening out at the bottom of the business, the battleground will start to move up to the higher end -- business consulting and the integration of the offshore and on-site services. Here, the multinationals clearly have an edge. Not only have they been providing consulting services for decades, but they have been doing it across geographic borders, using experienced talent and cultivating long-term and deep relationships with customers. More important, companies have been investing in research and product development for decades -- in 2006, IBM spent $6.2 billion on research and development, and its largest R&D center outside the U.S. is in Bangalore.

Indian companies, in contrast, have almost no research and development and spend very little on it. They began building their high-end consulting services only two years ago, and all of them have done so organically. Infosys began Infosys Consulting in Fremont, Calif. Wipro has been making small but strategic acquisitions in the U.S. and Europe. And TCS, which has the widest reach with 150 offices and 79 development centers worldwide, says that 3% of its revenue now comes from consulting. That's peanuts compared with foreign rivals.

Lagging the Competition Nor have the Indians attempted to leapfrog into the big league through a major acquisition. "They have to, they should, to get a global footprint," says Avinash Vashistha of New York outsourcing consultancy Neo-IT. Do they lack confidence? Certainly, "the levers and supportive environment they have in India are not available to them overseas," says Kris Wadia, executive partner, global sourcing, at Accenture.

Indeed, the tech industry in India is so pampered by New Delhi, and so admired by ordinary Indians, that they have been lagging behind the competition. Industry trade group Nasscom recently released a report on the necessity of Indian companies to begin to innovate to survive, and suggested the establishment of an ecosystem for innovation, helped by policy initiatives.

But while India lacks a formal innovation culture, one would never know from the assumed superiority over foreign rivals. Indian firms are simply unable, culturally, to absorb a Western company. Industry analysts say Indian companies such as Infosys are hierarchical, and have an elitist view of their business and suffer from "conceptual Brahmanism," referring to the group at the upper echelon of the Indian caste system.

IBM's India Buildup There's a ring of truth in that. While the companies all employ Indians and some foreigners from across economic and social lines, the top rungs of both Infosys and Tata Consultancy are dominated by upper-caste South Indians. Satyam has a big contingent of employees from the company's native state of Andhra Pradesh. Integrating a Western firm into that closed culture could be problematic. Infosys Chief Operating Officer S.D. Shibulal dismisses the inability to acquire, saying only: "We are perfectly capable of building things organically."

Companies such as IBM have taken a more democratic approach to building their business. The company began competing with the Indians in the outsourced tech-services business just three years ago, when it acquired Daksh, a call center. Since then, IBM has made plenty of acquisitions in India, absorbed them, and also organically expanded its business. Today, IBM has 3,000 workers dedicated to research and development at its offices in Bangalore. It is the largest R&D operation outside of the U.S. center in Armonk, N.Y., but one that is integrated with all of IBM's nine research centers around the world. Last year, IBM saw a 385% increase in patent filings from its India office.

IBM is already the dominant player at the top end of the tech-services market, with its large and established consulting business, and now it has also mastered the bottom end of the market, which offers low-cost servicing. More important, IBM is the leader in the Indian market for technology services, a market that the Indians have always overlooked. According to tech research firm Interactive Data (IDC), IBM has the largest market share in India, at 10% of the total $3.7 billion market, and customers across the board from the state tax department to the private players.

Missing Homegrown Opportunities In fact, IBM is the top choice of India globally. Ambitious Indian corporations such as Bharti Airtel, since 2004, have outsourced roughly $1 billion worth of tech services to firms such as IBM with global expertise. In March, IBM bagged an $800 million, 10-year contract with Idea Cellular (IDEAF), formerly co-owned by Tata, Aditya Birla, and AT&T but now by the Birla group. In the first six months of this year alone, $1.4 billion in domestic telecom deals were grabbed by the multinationals.

According to researcher Gartner (IT), over the next two years, Indian companies in the private and state sector, from banks to the railways, are expected to spend an estimated $5 billion on new technology, all of which will need to be serviced. Save for Tata Consultancy, 9% of whose business is domestic, the Indian players have largely focused on exports and missed the big opportunity in their own backyard. Nasscom estimates that just a quarter of the revenues of Indian outsourcers are domestic, though it's growing at 22% a year. This year, for the first time though, Infosys said that it would bid for domestic business, admitting that the "home market has reached a level of maturity."

Of course, companies such as IBM in India share some of the same constraints as their local competitors. India is in the throes of a severe talent shortage in sectors from tech to retail to research. Part of the problem is the emergence of new businesses such as retail and telecom in which India has no prior expertise. But a significant part is the country's creaking education infrastructure, which isn't producing enough qualified engineering candidates who can be productive employees immediately.

Visa Restraints Hurt Tata Consultancy, for example, is now mining deep for potential candidates, hiring not engineers, but math and science grads from colleges and putting them through a seven-month training course. "About 20% of our new employees are non-engineers, and that number will increase," admits TCS' Ramadorai. IBM solves the problem by paying higher salaries, but only recruiting engineers.

But what's strictly an Indian headache is the visa situation in the U.S. Just 65,000 H-1B legal worker visas are issued by the U.S., a strain on Indian firms that need to send their engineers to work in their U.S. clients' offices. The demand is so huge that for the last two years, on Apr. 1, the day that U.S. immigration officials release the quota for H-1B visas, nearly all are snapped up by Indian tech companies (see BusinessWeek.com, 2/8/07, "Work Visas May Work Against the U.S.").

With a Presidential election coming up in 2008, visas promise to be a hot-button issue. Already, companies such as Infosys and Patni Computers (PATIF) have been penalized by states such as California for not paying their H-1B employees market wages. The Indians are hiring locally, but it will surely affect their low-cost advantage. The Indians are doing "awesomely well," says IBM's software research chief in India, Harish Grama, "but what are they doing to stay in the game?"

Overcoming a Fixation on Margins The Indians defend their position stoutly. "Now, we are in the same position as IBM or Accenture, where people treat you like a partner and consultant, not a vendor," says Ramadorai of TCS. Indian companies, he adds, are spending increasingly on innovation. TCS says it has developed a full range of services, global network delivery, intellectual property, deep knowledge of different industries, and is starting to invest heavily in innovation, working together with clients. Ditto with Infosys, which has increased its R&D spending to $12 million this year, for instance. Wipro has made R&D a business to be outsourced from people, but that too is not sophisticated, cutting-edge work.

The future, say industry analysts, lies in doing things the multinational way: embracing innovation, consulting, and geographical expansion. To get there, Indian companies must get over their "25% margin fixation," says Ashish Thadani of Gilford Securities, who covers Indian tech companies listed in New York. "Those continuing high margins mean you are probably underinvesting for the future."

Kripalani is BusinessWeek's Mumbai bureau chief. With Nandini Lakshman in Mumbai



News Analysis July 31, 2007, 12:01AM EST text size: TT The Outsourcing Upstarts Parts of Eastern Europe, Africa, and the Middle East are vying to become new offshoring hubs-and nudging aside established players by Rachael King

In 2000, when employment-screening service provider HireRight was looking for a low-cost locale for software development, the Irvine (Calif.) company turned to an unlikely destination: Estonia. The Baltic nation hasn't traditionally been thought of as a hotbed of tech talent, but it presented HireRight with a pool of well-educated, tech-savvy workers; a modern telecommunications infrastructure; and costs that were 2.5 to 3 times lower than they'd find in the U.S. "It's very easy to do business in Estonia. We didn't have any roadblocks at all," says Stefano Malnati, vice-president for engineering at HireRight.

The secret's out. Estonia has become a target of several other companies hoping to take operations offshore at the right price. Internet calling company Skype has set up shop in Estonia's capital city, Tallinn, home to the largest office of the eBay (EBAY) subsidiary. Estonia has become such an attractive destination that this year it made its debut at No. 15 on A.T. Kearney's list of the top 50 global offshore outsourcing locations, beating out more established countries such as Russia, Argentina, and Canada.

Very Competitive Market Estonia is just one of many countries learning from the example set by India, which remains the top outsourcing destination on A.T. Kearney's list, and the country is eager to carve out a piece of the bulging market for offshore outsourcing services. The global market for shared services and outsourcing is expected to grow to $1.43 trillion by the end of 2009, from $930 billion in 2006, according to a report released this month by consultancy Frost & Sullivan. Globally, companies spent about $233 billion on IT outsourcing in 2006.

Offshoring upstarts are making so many inroads, in fact, that by 2012, they'll significantly dilute India's dominance, says consultancy Gartner (IT). The consulting firm says that by 2010 about 30% of Fortune 500 enterprises will outsource to three or more countries, from less than 10% today. "So many governments have realized what an opportunity this is and there's a lot of effort being spent in promoting their countries to the market," says Johan Gott, manager of A.T. Kearney's Global Services Location Index.

The jockeying has become so intense, and the field so wide, that the big challenge facing many new entrants isn't just getting established as an offshoring hub but hanging onto that distinction. Since 2005, when A.T. Kearney last compiled its list, it has added 10 new countries, including Latvia, Uruguay, Mauritius, Lithuania, Sri Lanka, Pakistan, Morocco, Senegal, and Ukraine. Four of those countries ranked in the top 25 in the 2007 list, released in March.

Lowering the Bottom Line Becoming and remaining an attractive outsourcing location depends on a number of factors, including language and education skills and the reliability of a nation's telecommunications infrastructure. At the heart of most outsourcing deals, though, is lower cost. So when A.T. Kearney puts together its list, it gives a 40% weighting to the financial attractiveness of a country, taking into account the cost of wages, infrastructure, and taxes. Vietnam and Pakistan, for instance, are even more financially attractive than India, according to A.T. Kearney. Conversely, high costs are the primary reason that countries including Ireland, the U.S., and Canada are slipping in the rankings.

In fact, the recent appreciation of certain foreign currencies in relation to the U.S. dollar has begun to affect corporate decisions to outsource or set up their own operations in certain countries. U.S. companies have long outsourced work to Canada, where they've enjoyed a similar business environment along with a 20% reduction in labor costs because of the exchange rate. But the appreciation of the Canadian dollar has wiped out most of those savings and some U.S. companies are wondering why they should go to Canada if they can get the same thing locally without having to cross a border, says A.T. Kearney's Gott.

Besides costs, considerations include the education and language skills of workers, the availability of labor, and attrition risk. A country's economic and political environment and the quality of its infrastructure also factor into outsourcing decisions. Some emerging countries may not appeal to U.S. companies as outsourcing destinations but may find markets in other parts of the world. For instance, the appeal of Pakistan's IT workforce of 90,000 people has been overshadowed by post-September 11 security concerns. "It's fallen off the radar screen of U.S. buyers," says Frances Karamouzis, vice-president for research at Gartner. Other analysts say there is still a market for Pakistan's services in the Middle East. And countries such as Senegal and Morocco are becoming attractive places for French-language call-center outsourcing for Francophone Europe.

Infrastructure Is Key HireRight found it easy to do business in Estonia in part because of its political and economic environment, as well as its infrastructure and cultural affinity. Estonia has invested significant resources in improving its technology infrastructure since it gained independence from the Soviet Union in 1991. During the late '90s, the country began modernizing its telecommunications infrastructure and providing Internet access and computer labs for schools.

Estonia's Baltic neighbors, Latvia and Lithuania, also former members of the USSR, have undertaken similar initiatives. Since the late '90s, there's been a conscious effort on the part of all three governments to use technology to transform economies, according to research from VTT Technical Research Centre of Finland. "Most countries were trying to attract tourism and build a manufacturing economy, but locations like India have shown them that you can have a vibrant services economy that is more vibrant than a manufacturing economy," says Atul Vashistha, chief executive of management consultancy NeoIT.com and co-author of the book The Offshore Nation.

Building a vibrant services economy, though, often takes buy-in from the government. India, for instance, knew it needed to overcome cumbersome government policies and procedures and poor communications infrastructure to become a successful outsourcing destination (see BusinessWeek.com, 3/19/07, "The Trouble with India"). In 1991, it created an autonomous agency known as the Software Technology Parks of India under the Ministry of Communication & Information Technology. The agency helps provide the technology infrastructure for companies that want to do business in India and serves as a liaison between government and industry. It also helps provide tax breaks and other incentives for doing business in India.

Kenya's TEAMS Government support is crucial, given the significant investment in communications systems and liberalization of the telecom sector. Kenya, for instance, is trying to become a destination for business process and IT outsourcing. The Kenyan government has worked in recent years to liberalize its telecom sector, which has lured more operators and helped drive telecom services prices down by 70% in a short time, according to the World Bank. Yet the country relies on satellite connections to link to the rest of the world. That makes it costly for outsourcers to do business. "Lack of high-capacity bandwidth connectivity has limited Kenya from exploiting its full potential," Mutahi Kagwe, Kenya's Minister for Information & Communications, said in a July speech at the Kenya College of Communications Technology. So Kenya's government has collaborated with the United Arab Emirates to install The East African Marine Systems (TEAMS), a submarine cable from Mombasa to Fujairah in the UAE that will give Kenya affordable high-capacity bandwidth.

Kenya will need to address not only telecom issues but also the readiness of its labor force. "If I wanted to have 150 people there tomorrow, it would take six or seven months to hire that amount of skilled people with business acumen," says Gartner's Karamouzis.

In many of these emerging outsourcing countries, the lack of available labor could eventually hinder growth. In fact, that's one of the challenges facing HireRight in Estonia. "The talent pool is not very big," says HireRight's Malnati, who says that HireRight now sees more competitors for talent. Yet, instead of pulling up stakes and moving to another destination, HireRight is trying to maintain its low attrition rates by giving Estonian employees incentives such as inviting them to spend time at its headquarters in Irvine. A winter trip from frigid Tallinn to sunny Southern California, Malnati says, can do wonders for employee retention. And the interest from more companies like HireRight may even boost Estonia a few rungs in the outsourcing rankings.

Check out a slide show of outsourcing upstarts.



Indian call center lands in Ohio

More foreign companies are finding that hiring Americans offers distinct advantages, reports Fortune's Jia Lynn Yang. By Jia Lynn Yang, Fortune writer-reporter August 3 2007: 5:49 AM EDT (Fortune Magazine) -- It would be easy to imagine Reno, Ohio, as the type of place that would be hit hardest by outsourcing - a small American town losing out to the invisible hand shifting jobs to places like Bangalore and Guangzhou. Instead, outsourcing is bringing the jobs to Reno. Across the street from an Army Reserve center and next to a farm, a customer-service call center hums, its 250 workers answering phones for online travel agency Expedia. The center's owner? Indian conglomerate Tata Group.

The phenomenon has a name: "insourcing," the term experts are starting to use when foreign multinationals open offices on U.S. soil and hire Americans, at a higher price, to do the very jobs they once lured overseas. In this case the center in Reno is targeted toward companies willing to pay a premium - its workers there cost up to 40 percent more than their counterparts in India - to give their U.S. customers a more culturally fluent, less frustrating 1-800 experience. (No more hearing someone read from a script ten time zones away.)

Tata, which is based in Mumbai, established its Reno roots last year when its business services unit, SerWizSol, bought the call-center business of travel-processing firm TRX; the deal also gave it a call center in Milton, Fla. "We want to be able to say to a client, If there's a piece [of call-center operations] you want to keep in America, we can do that for you," says Ricardo Layun, head of U.S. operations for SerWizSol.

Multinational corporations, of course, have been hanging shingles in the U.S. for years. According to the Organization for International Investment, firms headquartered abroad employ 5.1 million Americans in their U.S. offices. But while these jobs have typically been in manufacturing (think German carmakers' factories in the South), the mix is changing, and more companies are finding that hiring Americans offers distinct advantages. Some companies feel hearing a fellow American makes callers feel more comfortable. Other foreign firms think Americans bring a more entrepreneurial attitude to their work. In Expedia's case, its call-center workers need a firm grasp on U.S. geography.

Tata is trying hard to make a connection here. The company, which has a history in India of caring about social causes, has encouraged workers in Reno to get more involved in the community. There was a Tata float in the local Thanksgiving parade. Workers recently swept up a playground that had fallen into disrepair. And when an employee was injured in a car accident, Tata donated $500 to the family. Christy Rice, senior team leader, says those efforts demonstrate the biggest difference under the new owners. "It's less about numbers and more about people," she says.

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