By Bill Huber, Partner, ISG, and Kristen Elvinger, Research Associate

Concerns exist over the capacity of Latin American service providers to absorb rapid growth. Several global providers currently have a presence in Latin America, and tax and other trade incentives will help attract more outsourcers to the region. And, many Latin American countries are positioned to further develop emerging areas of specialization. Indeed, lessons learned from India, China, and some Eastern European countries suggest that specialization and quality-focused differentiation will be the keys to success, especially for countries with small populations.

Following is a review of major outsourcing destinations in Latin America, including assessments of strengths and business environments.

Mexico’s Head Start

Mexico benefits from a ten-year or so head start in the outsourcing business (primarily in call centers), proximity to the United States, membership in NAFTA, and a large pool of English speakers. Additional pluses: high-quality telecom infrastructure, good quality road and railway networks, and many airports. Mexico’s growing IT and BPO offerings are expected to increase 10% year-on-year, according to a study by HfS. Several cities offer a variety of trade incentives, including cash grants of up to 50% of total investments, and tax credits up to 30% of R&D expenses. Indeed, competition between states and cities to attract clients is helping to drive Mexico’s outsourcing maturity. While some have expressed concern about Mexico’s ability to develop higher value offerings, a number of initiatives – such as the Programa para el Desarrollo de la Industria del Software (PROSOFT) – are in place to develop skills for the workplace. On the downside, myriad security risks, both real and perceived, have hurt Mexico’s reputation.

Brazil Is Bigger

With the largest IT market in Latin America and the world’s second largest pool of COBOL programmers, Brazil boasts formidable outsourcing resources, characterized by a the presence of several global providers, well-established call center business, many R&D development centers, and a strong global services industry. While English fluency rates are low at 5%, that figure still represents approximately 10 million people, meaning Brazil has the ability to scale. Brazil also has very good telecommunications infrastructure, wide use of broadband, and the second highest number of airports in the world.

With a history as a quick adopter of new technology and methods, Brazil anticipates significant growth in high-value BPO and ITO in the next two years. Labor and export regulations, however, are a negative. And while incentives such as reduction in social security contributions and tax deductions for technology transfers are attractive to IT companies, exports of services are taxed heavily. Moreover, unfavorable labor laws and associated employment costs can be a concern. This paired with their large potential talent base gives them the opportunity to become a large nearshore destination if the government can create better trade incentives and bureaucracy.

Argentina’s Infrastructure and Bilingualism

Argentina boasts the best telecommunications infrastructure, the second-largest IT market, and the largest pool of bilingual employees in Latin America. Following the devaluation of the peso in 2001, Argentina took an economic hit that drove down wages and office real estate, which in turn attracted outsourcers. Responding to the opportunity, the government implemented a plan to develop the IT industry, focusing on software development and technical call centers. The initiative was characterized by a range of incentives for IT companies, including a 60% income tax exemption for software companies, 70% reduction on social contributions, and no restrictions on wiring foreign currencies for imports.

Argentina’s more progressive standards and data protection laws, moreover, are attractive. While Argentina is well-positioned to attract further outsourcing activity, bureaucratic hurdles are an obstacle, as with many other Latin American countries. Also, Argentina is implementing new trade restrictions . To address the challenges, many foreign companies are initially partnering with local providers when entering Argentina’s market.

Chile Seeks Higher Value

Chile’s stable government and currency, well-developed telecommunications infrastructure, and easy immigration policies make for an attractive destination for outsourcers. Recognizing that its small size requires a quality-rather-than-quantity-focused approach, Chile has created longer, more extensive IT education programs geared to high-value KPO, ITO, and shared services. The Chilean Economic Development Agency (CORFO) created InvestChile to provide investment incentives in more high-tech fields. Free trade agreements with the US, Canada, Australia, and China, as well as agreements to avoid double taxation on exports, are also attractive. Although approximately a ten-hour flight from the US, Chile shares time zones with the US. ChileiT is also actively working to promote its members to the international market.

Other Nations on the Rise

Other Latin American countries growing their outsourcing offerings include Costa Rica, Panama, Uruguay, El Salvador, Colombia, and Nicaragua. Most offer a few tax incentives and relatively good language skills. Key requirements will be to improve telecommunications infrastructure, grow English speaking populations, and develop IT skills. At present, most activity is in call centers, with a focus on specialization as a differentiating factor. Costa Rica, for example, touts its expertise in financial services.

Latin American countries are working hard to gain market share and raise their profiles as outsourcing destinations. Years of developing workforces, improving trade incentives, and building political stability are paying off. Concerns over scale are being addressed through pooling across multiple locations. Providers who are pursuing this strategy include Accenture, Capgemini, IBM, TCS, HCL, Cognizant, and Wipro.

Specialization can help Latin countries gain further advantage aside from being a nearshore destination. Although this strategy includes some risk, as outsourcing trends can change, many large destinations got their start using this approach. So far, Latin America has taken great steps in developing better skilled workforces and better business environments to support their Nearshore advantages of shared time zones, cultural affinity with the US, and more accent-neutral English skills. With proper identification of processes to outsource and the appropriate matchup of location and company, US companies can benefit greatly from Nearshoring to Latin America.

Bill Huber is Partner with ISG, a leading technology insights, market intelligence, and advisory services company. Kristen Elvinger is a research associate.

By Rosanne D’Ausilio

There is what we call a moment of truth when a customer makes a decision about you, your company, maybe even all companies in your industry, based on their interaction with anyone from the front lines up to and including your CEO. In those first three sentences, a customer determines whether their interaction will be a good experience, a bad experience, or a waste of their time.

When talking about customer service, customer satisfaction, and customer retention, you often hear that the best way to determine how you’re doing is to ask your customer. And that’s absolutely true. However, if you really want to know how your company is doing, ask your internal customer.

Not many companies do this. Their focus seems to be on the external customer only. But knowing what’s going on with internal customers is key to improving the satisfaction of external ones.

Who is your internal customer? Your employees, your peers, your direct reports, any and every one who has an impact on the customer experience. And how do you assess them? What do we look for when we take the pulse of a company?

• What are the strengths of your people?

• What are their weaknesses?

• What are the commonalities among applications?

• What are the changes currently going on in your organization?

• Hardware
• Software
• Teams
• Rules/Regulations

• What is today’s stress level?

• What doesn’t get communicated powerfully?

• What feels like you’re working with one hand tied behind your back?

• What are the mixed messages that may be rampant at your company?

• Why are your customers calling – do they have a question, a request, a complaint or a problem?

• What is a Typical Call?

• What is a Call from Hell?

• What’s the biggest gripe on the side of the customer?

• What’s the biggest gripe on the side of the employee?

• What gets accelerated and why?

• What empowerment exists, if any?

• What works really well?

• In a perfect world what would you do differently?

When you can answer these questions, you’re really getting to know your company and its people.

How do you accomplish this? We do it by:

1) Interviewing people

2) Monitoring calls

3) Studying the flow

4) Navigation of screens

5) After-call process

However, we don’t want to talk only to the best people or the highest level, but to all of them, whenever possible, and at all productivity levels.

Armed with this information, you can then identify the gaps and with that knowledge in hand, you are best able to present options. These options can fall into one of three categories:

(1) People

(2) Process

(3) Technology

If it is determined that it’s a people issue (which often it is), design customized training sessions to address the gaps and kick it up a notch in the area of customer service. We suggest these classes be delivered over time so that retention is improved and delivery is in real time addressing whatever current challenges exist.

If it is a technology issue, usually it’s caused by silos, the left hand not knowing what the right hand is doing. Many companies because of heavy investment in technology keep trying to make it work. Reminds me of the definition of insanity: Doing the same thing over and over again expecting different results.

If the results show a process issue, ‘be a customer’ and go through the process to see where the gaps are. Stand at the end, what is the result you want and how did you get there? What got in the way? What would make it smoother? Again, what are the gaps and how do you either eliminate them, fill them, or replace what isn’t working?

Rosanne D’Auslio, Ph.D., President of Human Technologies Global, Inc., and known as “the practical champion of the human,” is an industrial psychologist, consultant, master trainer, bestselling author, executive coach, and customer service expert. She also writes the complimentary tips newsletter How To Kick Your Customer Service Up A Notch!

By William Gourg 

The Greeks, 2,500 years ago, were onto something. Creating a concept such as synergy might have been one of their greatest inventions. Although the word has sometimes been overused and abused, synergy surrounds us nowadays. Synergies underlie mergers and takeovers, coalition governments, and civil society movements. More and more often we are starting to see public-private partnerships that promise the benefits of mutual cooperation.

Which is why I was was not surprised but was encouraged when I read about the Global Public Policy Summit (GPPS) organized by the World Information Technology and Services Alliance (WITSA) that took place in Guadalajara, Mexico, late last year. The event was focused on the necessary actions that have to start taking place all over emerging economies in order to create an inclusive society. WITSA recognizes that competitive IT businesses cannot thrive in societies that are uneducated or uninterested in technology issues and trends. Therefore, the summit called for government officials and agencies, as well as IT businesses and civil organizations, to recognize the necessity for synergy.

Government Must Commit

Amongst the presentations of world-class speakers with ample experience in the IT field, Mexico’s Under Minister of Communications, Hector Olavarria, talked about the challenges the country has found in its way to reaping the benefits of ICT investment. Olavarria expanded on the ICT challenges the country constantly encounters and the policies it promotes to balance them out. Within the policy actions that must be highlighted are the continued government commitment to stimulate investment (in the form of tax incentives, industrial facilities, etc) in IT areas; improve and increase infrastructure; and endorse pro-competitive regulations.

The latter is particularly interesting as it reflects the efforts of much needed synergy. The past year, the CANIETI (National Chamber for Electronic and Technology Industries), Mexico’s largest IT cluster (that represents over 1,200 members including Acer, Canon Mexico, Nextel, and Panasonic), made huge progress in the public policy front as it presented the Digital National Agenda (ADN) before the legislative chambers and the executive power.

A country’s domestic agenda shows a lot more than a country’s priorities, it shows their willingness to work and promote certain areas over others. That is why it was such great news to see the government and private sector working this past year in promoting the newly adopted ADN.

Why did the cluster see the need for a digital agenda? ICT businesses were alarmed by the breach that Mexico showed in international competitive indexes when compared to other emerging economies. A correlation popped: the better competitiveness a country shows, the better ICT capacity, and vice versa.

It was clear that the members of the cluster had to work alongside the government to mediate policy in a way that businesses would be attracted to continue investment in the country. Negotiations started with the presentation of the ADN in April, and continued throughout the year. Political will is required to strengthen the ICT capacity of individuals, companies, and governments, including health, education, and security organizations.

Combined Factors

Between 2005 and 2010 the Mexican federal government has had several ICT initiatives. The Ministry of Economy has PROSOFT; e-Mexico is the Ministry of Communications and Transportation’s bet; clinical histories have been digitized and a new project of “digital government” has been launched – but these projects have never been integrated or shared results.

This past year, Mexico started working to reduce the IT breach and enhance its comparative advantages. Mexico recognizes that now more than ever, IT coverage, services, and investment come hand in hand.

The combination of two or more things that creates an effect that is greater than the sum of both separately, that is synergy. A country that acknowledges that a consensus must be reached to homogenize policies and objectives of all actors of society is a country that is working toward a better competitive position and sustainable growth.

William Gourg is the Business Development Manager at InfoTrade Mexico Services, a group of export and foreign investment specialists assisting companies, economic development organizations and universities to increase their global sales & expansions. 

By Reshaad Durgahee

Lima, Peru: Surprisingly emerging.

In the period 2003 through 2010, Europe and Asia were the largest recipient regions of foreign investment projects in shared services and BPO activities, accounting for 46% and 29% respectively. Meanwhile, interest in Latin America has clearly been growing. The number of shared services and BPO foreign investment projects in Latin America rose year on year until 2010, when the total number of projects entering the region decreased by 15%.

However, in terms of jobs created by these investment projects in shared services and BPO, 2010 saw the highest number in the Nearshore region since 2006, increasing by almost 10% over 2009.

After the Asia-Pacific region, Latin America is now seeing the largest-size centers being set up, and indeed, the region continues to be characterized by a number of labor-intensive shared-services projects, with on average 350 announced jobs per center in 2010.

General trends in announced shared services jobs by world region, 2003-2010

Typical destinations for shared-services establishments in Latin America, such as Colombia and Costa Rica, continued to lead the rankings in 2010, representing 22% and 14% of regional shared-services job announcements. Brazil and Argentina – as dominant markets in the region – also continue to attract their share of investments.

Top ranking SSC/BPO destinations in Latin America & the Caribbean by estimated jobs, 2003-2010

However, it is the emergence of newcomers in the rankings, such as Nicaragua and Peru, that piques the interest of the observer of the outsourcing industry. These two countries attracted large-scale investments in shared services, demonstrating the widening of investor confidence across the region. Companies are now seeing the potential of previously untapped labor markets. Countries such as Nicaragua and Peru offer companies that are willing to take risks a first-mover advantage in terms of potentially lower labor costs, lower levels of competition from similar operations, and the opportunity to become the major player in a new market.

This would be in contrast to already well established shared-services locations in the region, which offer a more experienced labor pool and potentially higher-quality level of infrastructure, but are also starting to experience side effects such as increased levels of competition and elevated attrition rates.

The Rise of the Second Tier

In 2010, leading agglomerations in Latin America in terms of job creation through foreign investment in shared services and BPO included Bogota, Lima, San José, Guadalajara, Managua, and Medellin, the first four of which make the Global Top 20 ranking. Examples of new investments include Sitel, which announced 450 jobs at its new contact center in Managua; National Instruments, which has announced the establishment of a shared service center in San José creating 200 jobs in CRM, finance, IT, and sales; and Convergys, which has established a bilingual contact center and back-office support site in Bogota, creating up to 1,000 jobs.

The appearance of Bogota and San José, as now-seasoned shared services destinations comes perhaps as no surprise. The Mexican city of Guadalajara and Colombia’s second city Medellin highlight the potential of such second-tier cities in the region to operate shared services at lower cost than their capital cities, whilst still maintaining suitable operating environments desired by investing companies. Recent investments include West Customer Management’s bilingual contact center in Guadalajara and HP in Medellin.

Function-wise, investment in this sector into Latin America has been focused on contact centers (primarily to serve the local market and Spain, but also increasingly bilingual centers to serve the United States). In addition, in recent years, more and more companies have seen the potential for more value-added shared services operations in the region’s more mature locations, where there are now multiple finance and IT shared services, for example.

Sources of Investment

By far and away the largest source country of foreign investment in shared services operations in Latin America is the United States, which between 2003 and 2010 accounted for more than half of the jobs created in the region in this activity, generating almost 70,000 positions. Although Europe and Asia remain the most popular regions for US companies setting up shared services and BPO operations, Latin America remains a key market, in particular for nearshoring activities due to factors including timezone advantages and natural availability of Spanish language skills.

Between 2003 and 2009 Spanish companies (such as Telefonica and Banco Santander) accounted for about 20% of jobs created in shared services and BPO in the region, solidifying Spain’s position as the second largest investing country in this sector in Latin America.

Top source countries for SSC/BPO foreign investment into Latin America & the Caribbean, 2003-2010

Much has been written on the rise and dominance of India as a destination for shared services and BPO, but it is also interesting to note the rise of India as a source of such activities. Globally, Indian companies created over 15,000 jobs in this sector in 2010, continuing the year-on-year growth witnessed since 2005, accounting for 12% of all jobs created worldwide by foreign investors in this sector. From a Latin American perspective, in 2010, Indian companies such as Wipro, Genpact, and 24/7 Customer created just over 10% of shared services and BPO-related jobs announced by foreign investors in the region – a 60% increase from the previous year. It all represents a move to get closer to customers in a new market, highlighting the rise of India as an outward investor in shared services and BPO activities.

Profusion of Possibilities

Latin America continues to succeed at offering attractive options for companies wishing to establish shared services and BPO activities, as demonstrated by the increasing number of jobs created in the sector from foreign companies in recent years. These options come not only in the form of mature, well-established destinations, but also up-and-coming locations that companies are now finding worth investigating for outsourcing activities.

That is not to say that the mature shared services locations of the region are in decline. On the contrary, mature locations such as Costa Rica, Colombia, Argentina, and Brazil continue to attract their fair share of investment. In today’s economic climate, many companies have become increasingly risk-averse, and are content with opting for tried-and-tested options in the region, where costs may be slightly higher but where there is an availability of highly experienced shared-services profiles to recruit from. On the other hand, emerging Nearshore destinations offer those companies willing to be pioneers the opportunity to tap into new sources of talent and at a lower cost base, resulting in these locations now appearing next to traditional shared services locations in our global rankings.

Latin America’s profusion of location possibilities – both mature and emerging – means that it continues to develop as a strategic region that companies are considering for their shared services and BPO operations. Be it North American firms using the region as a nearshoring solution, Spanish companies cementing their presence in countries with similar linguistic and cultural affinities, or companies from emerging countries such as India wishing to extend their global footprint and gain a foothold in a new market, Latin America is sure to remain “on radar” for companies for the foreseeable future.

Reshaad Durgahee is a Senior Consultant at IBM Global Business Services’ Plant Location International (PLI) division. More analysis of location trends is available by download here.

By Stephanie Moore

When Forrester published its first Indian vendor consulting Wave in 2005, Indian vendors were just starting their journey into management consulting. At the time, none of these vendors could compete with traditional management consultants – such as Accenture and Deloitte – from a scale, brand, or experience perspective. Given the rapid growth that these vendors achieved in the pure IT services space, however, it seemed only a matter of time before they would challenge vendors such as Accenture in the IT management consulting arena. Six years have gone by and these ambitious Indian IT service providers are still trailing the traditional management consultants.

Much like 2005, Indian vendors are still trying to move up the value chain into management or business process consulting in order to stave off commoditization, secure executive-level relationships and endorsements, and increase deal value and margin through preliminary strategy consulting.

Meteoric Rise

Is this lackluster growth fueled by a lack of desire? Although several of the vendors profiled in 2005 know where they’d like their consulting organizations to go, none has achieved its desired end state yet. The top-tier Indian vendors were relatively small and unknown at the beginning of the century, but today they are multibillion dollar IT and business process outsourcing (BPO) powerhouses that dictate the way in which all vendors — including the likes of Accenture, Computer Sciences Corporation (CSC), and IBM — deliver IT services.

Given their meteoric rise to power in the areas of IT and business process services, it seems strange — at least at first glance — that they have not been able to make similar inroads into management consulting. Certainly, Cognizant, Infosys, and Wipro have all grown their consulting groups; however, pure management-consulting-partner–caliber staff still number in the hundreds as opposed to the thousands. When you consider the fact that these vendors employ 118,000, 133,000 and 120,000 people respectively, it’s easy to see the disconnect between what a vendor says about its consulting capabilities and the actual commitment to the model.

True Value

Management consulting and technology service delivery require very different business models. The Indian offshore outsourcing model has been predicated on an extremely high margin available to the vendor through labor arbitrage and industrialized delivery. Although in the early days executives thought that the value of Indian vendors performing management consulting was in saving money, it quickly became clear that management consulting had to be done by local consultants, largely on-site.

For sure, tasks such as research and prep work can be performed in lower-cost locations, but that project team distribution looks quite different from an applications maintenance project team distribution. Factors that discourage vendors from investing in management consulting include high startup costs, low margins and volumes, and lack of urgency: Indian vendor growth rates continue to outpace the rest of the IT industry, even during recent economic recessions, so the idea that management consulting is required to feed the huge implementation engines back in India is not yet an immediate concern.

Ultimately, to compete with global multinational corporations (MNCs) such as Accenture, Deloitte, and IBM, the India-centric vendors must have full-fledged management consulting capability in all the verticals they serve. Absent that, they will end up playing the role of technology subcontractors to the management consultants or to internal vendor/demand management organizations — in an increasingly commoditized world. Some vendors, such as Cognizant, Infosys, and Wipro, are well on their way to achieving their vision. Still, given the investments and time required to build up the capability, there is the risk that these publicly traded companies will lose their conviction and go for the short-term gains as opposed to preparing for the future.

Build On What They Have

If the India-centric providers can build up their vertical business consulting capability, they will be very strong candidates for business transformation consulting work. Their deep technology roots, combined with savvy industry and business process expertise, will undoubtedly help companies through innovation, transformation, and optimization cycles as well or better than the traditional management consultants. Using one vendor to develop and implement a business transformation strategy could drastically reduce the value leakage that occurs when a pure technology vendor is engaged to implement a strategy or solution developed by a pure business consulting vendor.

For now, however, evaluate the management consulting capabilities of their providers on a case-by-case basis. Some of the management consulting capabilities we predicted in 2005 have not come to fruition, but the Indian players are making strong progress, enough to merit consideration by clients seeking to integrate IT strategy with IT implementation.

For compliance and regulatory and tax-related activities, which may be only peripherally connected to technology solutions or only technology-enabled, companies are likely still better off working with their traditional business-focused management consultants and then perhaps implementing solutions recommended using the more technology-focused India-centric providers where required. Vendors such as Wipro are aware of the opportunities in this area and are also building up the capability to qualify for this type of work. In the short term, however — and especially in heavily regulated industries — it may be less risky to use a vendor with a history of performance here.

Stephanie Moore is a vice president and principal analyst at Forrester Research, where she serves Sourcing & Vendor Management Professionals.

By Peter Ryan

The US Congressional initiative House Resolution 3596 (HR 3596) is the most recent effort on the part of certain US legislators to inhibit the offshore outsourcing of contact center services. However, no matter how sincere the spirit of this and other previously proposed and similarly worded resolutions, Ovum believes such a law would badly hurt outsourcers and ultimately impact the US consumer negatively. Therefore, vendors need to come out swinging against such initiatives.

If enacted, HR 3596 would stop CRM outsourcers from delivering services offshore into the US. Among the more draconian provisions is the cataloging of all firms that are moving agent positions overseas in order to disqualify them from federal loans and loan guarantees for five years. This is in addition to requiring any firm that plans to move contact center operations overseas to give 120 days’ notice to the US Labor Secretary (with failure to do so meaning a penalty of $10,000 per day for late notification). In addition, agents overseas would be forced to inform callers of their location and offer the option of a US-based agent.

Although bill sponsor Tim Bishop states that he sees these moves as common sense to secure jobs in the US, Ovum believes that if this bill were to become law, the political motivations of wishing to appear patriotic in an election year would have negative impact on CRM outsourcers. With US unemployment rates moving south (albeit slowly, falling from 10% in October 2009 to 8.5% in December 2011), outsourcers are already beginning to consider the possibility of attrition rates increasing in domestic facilities as competition for talented labor within the contact center space (and from other verticals) ratchets up through the recovery.

In addition, the cost factor of this bill would be compounded when servicing the burgeoning US Hispanic market, considering the labor cost of domestic Spanish/English bilingual agents (which is known to be higher than US-based, English-only talent) relative to the more affordable nearshore. Outsourcers’ only alternative to taking on more domestic agents would be to leave callers on hold for excessive amounts of time – which would undermine service-level agreements with clients.

Consumers Ultimately Affected

In addition to the negative effect that HR 3596 would have on the CRM outsourcing community, Ovum believes it is important to recognize the extent to which it would also hurt consumers and clients of third-party services. From the perspective of the latter, there is no question that the price per hour that enterprises would pay their outsourcing partners would increase with the growth of agents based in the US; this would invariably be passed on to the end user, negatively affecting inflation, quality of service, and overall cost. In addition, should clients decide not to increase the size of their domestic capacity, US consumers would feel the pinch from the standpoint of considerable wait times for overloaded US agents should they choose not to be served by an overseas contact center.

Outsourcers Need to Aggressively Counter

Ovum does not believe that HR 3596 will pass a vote in the House of Representatives or the US Senate, which is good news for the outsourcing community. Far too often, such pieces of legislation are presented in election years in order to endear politicians to specific segments of the electorate or politically influential pressure groups (in this case, a number of US unions that have endorsed HR 3596). However, Ovum believes that no matter how unrealistic such pieces of legislation may be, the outsourcing community needs to be vigilant in their response to the growth of protectionism. Despite the drop in US unemployment levels, confidence in the economy remains fragile and the growth of protectionism in the 2012 election cycle is worrying. CRM outsourcers must forcefully counter these types of initiatives by outlining the potential impact they would have if they were to become law. Failure to do so would cede years of offshore market development and badly impact the bottom lines of outsourcers that have adopted this business model.

Peter Ryan is a leading analyst with Ovum and contributes regularly to Nearshore Americas. This article is reprinted upon permission of the author.

"Insourcing is a smart strategy right now..."

By Clayton Browne

President Obama hosted a White House forum today entitled “Insourcing American Jobs.” Executives from several companies spoke at the event, all representatives of businesses that have recently made major investments in the U.S. resulting in thousands of new jobs – many of them IT jobs.

Several business and academic experts at today’s conference emphasized that productivity gains in many industries are improving America’s competitiveness at a time when companies are looking at where to build manufacturing facilities to produce more skill‐ and capital‐intensive products.

President Obama mentioned that he is crafting tax incentives for businesses that bring jobs home and removing current tax breaks for companies that outsource. “Insourcing jobs is a smart strategy now…because the economic case for bringing jobs back home is strong and getting stronger,” he said.

The term insourcing has come into vogue the last few years, and is generally defined as the practice of both foreign and domestic companies opening up development/delivery centers or manufacturing plants and other businesses in the U.S. The jobs for American workers created by these businesses are “insourcing jobs” and represent the other side of globalization and the decades-long and well-publicized outsourcing of U.S. jobs trend.

Obama and his team have chosen to adopt the term insourcing for its antonymic relationship with outsourcing and give it a domestic spin to convey their populist message of bringing jobs home to America. And given how well this theme resonates with working-class values and concerns right now, it is likely to be a highly effective political strategy for the Democrats.

Unfortunately, the question of whether insourcing American jobs can really work on a large scale in today’s global world was not really addressed during this White House forum. While the CEOs who told their insourcing America success stories were sincere and the jobs they created real, the special circumstances that surround most of these companies and insulate them from the realities of global competition were not mentioned, which made the event more about political theater than economic substance.

Globalization and Outsourcing vs. Insourcing

Globalization is a cultural, political, and economic process. It happens as groups of nations sign trade agreements and as one country at a time transitions towards free trade or opens up its economic policy. Globalization also happens every day as companies decide to undertake business in another country. In every case, the process involves offering something of value to trading partners in return for needed materials or goods. And in many cases, this something of value is an inexpensive place to do business.

Globalization and the attendant decades-long trend toward outsourcing has affected almost every U.S. industry, but the manufacturing industry has been especially hard hit. It is difficult to provide accurate statistics on outsourcing, as companies are not required to report most information, but some statistics can offer a sense of scale.

Consulting firm High Road Strategies used Bureau of Labor Statistics data to determine that at least eight million manufacturing jobs were lost in the U.S. from 1979 to 2009. To be fair, it should be noted that many of these manufacturing jobs were lost due to technological innovations and automation during these three decades, not outsourcing.

Beginning in the 1990s businesses began to also outsource service and information technology jobs to places like India and Mexico, and this trend continues to grow in the 21st century. According to 2011 U.S. Commerce Department data, U.S. multinationals (which represent one-fifth of the U.S. workforce) cut their total number of U.S. employees by 2.9 million in the 2000s, while adding 2.4 million jobs overseas. Other researchers also argue that U.S. Commerce Department and Labor Department statistics significantly underestimate the number of outsourced jobs (and overestimate the related productivity improvements), and point out that outsourcing continues to expand rapidly in fields such as IT and HR.

The other side of the globalization coin is insourcing. According to “Insourcing Jobs: Making the Global Economy Work for America,” a report authored by Matthew Slaughter of the Tuck School of Business at Dartmouth, insourcing has led to 2.7 million jobs for American workers since 1987, with the total number of American workers hired by foreign companies standing at 5.4 million as of the end of 2002. However, a 2004 WSJ article reviewing Slaughter’s report pointed out that the trend toward foreign investment in the U.S. has been decreasing since 2000, and that this was not likely to change given the attractiveness of investment opportunities in other countries.

U.S. workers have become more productive in the last few years, and as today’s forum emphasized, America remains an attractive place to invest in for a number of industries in the 21st century. However, the roster of industries where this makes economic sense is shrinking, not growing, and even significant productivity gains will only slow the trend.

It would be great if businesses would build their new factories and design centers in the U.S. simply because Americans need jobs, but it’s not that easy. Businesses will invest and create jobs where it makes the most economic sense for them, and despite the productivity improvements in many industries discussed at today’s White House forum, it is unlikely to be the U.S. unless we start to produce more of the kind of workers that 21st century businesses need.

Outsourcing Is Often Win-Win

For the country hosting the outsourcing there are the obvious benefits of gainful employment, and in most cases there are also infrastructural improvements in the area of the facility. In many cases, as with Intel’s design center in Guadalajara, the companies doing the outsourcing also make significant contributions to improving the educational systems and often partner with local governments or businesses in other social projects. And, of course, the business doing the outsourcing is producing a product or service at a lower cost, enabling them to make more profits (and therefore have more money to spend/do good with back home).

Many economists such as Jadish N. Bhagwati argue that the medium- and long-term benefits to the U.S. economy from globalization more than make up for the loss of jobs that were doomed to disappear anyway. That is, of course, little comfort to the tens of thousands of individuals and families affected by unemployment, but the economic reality is that companies in many industries must outsource to stay competitive or go bankrupt. One other incidental benefit of outsourcing is that it encourages improvements in technology and in infrastructure as companies search for ways to increase efficiency without having to outsource.

 Considering the Regulatory Burden

Developed countries are always going to have a higher regulatory burden for businesses than less developed countries. And that is the way things should be, as more developed nations have the resources (and responsibility) to insist that businesses protect their workers, the environment, and the general public in the course of doing business.

That said, governments do tend to over-regulate some industries over time as laws are often passed in knee-jerk reaction to specific events, rather than as considered policy. One answer to this problem would be planned review of regulatory policy on an industry-by-industry basis every five or ten years, giving industry leaders input into the process.

Almost everyone agrees the U.S. tax system is overly complex and that compliance can be a real problem for both individuals and businesses. A reform and simplification of the tax code would be a significant first step in lowering the regulatory burden and making the U.S. a more attractive place to do business.

Creating a Competitive U.S. Educational System

The U.S. educational system must be reformed to reflect the realities of a global economy. This will require both institutional and curriculum-based reform of education. Our current private-public hybrid education system is a many-headed hydra that is inherently inefficient, and worse is becoming more and more “commodified” and its agenda driven by market (rather than political) forces.

The longstanding social model of a working class that just needs a secondary education to get a decent job working in a factory or as a mechanic or plumber, and an educated class that is virtually guaranteed a good job if they just “get a college education” is being gutted by economic realities of globalization. We as a nation must respond to structural changes in the demands of the labor market.

We can no longer afford to let a significant percentage of our children not get the education they need to find a good job, and by the same token we need rapid career retraining programs for the millions of workers unemployed by outsourcing. A 1999 Bureau of Labor Statistics study determined that only 36% of workers displaced by outsourcing found jobs at the same or a higher pay rate.

In order to create an educational system that will allow American workers to compete in the 21st century, we must not let our priorities be driven by short-term profit motivations. We need to accept that globalization has completely changed the playing field and thoughtfully consider what it will take to produce the software engineers, civil engineers, graphic designers, network admins, and so forth required to meet future skill-intensive demands of global businesses.

We need both public and private efforts – like those of New Jersey-based GalaxE Solutions in partnering with Detroit universities and community colleges, mentioned at today’s White House forum – to emphasize technical education at the primary and secondary level. We need to make kids who don’t realize it understand that software is just as glamorous as marketing or finance or fashion design, and that is where the jobs of the future will be.

Clayton Browne has a BA and an MS in Anthropology and has worked in both the educational publishing and the translation industry. He writes about Latin America, languages and linguistics, politics, business, technology, travel, and sports.

By Rosanne D’Ausilio, Ph.D.

The interaction anyone has at any level with your employees, including you, gives a customer an opportunity to make a judgment about you, your company, and all companies like yours. I’m not just talking about call centers here. All technical support or help desk personnel are included as well. As a matter of fact, anyone who is in the customer service business – period.

The preamble to the United States Constitution begins, ‘We, the people…” I feel strongly that we, the people, are what make the difference in life, both personally and professionally. But how does that relate to customer service?

With continued focus on customer satisfaction, customer retention, and lifetime value of the customer, it is no surprise that contact center operations continue to increase in importance as the primary hub of a customer’s experience. For the customer, the person on the other end of the phone is the company. The contact center is still the most common way that customers get in touch with businesses. In fact, Gartner reports 92% of all contact is through the center. And it’s been reported that 70% to 90% of what happens with customers is driven by human nature, having nothing to do with technology. State-of-the-art technology is a necessity today, but it is meant to enable human endeavors, not to disable them.

I often talk about taking customer service and “kicking it up a notch.” In the food industry, the word “lagniappe” is often used. Its definition is “a small present given to a customer with a purchase.” For example, when you go to the bakery and buy a dozen donuts or bagels, you oftentimes get a free one or a baker’s dozen. That’s what customer service should be about: giving the customer more than they expected! Let’s bring lagniappe into the contact center industry.

Customer service is those activities provided by a company’s employees that enhance the ability of a customer to realize the full potential value of a product or service before and after the sale is made, thereby leading to satisfaction and repurchase.

The First W: Why? 

The state of customer service today is not good, be it over the phone or self-service. Because 92% of people feel their call experience is important in shaping the image of a company, this reinforces the importance of centers in branding the image of their companies.

According to a Mobius Management Systems Survey, here’s what happened because of poor customer service:

• 60% cancelled accounts with banks

• 36% changed insurance providers

• 40% changed telephone companies

• 35% changed credit card providers

• 37% changed Internet service providers

Are you one of these statistics? I certainly am.

In a study done by Purdue University and BenchmarkPortal.com, in answer to (1) how did agents satisfy your needs and handle the call?, and (2) based on any negative experience, would you stop using this company in the future?, the findings reveal a strong correlation between the participant’s age and the tendency to stop using the company after a bad experience.

What does this mean? Younger participants were less tolerant and more likely to move to the competition. People over 65 were found to be more demanding than those in middle age.

What can you do? Give younger callers a “wow” experience – maintain their loyalty. People over 36 probably have more of an “emotional bank account” with the company they are dealing with – maybe had some good experience and therefore are more willing to forgive.

70% of Americans are willing to spend an average of 13% more with companies they believe provide excellent customer service – up from 9% last year. But most feel businesses aren’t measuring up. In countries around the world, a majority of consumers are willing to spend more with companies they believe provide excellent service, with the average amount they are willing to spend ranging from 7% to 22% more.

Average Percentage More Than Consumers Are Willing to Spend

Source: 2011 American Express Global Customer Service Barometer Survey

In a recent study (CRM Magazine/PeopleSoft Webinar on How Usability Helps to Drive a Profitable Contact Center), the number of applications required for agents to access customer inquiries were:

3.7% just 1

81.5% 2 – 5

7.4% 5 – 10

7.4% more than 10

As you can see, the majority of applications are two to five. The goal, of course, is to link every point of contact to one central location for a customer-centric, synchronized approach satisfying customer experiences with every interaction.

Strategies for success for world class service should include:

• Respond promptly

• Handle requests through the customers’ choice of medium

• Be brief and clear

• Reduce back and forth communications (especially in writing, i.e., e-mail; kick it up to a phone call if it goes beyond two messages)

• Personalize the service

• Delight the customer

What does it mean to delight the customer? It means inform and educate them, offer options, and diffuse any anger, if necessary. It also means establishing your expertise and professionalism, and taking ownership of the call.

Remember we’re still on the first W – the Why. Today’s pressures on agents are different than in the past. They are asked to handle more customers, more volume, more complex and/or complicated calls. After all, if we could handle our issues with self-service, we probably would not call. But if we tried self-service and it didn’t work, now we’re upset and it’s an escalated call from the get-go.

Agents are expected to provide more information, do it faster, and be available and accessible. But they are also expected to lower costs, generate revenue, incorporate new technologies, ensure closure and commitment, and deliver great service – yesterday, of course.

The U.S. Centers for Disease Control has concluded that the causes of death for people under 65 are:

21% – environment – war, accidents, crimes

9% – health care system – doctors, hospitals, medications

17% – human biology – not because of lifestyle

53% – because of the way people choose to live their lives!!!

The good news here is that for more than half of us, it’s about choice. There’s something we can do about it.

Who?

Who needs to be involved in the effort to improve customer service? Front-line agents/representatives, supervisors, team leads, managers, assistant managers, internal customers, and other departments – anyone who is a touch point so that he or she can learn to speak the same language, and more importantly, not be in an adversarial position, but rather feels that together they are serving the external customer or end user.

Where?

Certainly it is most cost effective to have training on site. However, distractions are rampant and the participant remains available to other personnel and to solve problems.

Offsite is more costly. However, there are no distractions, and the participants are unavailable to other departments, their managers, or any issues. I believe there is psychic value in taking people away from their workstations and off-site to acknowledge the tough jobs they have.

What?

The following modules provide a robust, powerful, and succinct training curriculum:

I also suggest university certification to up the ante. The more professionally you treat your employees, the more professionally they will treat your customers.

When?

For new hires, training should occur monthly, continually, consistently, whenever change occurs, when stressors increase, and as needed. Each employee should get a minimum of 24 hours per year of ongoing training, spread out over time for the most absorption. We divide our trainings into two four-hour sessions per day and deliver six days per employee. Therefore, 30 people can participate in the training per day. If there has been no ongoing training, we do four days once a month for four months and then a session three months later, and then another three months later. In this manner, training is customized, in real time, and can address whatever challenges are presented when they occur.

Remember, as it reminds us in the preamble of` the US Constitution, “We, the people,” make the difference.

Rosanne D’Auslio, Ph.D., is President of Human Technologies Global, Inc. Known as “the practical champion of the human,” she is an industrial psychologist, consultant, master trainer, bestselling author, executive coach, and customer service expert.

By Fernando Labastida

Imagine this: Suddenly 2012 has arrived. You’re happy because you’ve successfully completed all your projects for 2011. But you’ve got no deals in the pipeline. Scary scenario, right? It’s also a very likely scenario, and it happens to far too many Nearshore IT firms.

2012 is looming. As a Nearshore provider, you may be so busy with projects that you may have forgotten to fill your pipeline. But don’t panic just yet. Here is a way to fill your pipeline quickly without having to sell your soul or stress out your overworked sales people.

It’s a very effective, original, yet cost-effective marketing campaign that you can implement even without a marketing director or a marketing department. This is a marketing campaign that sales people would be happy with, because it generates sales-ready leads, not the type of lead you have to throw away or “nurture” over time.

Identify Your Targets

Identify 50-100 highly targeted companies. These should match the profile of your ideal clients: those customers that you enjoy working with, who don’t buy on price, are profitable to you, and refer you to others.

If these ideal customers share common traits, then develop a profile of your ideal target customer. Go out and find 50-100 of them, and start building a database of these companies. Research as much as you can about them on the Internet: what software platforms they currently have; their revenues (if they’re publicly traded then that’s public information), what their goals are, their vision, their mission, and more importantly, their problems and challenges.

Identify Three Target Executives Within Each Company

Then you want to get even more granular. Identify their CEO, CIO, CTO, or their CEO, COO, CFO, CIO, or their CTO, CEO, CFO or any number of combinations. Make sure to get a business or operations executive, as well as an IT or technology executive.

I’ll explain why later.

Find out as much as you can about them, using LinkedIn, Google, Manta, Plaxo, Jigsaw, friends, acquaintances, publications, etc. What articles have they written? Do they participate in discussions on LinkedIn or Quora? Do they have Twitter accounts?

Craft a Compelling Offer

Many IT services companies or custom software developers make the mistake that their services are the offer. Frankly, nobody cares about your services – yet. You’ve got to give them a reason to care, something compelling that will make them want to talk to you.

You must come up with a way to get in the door, and no more. Don’t think about selling them anything yet.

What can you offer that’s quick, inexpensive and provides a lot of value?

• Can you offer a two-hour onsite software audit?

• Can you provide a mobile-specific mock-up of their current website and offer to show them, in person, why 40% of users who navigate to their website from their smart phones or PDAs will click away if it’s not a mobile-specific site?

• Can you offer a free webinar on “The Seven Reasons Why You Must Get On The Cloud Yesterday?”

• Can you provide a free one hour ‘one-on-one’ consultation on how they can save money and improve their competitiveness with a more efficient IT infrastructure?

What else can you think of? These offers are designed to get you in the door NOW by providing something of immediate value.

The offer has to be valuable, but it also has to be non-salesy. You’re not trying to close a sale, you’re trying to get an appointment and share your expertise for free.

Write a Letter to All Three Executives

In this age of digital everything, direct mail is back.

But you’ve got to do it the right way. Write a short, professional letter to each executive you identified above. Mention you’re also sending the letter to his/her colleagues, naming them specifically.

Say: “I’m also sending this letter to John Smith and Jane Jones, because I’m trying to determine who is the best person to share the following information with.”

Why is this important? It will generate a psychological desire in all three of them to take care of the issue you brought up before the other executive does. They need to show they’re taking care of business, so they might just call you as soon as they get your letter!

State a potential problem or challenge or goal they might have (remember, do your research – use the information you’ve gathered, don’t wing it). Then present your free offer that ideally should be a way to solve their current issues.

Close by saying you’d like to schedule an appointment, and that your assistant will be calling their assistant to put it on the calendar.

Finally, send the letters via FedEx or Priority mail.

What, do I hear you say this is too expensive? Hey, if you want to fill your pipeline with some 2012 deals, you’ve got to go all out. Just do it – you’ll be happy with the results.

Follow-up 

Have your assistant call their assistant and send a follow-up email if your research revealed their email address.

Get the appointment.

However, you’ll probably be surprised to find that some of your prospects will have already contacted you. Remember the psychological aspect of sending the letter to three executives, and letting them know you’re contacting their colleagues?

A friend of mine and fellow marketer had great success with a similar campaign. He put together a program exactly like the one I just described above for an IT services client of his. Before they made their first follow-up phone call they got a couple of phone calls from prospects wanting to take them up on their offer.

He told me this was by far their most successful lead generation campaign he’d done.

Are you ready to hit the ground running in 2012?

Try this campaign – it’s not expensive, yet it’s smart, shows you’re a professional consultant instead of a sales-oriented company, and it works!

By Randy Vetter, Director, Alsbridge, Inc.

Your CFO walks into your office 18 months after you signed your first outsourcing contract and asks, “What happened to the savings you promised?”

To prepare for this question, hopefully you have created and properly staffed a Vendor Management Office (VMO) function that manages the contract, relationship, performance, and financial aspects of the agreement. But to be able to explain any discrepancies (or even better, avoid them) ask the following questions:

1. How have addressable costs changed since the inception of the contract?

When the original base case and business case financials were constructed, costs should have been divided into two key groups – addressable (those that can be affected through outsourcing and un-addressable (those that cannot. Addressable costs are directly tied to people, processes, and technology in labor (e.g., employee salary, benefits, bonus, taxes and contractors) and non-labor (e.g., travel, office supplies, software tools, and technology.) Un-addressable costs are those that remain in the company or department regardless of who performs the work (e.g., network transport, facilities overhead, and selected software and technology expenses).

2. Has the inflation clause in the contract become effective?

For modeling purposes, a business case is most often constructed as ‘inflation neutral.’ In most contracts that we’ve seen, providers want an inflation clause included in the contract. Post contract signing, you should have revised the business case to include the impact inflation has had, both from what would have been your costs and the provider’s price. If anticipated inflation on your costs exceeds what the provider recovers via a COLA clause, your business case improves. If the inverse is the case, your business case will degrade over time.

3. Has the Foreign Exchange (FX) Rate clause kicked in?

If you have an offshore component to your delivery, the provider will typically ask for a contract clause that changes your payment terms based on currency rate fluctuations. Unfavorable currency shifts can degrade your initial business case. While such shifts are out of your control, it’s good practice to put a cap on the effects of such shifts.

4. Are your costs growing because your business is?

If your business needs more project work, servers, storage or applications because it is growing, that is not necessarily bad. However, a well constructed contract will still yield lower cost of growth than what would have been the case had you stayed insourced.

5. Have any unplanned corporate overhead allocations been assessed to your department?

From time to time there is a rebalancing of existing corporate overhead costs (e.g., HR, Administration, facilities) across departments. This may have happened after you locked in your business case. If the allocation increased for your department, this is an unplanned cost that impacts your savings line. From a corporate view, there is no impact. Properly reflected, this will not adversely impact your business case as it is an un-addressable cost.

6. Are you spending enough on vendor management?

To increase the apparent return on outsourcing, some organizations deliberately fail to provide enough staff to manage the outsourcer. This can boost returns in the short run, but eventually you will need to staff to the appropriate level to manage the outsourcing arrangement and to ensure you deliver on your commitments to the business.

7. Did you follow your plan for reductions in force?

Did you end up keeping higher-end high cost people and releasing lower cost resources? Did you keep an extra few people for good measure? While this is easy to do on an emotional level and can provide the feeling of insurance, it will chew into the savings built into your business case.

8. Were your actual transition costs greater than estimated?

If the transition took longer than planned, it will can raise costs for the customer (in the form of payroll, severance, retention bonuses, advisory fees, etc.) or for the provider, in the form of labor, tools, travel, etc.

9. Did the provider under bid the work?

Some providers think they can ask for more money once they are in place and you’ve lost the staff that previously performed the work. But unless the provider can materially prove that work volumes have changed, they are obligated to deliver per the contract. To prevent this, we seek assurance from the provider at the highest levels that they are not promising more than they can deliver and will make a reasonable margin on the work. If a provider still underbid, executives on the client side must hold the provider’s feet to the fire.

10. Was the outsourcer hit with pent-up demand?

During an outsourcing transition, it’s a good idea to “freeze” some work so the internal team can focus on the transfer of knowledge to the provider. This can create pent-up demand from the business that is eager to take advantage of the outsourcer’s lower costs. If not controlled, this can drive costs beyond those planned in the business case. Managing demands and prioritizing work is just as important in an outsourced arrangement as when you did the work in-house.

11. Are you inspecting and reconciling the provider’s invoices against work volumes and what was contracted for in the agreement?

We find a surprising number of provider invoices that lack the detail required to reconcile the work performed against the Charges Schedule in the contract. This results in errors in the invoices. A good VMO will catch these anomalies and ensure you are getting what you are paying for.

12. Did the provider hire more of your people than anticipated and/or established an on/off shore mix that is more tilted to onshore than anticipated?

If the provider has rebadged more than expected (or hired displaced people as contractors), you may benefit from their institutional knowledge. But the added costs can damage the business case. Similarly, using more onshore staff than planned can improve results, but also raise your costs. An effective VMO will alert you to these issues and allow you to decide whether the added service is worth the extra costs.

One of the toughest jobs in outsourcing is tracking the impact changes may have on your business case. While you can’t control all these changes, knowing what they are — and how to best manage them — will help your bottom line and help you stay in the good graces of your CFO.

This article originally appeared on Global Delivery Report