By Kirk Laughlin

Seemingly out of nowhere, Medellin is sweeping onto Latin America outsourcing’s center stage in a dramatic flourish, winning deal after deal and – by beckoning to the world – totally reshaping what the city stands for by openly confronting the wreckage of its darkest days. Medellin’s dramatic transformation is easily one of the most captivating stories in all of Latin America IT.

A City in Bloom

Due to a series of favorable conditions – including highly engaged and deep-pocketed corporate institutions (starting with Bancolombia), a rich array of universities many of which have engineering and computer science programs, the establishment of policies and agencies focused on nurturing the right conditions for BPO/ITO services and a stunning physical environment where “Eternal Spring” and large amounts of greenery make for a lot of happy souls – Medellin may be the ultimate ‘hidden gem’ in the Americas’ sourcing marketplace. Very simply, Medellin functions. Mass transit – including a metro that extends from the south to the north basin of the metro area – is clean and efficient. Traffic is a non-issue, unlike its big brother, Bogota.

But of course there are no guarantees for Medellin. Its positioning as a mountain, interior city has done little to enable international exposure, unlike thriving BPO port cities of Cali and Barranquilla. This is one of several reasons many knowledgeable observers express concerns about the bilingual talent available among the city’s 3.5 million inhabitants (in the larger metro area).

Investment in Full Flow

While much has been made of the watershed decision by HP in 2010 to set up in Medellin, a wave of new investment is potentially setting the stage for a formidable tech ecosystem that in the next few years could mirror – on a smaller scale – the strides of major hubs such as Guadalajara and Sao Paulo. Kimberly Clark recently named Medellin one of three global innovations centers, a huge coup that demonstrates a deep confidence in science/tech human capital. The organization expects to launch a 200-person operation in the next few months in the “Rionegro” area not far from the airport.

Existing operators in the area include multionationals like Tata Consultancy Services, Unisys, Allus, Teleperformance and Infosys, which has a small team focused exclusively on supporting Bancolombia’s core banking / ERP operations. In fact, it was Infosys’s Gita Jayanth, a senior finance executive working in Medellin, who instituted a program to take the 100 top computer science students attending EAFIT university in Medellin every summer to Bangalore for specialized training. The program is now in its third year running. “This is an outstanding program with no strings attached,” said Helmuth Trefftz, Chair of EAFIT’s Computer Science Department.

The timing of HP’s official move into Medellin is producing an increasing amount of head-scratching. The company has started paying month rent on its sparkling new facility in the new “Ruta N” area – as part of a 15-year lease. But sources tell us that the timing of HP’s installation of staff into the offices is still in question while others are skeptical that HP will actually open the facility despite all the planning that has already gone on. The company has maintained a small staff in a building within the EAFIT campus, but many believe that restructuring in the wake of CEO Meg Witman’s late 2011 arrival at HP has shifted its offshore services priorities.

The $50 million Ruta N facility will opens its doors within the next few weeks.

Ruta N is the name of a three building complex in an area of the city that used be blighted by crime. The city financed the project – worth $50 million – which is seen as a symbol of the new focus on global engagement and tech innovation, combining public and private interests.

City leaders are quick to point out that Medellin may look like it’s hell-bent on making a name for itself globally, yet there is still a cautiousness that prevails. The city is extremely aware of how it’s perceived from the outside and still seems somewhat wounded by the global condemnation wrought by years of drug-related violence that tore deep into the heart and culture of the “Paisa” people. The homicide rates of the early 90s, where as many as 500 people were getting killed a month, is nowhere near what it is now. But according to statistics from ACIMedellin, the city’s trade promotion group which facilitated a visit last week by Nearshore Americas, homicides have inched up some from their lowest point – during 2006-2008.

The city remains one of the world’s fifty most violent cities, but it should be pointed out that US cities – New Orleans, Detroit, St. Louis and Baltimore are also in the top 50 ranking by Mexican organization, Consejo Ciudadano para la Seguridad Pública y la Justicia Penal.

Social Inclusion

Medellin’s leaders, grounding their efforts on social inclusion aimed at fostering economic equality, are persistently focused on reaching out to the long-isolated “comunas” to become part of this new, knowledge-driven era. It’s a big and complex job. David Escobar, Medellin’s City Planner is deeply involved with the efforts and sees many signs of change. “The city has reclaimed its self-esteem,” said Escobar who credits much of the city’s transformation to former Mayor Sergio Fajardo (who is now governor of the state of Antioquia) who set in motion heavy spending on education, the arts and the installation of multiple new libraries sitting in once battle-ridden areas.

The call to come to the capital of Antioquia is being heard around the world, including in King of Prussia, Penn. where local company Yuxi Pacific set its sights on Medellin during the last year after seeing its operations in China falter due to rising inflation and hard-to-find English speaking talent.

Medellin is 25% cheaper than labor in Costa Rica, says Michael Puscar, CEO of Yuxi Pacific. (Far right)

“The English ability is way better than I thought,” says CEO Michael Puscar, who runs a 50-person software and Q/A studio for content publishers looking to exploit new “Big Data” management tools. Puscar examined Argentina, Peru, Costa Rica and Mexico before settling on Medellin, which has a city population of 2.5 million. “Salaries here are 25% less than Costa Rica or Mexico. It was a no-brainer,” says Puskar, who does stress that the value proposition of Colombia could be in serious jeopardy if the Peso continues its rise. The currency has risen nearly ten percent since early January, putting pressure on the margins of foreign operators.

The availability of English-speaking talent is potentially one of Medellin’s biggest vulnerabilities. While exciting US-owned firms like Yuxi have had little trouble finding bright, bi-lingual professionals – most Colombian-owned operators worried to us that the demand for English speakers could quickly outstrip supply.

“We have a huge gap with English speaking people. I consider it a big issue,” says Carlos Castro, the CEO Enlace Operativo, a BPO and ITO services company headquartered in Medellin, with 1,700 employees in Bogota and Medellin. Almost all of Castro’s firm relies on Spanish-only speakers, but that could change in the longer term should the firm decide to pursue BPO business in the US. “It’s going to take a lot of years to address the issue,” he says.

In terms of attracting investment, Castro gives credit to the long-term planning focus of the national government. He says the work of ANDI, which is effectively the ‘chamber’ for the country’s BPO / ITO sector, along with Proexport and local investment promotion agencies spread across the country work closely together.

In fact, the close coordination of seemingly ‘rival’ cities shows just how much Colombia is making BPO a priority and continues to reflect back to the long-term thinking of former President Alvaro Uribe who partnered with Minister of Trade and Industry Luis Guillermo Plata to engineer what is looking like one of the best prepared BPO markets in all of the Americas going into the next stages of market expansion.

Michael Cooper, a US native who has lived in Medellin for 30 years said the city’s transformation during the last 8 to ten years has been “unbelievable.” Cooper is executive director of Medellin’s Centro Colombo Americano, a cultural and educational institution, which provides English instruction to over 6,000 students in the Medellin area per year.

Looking to make connections in Medellin or get deeper insight into the market’s potential? Contact Kirk Laughlin

By: Michael Santamaria

There’s little doubt that Business Process Outsourcing is here to stay; the lure of “easy” cost savings is just too powerful for companies to resist. But the truth of the matter is that implementing a successful outsourcing project is hard work and realizing those “easy” savings is by no means a foregone conclusion. While data on outsourcing failure is hard to come by, the Aberdeen Group has reported that 21% of outsourcing projects fail to meet stakeholder expectations, and Gartner puts the outsourcing failure rate as high as 30%. Although neither study defines what constitutes a “failure,” the bottom line is a large percent of projects end with unhappy clients.

When an outsourcing project fails, it’s easy to blame the vendor. But having experienced the situation from both sides of the table, I would suggest that more often than not, the purchasing company lays the groundwork for the poor performance. The onus is on the purchasing company to do an adequate due diligence and to manage the project. Can you really blame the vendor when they were put in the position to fail from the beginning? Ultimately, no one wins the “blame game,” you are better off doing the project right the first time around.

To avoid being one of the Gartner statistics, there are four considerations that need to be part of your outsourcing initiative, 1) set an outsourcing strategy, 2) choose the vendor that best fits that strategy, 3) own the transition, and 4) create the structure to manage the relationship.

Strategize Wisely

Setting your outsourcing strategy is the all-important first step. To a certain degree, outsourcing strategies can be classified as either tactical or transformational. The tactical model is designed to take advantage of labor arbitrage and often employs what is referred to as a “lift and shift” approach. Work is lifted from your company and shifted to one in a lower cost area. Vendors of lift and shift models typically use existing processes and work in your existing systems, requiring little change on the part of your company. Essentially, the location of the worker changes, but the work itself does not.

On the other hand, a transformational model almost always involves a software implementation, which leverages optimized workflows. Under a transformational model, your company replaces existing processes and technology with the vendor’s processes and technology. As such, an IT project is embedded within the implementation. Clearly, implementing a transformational model is more involved than lift and shift, but it yields some notable advantages.

So, how do you decide which approach is best for your company? While there are no pat answers, I have found that companies often shy away from “yet another IT project” and end up following the tactical path, which is a mistake. My advice is to start assuming the transformation/software dependent solutions. Many of these solutions are very sophisticated, their processes and technologies successfully encapsulating industry best practices, and they have a large installed base so you can take comfort knowing that most of the bugs have been worked out. In addition, most solutions have a relatively streamlined and formalized client onboarding process, mitigating many concerns about implementing the solutions. In some cases, of course, there are no transformational options that fit your needs, forcing you to go the tactical route. This approach is workable, as each model has its benefits.

Figure 1 below breaks down the strengths and weaknesses of each.

Choosing the Right Vendor

The next step in implementing a successful outsourcing project is choosing the right vendor. If your company’s strategy employs the transformational approach, the process of choosing a vendor will be driven by the software solution, actually making selection easier. Comparison of tactical vendors is more difficult, because, for the most part, you will be comparing intangibles.

Regardless as to the approach, it is necessary to spend adequate time on due diligence checking all references, asking the hard questions, and arranging to visit reference sites in order to observe the process in action. Observing the process in person provides a better understanding of the processes, handoffs, potential issues related to team integration, and challenges communicating across distance. A vendor demonstration cannot compare to an onsite visit. A trip to one or two reference sites will prove to be money well spent.

Once vendor selection is complete, the planning stage begins in earnest. Generally, vendors will provide the overall implementation work plan. That said, since this is ultimately your project, you have the responsibility of owning it! Your company should remain integrally involved in the transition, which means dedicating the appropriate staff, assigning a sponsor, and holding senior leadership governance and gate reviews. It is also necessary to spend time developing a comprehensive risk mitigation plan. Your company needs contingency plans to address potential obstacles, including negative employee-client reaction to temporary performance dips, the PR response if contacted by the local press, transition plans for the local staff, and most importantly, plans to deal with unforeseen departures.

Regardless of severance packages or retention bonuses, once job eliminations are made public, employees begin searching for new opportunities. Needless to say, their departures don’t always align with your company’s staffing needs. Recently, I had the opportunity to experience this issue first hand, when my client on a six-month outsourcing project announced to me that we needed to go live in one week, three months early, because they no longer had the staff in the department to process the work. It goes without saying that the next few weeks were not exactly smooth.

Manage the Vendor

The last factor to consider for your outsourcing project is post-implementation vendor management. Unfortunately, this step tends to go overlooked until problems arise. Communication is one of the most vital elements in making an outsourcing relationship work. I recommend you plan to over communicate at the beginning of the project. The communication plan should include daily supervisor calls, monthly management reviews, and a quarterly sponsor meeting. Over time, if this proves cumbersome, you can dial it back. At the beginning, though, plan to over-communicate.

The daily calls should occur at the supervisor level, last no more than 10 minutes, and address yesterday’s challenges and today’s expected volume. I try to keep the daily calls informal to help forge a relationship between the team’s supervisor groups. Monthly management meetings should focus on the service level agreement (SLA) and performance metrics. It is critical to agree on what will be measured, how it will be measured, and what performance levels are acceptable before going live. In my experience, failure to exercise rigor in this step is where many outsourcing initiatives go wrong. Finally, the sponsor meeting should be a review of monthly trends and discussion of performance issues.

For these meetings, it is important that sponsors treat the two teams as unified and hold them jointly accountable. When issues inevitably arise and a “blame game” begins, sponsors need to be able to cut through the noise and force the teams to work together towards a solution. After all, one team cannot be successful if the other fails.

Outsourcing is not easy. But if you start with a sound strategy, leverage the right vendor, and are prepared to manage the project and relationship you can achieve significant savings. Let’s face it, those savings are hard to ignore.

Michael Santamaria is a director at ScottMadden. His consulting experience spans a number of areas including business process outsourcing, process redesign, organization design, operations improvement, and project management. Prior to joining ScottMadden, Michael ran operations for a business process outsourcer, consulted for Clarkston Potomac Group and Emerson Consulting, and held several positions with General Electric. Michael received an M.B.A. from Case Western Reserve University, Weatherhead School of Management and his undergraduate degree from Washington and Jefferson College. He is a certified GE Six Sigma Master Black Belt.

By Michael Blankman

In my recent article, we concluded that the most important aspect of managing remotely is building a strong and trusting relationship. Creating a partnership that doesn’t rely solely on the contract for the outsourcer to get performance security. The partnership is critical because once operations are outsourced, real influence over daily management will and should be limited, or why outsource at all? The partnership needs to be based on respecting each other’s expertise, ensuring roles and responsibilities are clearly defined and that the underlying business model justifying the decision to outsource is protected.

Managing the ongoing performance (real time, daily, weekly, etc.) is the second most important area on which to focus. Performance management is conceptually aligned with the concept of trust, but verify.

Customer service expectations that are critical to the outsourcer can seem at odds with the operational efficiencies targeted by the vendor.

Recapping what we have covered to date:

• The toughest decision, which is to outsource has been made.
• A general observation is that businesses aren’t unique and that it is important to let go and to fit into their operating model.
• The outsourcer has created a small but influential and agile group of subject matter experts to be the primary interface with the vendor; the vendor has assigned dedicated account management.
• Depending on the size of the business, it is important to accept that the overall number of support and management staff dedicated to a program may be small.

Customer Satisfaction / Quality Management

The vendor and the outsourcer may have service and quality goals, which seem contradictory. Putting a process in place is the moment of truth between the supplier and the vendor. That is why it is critical during due diligence process that the vendor’s commitment to quality is understood that they are not providing lip service or view quality as a necessary evil. A vendor’s true commitment is easy to recognize by understanding what local processes they have in place and if they are followed consistently.

A good way to see if customer service and quality are truly integrated into the management process is to ask the staff their opinion and to find out from them what reward and recognition programs are in place. Everybody in every function, whether or not they are writing code or answering calls, wants an opportunity to be recognized. Integration and consistency, although seemingly obvious, are critical. It is interesting to see how many initiatives are the “flavor of the day” and dwindle in importance, replaced by new programs that also dwindle in importance. For example, consider when the last employee of the month was awarded.

Additionally, during contract negotiations change of control protection is critical. It is very easy for a change in ownership and management philosophy to alter customer service dynamics. This is as important as protecting the financial model contractually.

Qualitative versus Quantitative

Many of the relevant statistics will be relatively easy to track and done systematically.

In call centers, vendors will focus more on agent performance and outsourcers more on qualitative data that will enable them to understand the underlying reasons for a call and to apply that data to specific customers, where appropriate. In the call monitoring process, vendors will target a statistical sample by agent to quantify performance versus call type and client specific metrics favored by the outsourcer. Important also is the ability to disposition calls correctly. Vendors often bristle at free form wrap and want to rely on system driven algorithms to deliver MIS. Attention needs to be paid to the integrity of this process or the data derived will not be useful.

Call Monitoring: Call monitoring is the best process for both parties to really understand quality and make improvements. It is also labor intensive but can be done efficiently.

The Program

• Call monitoring has to be a dedicated function on both sides: don’t engage with a vendor unless it is already a part of their quality process.
• There needs to be agreement on what metrics are tracked during monitoring and the vendor should try to accommodate the outsourcer’s needs, especially where regulatory attention must be paid. Some expansion to the vendor’s current process will most likely have to take place.
• Whatever the final process looks like the outsourcer will always have to monitor additional calls. There are nuances to the businesses and clients that the vendor will never understand completely. To avoid undue bias and potential line of business conflicts, call monitoring at the vendor should reside as part of an independent quality group. This is not an attempt to create layers – the assumption is that the vendor already has this group in place for their own monitoring and other quality initiatives.

A multi-tiered process should be established. For example:

• Both quality teams should monitor calls together according to a formalized schedule for calibration purposes. Ultimately the vendor will monitor the majority of the calls therefore both sides need to be in synch.
• Calls need to be monitored separately as well with the results distributed and reviewed by all parties.
• Underlying clients, where possible, should be included in some of the monitoring sessions (relationship management should also be involved so the vendor hears the voice of the client).
• Utilization of third party remote monitoring organizations as an independent counterbalance should also be considered.
• An underutilized and sometimes poorly managed tool is mystery shopping. Mystery shopping is a tool to gage your own service and an opportunity to compare the metrics and best practices of your competitors. The outsourcer can accomplish mystery shopping internally by calling both competitors and the vendor or by hiring an independent firm.

Anytime multiple sites or vendors can be utilized, the ability to competitively benchmark and drive improvements is enhanced. To emphasize, quality and reward programs need to be consistent and tightly managed with tangible goals.

Michael Blankman, a global outsourcing senior advisor, can be reached at: michaelblankman@aol.com

By Dan Berthiaume

When selecting a location for BPO service delivery, there are some standard metrics most BPO buyers use to determine the best location. However, “standard” does not always mean “right.” Just as in so many other areas of business, sometimes the common wisdom in the BPO realm is outdated, distorted or just plain wrong. Following is a brief review – compiled from several different expert sources- of some popular myths:

1. Rankings are helpful to understand relative attractiveness of locations. 
Despite heavy reliance on various “official” rankings of BPO locations, it is prudent to digest these reports with a heavy grain of salt.  Factors such as an incrasingly large number of competing rankings, a lack of correlation between rankings and actual end outcomes, score differences that are not meaningful enough to denote relative attractiveness, and the inability of generic rankings to take company-specific considerations into account limit the usefulness of rankings.

Furthermore – as long-time followers of Nearshore Americas can recall – there are firms pretending to do analysis of markets, but when confronted to produce evidence of their findings, they are nowhere to be found. The classic example of this is the 2009 “Black Book” of Outsourcing’s unfair attack on Bogota, performed by the owners of “Black Book” which was later acquired by DataMonitor/ Ovum. The ‘authors’ never engaged with us when we requested they provide evidence of Bogota being the ‘riskiest place on earth’ to do outsourcing. (Ovum CEO’s actually wrote a letter to us about this topic – published here.)

2. Size = scalability.
While the “size of an overall talent pool is often assumed to indicate scalability,  in reality, scalability is driven by multiple factors including quality of talent, competition, and companies’ unique requirements. The size of what appears to be an available talent pool  can be significantly reduced by issues such as lack of quality of quality and propensity and competition, resulting in a much smaller net talent pool. In addition, Everest Group – among others – cautions that statistics on available talent pools of qualified college graduates can often be misleading, and that local college graduates are not always part of the available talent pool.

3. Wage increase directly leads to an increase in overall people costs.
Using the typical wages paid to ITO workers in India during the past few years as an example, Everest Group demonstrates that although wage inflation of 10-12% for senior programmers and 12-15% for junior programmers has often been reported, in actuality wages for these employees have actually risen 3-8%, with a net 4-6% impact on overall people costs. Everest Group attributes the disparity to lower levels of total inflation in salary bands than individual changes due to promotions and growth, as well as cost controls allowed by high rates of attrition among junior programmers.

Everest Group says high-cost locations can supplement a BPO portfolio by fulfilling unique needs, such as niche skills, customer proximity, and time zone overlap

4. Locations experiencing tight labor conditions are always unattractive.
Large cities in popular BPO locations often experience labor pool tightness due to competition for workers. However, Everest Group advises that BPO buyers can often supplement a “tight” labor pool in an urban BPO location with workers from adjoining areas, as well as the possible “additional” talent pool represented by employable high school graduates, part-time workers, and experienced professionals with similar skills from other industries. BPO buyers will need to implement the proper hiring and training models to implement and scale hiring of workers from the additional talent pool.

5. High-cost and low-cost locations are in competition with each other.
BPO buyers often assume they must select either a low-cost or a high-cost location, with an obvious bias toward the cheaper destination. In actuality, Everest Group says high-cost locations can supplement a BPO portfolio by fulfilling unique needs, such as niche skills, customer proximity, and time zone overlap. BPO buyers should also assess delivery risks, including stability and predictability and business continuity, as well as consider direct financial metrics such as labor arbitrage, operational costs and taxes and incentives.

(Editorial note: Much of our research for this report resulted from a webinar, the “5 Common Myths of Location Selection,” produced by Everest Group).

By Robert L. Scheier

Service level agreements (SLAs) are the heart and soul of many outsourcing contracts. They define what the provider must deliver and their penalties for failure, in anything from application uptime to the time required to solve a customer’s problem on a help line.

But at least as currently defined, SLAs often fall short of detecting (and, more importantly, correcting) problems quickly. That was the message at the recent SIG Spring Summit from Senior Corporate Counsel Richard English of Ingram Micro and Shaalu Mehra of Sheppard Mullin Richter & Hampton, who helps the electronic distributor negotiate outsourcing deals.

SLAs fall down, said Mehra, because they don’t change with the customer’s requirements, aren’t defined precisely enough, and often aren’t structured to do a root-cause analysis of the root problem behind multiple failures.

“I love SLAs,” Mehra said in a session on “Best Practices for Ensuring Quality of Service in Multinational Outsourcing Engagements.” However, he continued, they are limited because they are just one “data point” measuring a provider’s performance.

While SLAs are the subject of intense negotiations at the start of engagement, he says, they may not be based on the right metrics to measure the effectiveness of the outsourced service for the customer. In addition, he said, SLAs “can be undermined by even minor changes” to the processes or systems they measure, and are often not updated often enough.

Another factor that limits their usefulness is “single incident limitation, (which makes) root cause analysis subject to an agreement of the parties,” said Mehra. Understanding and correcting the reasons for past failures can also be hindered by what English called a “statute of limitations” requested by vendors on how long a customer can ask for a service credit after a failure.

Both strongly suggested using a common approach to SLAs and other terms with all outsourcing providers, regardless of their location. “While that company may be India-based, and might be doing work for us in Asia, or might be doing work for us in Latin America…we don’t care,” said English. “We’re going to build in one global SLA.”

Two areas where the pair said specialized SLAs might make sense were to measure English language fluency and attrition. While Mehra agreed that “fluency” is subjective, he said it could be measured through a sampling of calls or surveys of whichever end users were being served.

Mehra said such SLAs often measure attrition on a rolling 12-month basis, and is an area where definitions (such as whether promotions, reductions in force or departures for personal reasons count as attrition) are often the cause of hard bargaining. “However reasonable the vendor’s concerns may sound, at some point, we have to draw a line” about where and how the customer will be protected from excessive turnover, he said.

In addition to SLAs, Mehra recommended regular payments based on the achievement of milestones, as well as periodic payments with provisions for holdbacks as a penalty to the provider for failures in delivery.

Nearshore Nexus – the ‘home conference’ for the thriving Latin America BPO and IT industry – created a huge splash last week in New York City. Capturing the passion and energy of over 200 executive attendees, twenty sponsors and attendees from 15 countries in the region is a tall order – but our photographer managed to distill the full-day program into  this colorful pictorial.. 

By Robert L. Scheier

Hourly labor costs in the Latin American Nearshore are still slightly higher than in traditional low-cost leader India. But other factors such as faster time to market and simplified communications often still make the Nearshore the better choice, according to speakers at the Nearshore Nexus outsourcing conference in New York City last week.

As a result of wage inflation in India caused by strong demand for talent, the total cost of ownership (including costs such as travel to the outsourcer’s site) of using a Nearshore company are currently only about eight percent higher than those in India, said Esteban Herrera, COO and advisor, of outsourcing consultancy HfS Research. But “when you consider the intangibles, the advantages of Latin America will erase that in a short time, if they haven’t already,” he said.

The increased awareness of such benefits by customers has, he said, driven significantly more interest in the Nearshore over the last two years. Among the most popular countries which are close to price parity with India, he said, are Colombia, Argentina, Mexico and Costa Rica.

Look Beyond Rates

“If all you’re doing is looking at rates, for the most part, Latin American countries will not appear to be least expensive,” said Mark Peacock, CIO of Pegasus Solutions, a provider of ecommerce and transaction processing services to the hotel industry. “But when you really, truly think about TCO, and start thinking about the cost of complexity in your operation, and the cost to coordinate and reach out and train people, and deal with people, there is a kind of hidden cost to going fully offshore.”

With customers in both North America and Europe, it’s difficult enough for Pegasus employees to keep track of time zones without also factoring in the time difference to a service provider in India, said Peacock. Forcing workers to stay up late, or get up early, for phone calls with an Indian outsourcer for too long will eventually mean the loss of skilled talent, he says. “People will walk out the door if their lives are miserable.”

As a startup, the biggest challenge Noodle Education faces is “the need to pivot so quickly” as market needs change, said CTO Jason Rodriguez. Because it uses the agile development methodology to make rapid changes to its education-oriented search service, working with an Asian outsourcer is “very difficult to do in an efficient manner” while working with a Nearshore vendor “makes sure everyone is in sync, and we still get the benefits of the low cost.”

Challenges Remain

Despite such advantages, Nearshore geographies still face challenges in rising to the level of world-class providers. “It all comes down to the talent that is serving the customer,” said Alex Camino, VP marketing and communications of IT and business process outsourcer Softtek.

While Mexico boasts of graduating 90,000 potential outsourcing employees each year from college, “the challenge (is) bringing that talent to the next level, “ he says. especially in areas such as English fluency. “If you’re starting to teach English at the university level, you’re already late, he said, recommending English education begin in kindergarten.

By Kenneth Hess

No one wants for a relationship to fail but sometimes you have to quit on one that isn’t working. How do you know when to say, “When?”

Relationships are difficult. Band members have creative differences, teammates have ego problems and marriage partners have irreconcilable differences. Likewise, vendors and clients in business-to-business relationships experience all of the pains of band members, teammates and marriage partners. Maintaining a positive relationship is challenging when everything goes well but adding in technological differences, language barriers and time zone disparities has the effect of widening the gap between client and vendor.

But, everyone knows those problems exist and takes steps to mitigate them. Awareness of the potential problem areas is a good start but relationships deteriorate on a subtler level. Relationship failure occurs in much the same way as the boiled frog story. The story is that a frog dropped into boiling water will sense the heat and immediately jump out. However, if you place that frog into cool water and slowly heat the container, the frog will boil and never know until it’s too late.

It would be a better business environment if relationships would fail at the initial introductions rather than waiting until both parties have invested resources. If only we could sense the boiling water at the beginning instead of having the water slowly heat up around us. The reality is that most relationships, personal or business, fail over time and in small amounts. Like the frog, we boil one degree at a time.

The question is, “How do you recognize when your vendor/client relationship has failed?” The answers and experiences might surprise you. There are warning signs that you should pay attention to that point to problems. You have to be brave and be ready to cut your losses before it’s too late to leap from the boiling pot.

Testing the Waters

First time offshore outsourcers smile when they hear the pricing from vendors. And why shouldn’t they when quoted prices are as low as one-twentieth the price of local labor. It’s high-fiving and glass-clinking all around the conference table. The pricing, the promise of short delivery times, the open discussion and the friendly atmosphere coalesce into what can only be described as the business equivalent of “finding your soul mate.”

Everyone walks away happy from those first few “honeymoon” meetings. The calls go without any problem. Your offshore partners on the other end have an uncanny grasp of the English language. And, they understand the urgency and depth of the project ahead.

Taking the Plunge

You and your staff decide unanimously to engage the offshore partner for your project. You set milestones for progress and agree on delivery dates. Your partner keeps you informed, attends meetings conveniently scheduled during your standard working hours, keeps communications open and delivers your milestones as promised. Everyone is happy and you celebrate your win.

Turning up the Heat

The first sign that something’s going wrong in your newfound relationship is when your offshore partner begins to make excuses for non-delivery. Kevin Chandler of C3K Enterprises said that, “Everything went fine until our three week promised delivery stretched into nine months with no usable progress. We found a local resource for the work and enjoy an ongoing and successful relationship with the company.”

Once a commitment had been made between Chandler and his offshore partner, the partner came back to him with, “It’s going to take longer and cost more.” This is a common ‘bait-and-switch’ routine with some offshore companies. This one came highly recommended to Chandler.

Chandler didn’t give up on offshore outsourcing. He tried a total of five different companies in various countries for his projects. All but one was a total fail for him. For the others, he’s decided to use local US-based resources. He said that he might try offshore outsourcing again but with caution.

Jumping Out of the Pot

Unfortunately, the lure of low cost labor is just too irresistible for some. This lure might not be palatable after several failed attempts. As Paul Midler writes in his book, Poorly Made in China: An Insider’s Account of the Tactics Behind China’s Production Game, the frequently heard phrases, “You heard me wrong” and “Price go up” wipe any cost benefits of going offshore.

Often what happens with offshore partnering is that you end up spending more time mitigating problems than you do producing results. Chandler said that he spent a lot of time on the phone at all hours of the day and night managing projects. One company “flat out lied about their capability,” he said.

You have to know when it’s time to cut ties with your offshore partner. Non-delivery, a breakdown of communications, rescheduling calls to times that are very inconvenient for you, prices that mysteriously rise in double or triple digits and inexplicable or repetitive production delays are all good reasons to sever your relationship. US-based companies want to create good working relationships with their foreign partners and most are willing to deal with a significant amount of delays, misunderstandings and price fluctuation but, at some point, the cost savings aren’t worth the headaches.

Keeping the Waters Cool

All such relationships aren’t bad nor do they have to fall into complete disrepair. When you find that something is going wrong, you have some options to revive the relationship and maintain your margins and your sanity.

What’s needed in such cases is honesty on the part of both partners. A candid phone conversation or a visit to your partner’s location will often resolve problems. One vendor suggests that you maintain close contact with your partner to keep the project and the relationship moving in the right direction. If you find your partnership failing because of missed deadlines or cost overruns, you need to discuss a detailed plan of action with your partner’s management team. You might have to revise milestones and expectations but you should put in the effort to create a productive and ongoing relationship with your partner. But, don’t be afraid to call it quits on a partnership that just isn’t working.

There are many companies, legitimate ones, with which to work on your projects. By selecting the right offshore partner, you can still save money, enjoy decent profit margins, meet your deadlines and not get boiled in the process.

By Robert L. Scheier

A recent study out of Duke University shows that American companies still prefer India, China and the Philippines to the Latin American Nearshore for IT infrastructure and application development and maintenance (ADM). The percentage of finance and accounting work done in Latin America rose from 10 percent in 2009 to 16 percent in 2011, with application development and maintenance (ADM) work rising from seven to 12 percent in the same period, according to the International Offshoring Research Network Project at Duke’s Fuqua School of Business.

And yet, the researchers found, the percent of ADM work done in Asia rose from 66 percent in 2009 to 70 percent in 2011. Among the reason for the preference for Asia (especially India), they say, are customer familiarity, the maturity of the IT and BPO industry. And China, which some predict may outpace India as the largest outsourcing provider in the world by 2020, already has 10 percent of America’s outsourcing business, the study found.

Another factor, as reported on Alsbridge’s Outsourcing Center, is that relocating to the nearshore or even back to the US is not free of cost or complications. It requires planning, management effort, possible disruption to operations (and other) transition costs, says Arie Lewin, a professor of strategy and director of Duke’s Center for International Business Education and Research.

Lewin also points out that the decision to outsource, and where to outsource, is being driven over time more by strategic concerns such as the need for innovation, or to move into a fast-growing developing market, than by cost savings alone. While it’s little surprise that India continues to be the home of choice for mature, well-understood disciplines such as application development and maintenance, Latin America can carve out specialties for itself in newer areas such as the development of mobile or social applications.

There’s no doubt, as we recently saw at the Sourcing Interest Group’s spring summit, that growth and innovation are key customer concerns as the global economy recovers. For customers looking to “transform” their organizations, the greatest concerns might not be where to outsource, but what specific skills and expertise a partner (wherever they are located) can provide.

The onus is thus on Nearshore governments to provide the appropriate training to their populations and to keep providing hopefully smart incentives to foreign as well as local start-ups. Just as important, Nearshore based service providers must keep moving up the value chain and differentiating themselves from their hungry Asian competitors. The current differentiators of location, language and cultural affinity will only go so far before the Nearshore must distinguish itself with value-added skills in area such as agile development, software testing or multimedia.

This article originally appeared on our sister site Global Delivery Report

By Heather Littlejohns

Companies seeking to locate new outsourced or shared services centers to offshore or near shore locations typically focus their exploration on factors such as price, local government support and incentives, cultural affinity with the target market, unemployment rates, labor pool, language skills, etc. But are companies really taking the necessary time to explore, assess and discuss their own points of differentiation as they are perceived by the local population?

Beyond providing a basic salary, what contribution can the business make to the lives of the people who will be employed? These cultural considerations should be an important component of the due diligence process as they are crucial to the long-term sustainability of the business. Unfortunately, they are too often overlooked.

Act “Corporate,” Think “Local”

The most effective way to select a successful and sustainable market, community and location to facilitate an operation is to spend time on the ground with local community leaders and prospective employees, using the language skill with which you expect services to be delivered. In a sense, this is a grassroots and tourist approach to the region, building on a foundation of previously completed market analysis, research and the corporation’s strategic vision.

Before investing in a destination, many basic requirements “on the ground” should be fully identified. These are easily gained through market analysis and research and by speaking directly with economic and government groups within the country/region of choice. The following check list can serve as a starting point:

• Local government investment and support

• Technology and infrastructure

• Education

• Safety and security

• Tourism

• Like industry success

• Transportation

• Labor pool

• Education level and graduation rates

• Language skill–English bilingualism

• Skills learned (preferred)

• Customer service orientation

• Affinity to Western culture

• Employable population–demographics

To truly test the likelihood of success, spend time on the ground in the community. Ask questions, document observations and understand the community from which you will hire and where you will be a corporate citizen:

• Understand how education works in the destination. Is it public or private? Is it mandatory? What is the local government’s degree of engagement in the education system? How do people get to school? Is there an emphasis on learning English/other language?

• Assess the rates of school attendance.

• Visit a school, university or community college. Build relationships.

• Determine who are the economic and community development supporters and funders in the community. When do they meet? Who are the members? Do they live in the community in which they serve?

• Attend a meeting of these community development supporters. Take notes and make observations about interactions and behaviors such as tone and pitch in conversation; gender based interactions; non-verbal communication such as eye contact and handshaking. These observations will help you adapt your body language and mannerisms to put people at ease when interacting with the local population.

• Discover the cultural customs of the local community including holidays, events and religious ceremonies. This knowledge will help when managing your new workforce.

• Understand the demographics of the region. What is the average employable age and are they male or female? What is the current make-up of the population interested in the BPO industry? Are they well-educated males or single mothers? Are they second income earners or primary breadwinners?

• Investigate local restaurants, shopping facilities and tourist hot spots. Eat at local favorite restaurants. Attend a local customary event, read the tourist brochures and spend time in the recommended areas. This will tell you what the local people are proud of within their country. Knowing exactly what gives a person pride can also act as a motivational tool. This can allow you to better identify with the needs of the people that the corporation will employ. It will allow the opportunity to learn, understand and place value on what is important to the team.

• Learn how local services are facilitated and distributed. Are these services valued and utilized? How does the role of the family contribute?

• Research health care, child care, transportation, etc. This will help provide a more comprehensive view of total costs. It will also help you “design the differentiators” that I referred to earlier to strengthen your value proposition as a “glocal” employer, and can help you in “positioning” your corporate philosophy to your future employees.

Integrate Cultural Components with Business Goals

By integrating the “softer”, cultural components of the destination you are reviewing with that of your strategic business objectives and long term priorities, your answers to questions like those below will become far more informed and accurate.

• Is a local staffing agency required to help launch the business?

• Does it make sense to place the business in the duty free zone or is an urban, centralized location more feasible?

• What type of community participation and recruiting event will need to be held?

• What aspects of the corporation should be advertised? What are the value added benefits for employees that will matter most? What are your differentiators as they relate to the community?

On the surface these concepts are relatively simple, logical and one would assume being facilitated, however, this is not the case in many situations. Cross-cultural communication and a grassroots approach is not often practiced for a wide variety of reasons. These include the assumption that knowing the statistical facts about unemployment rates and government incentives is enough to be successful, aggressive timelines, low price points driving a quick transition, lack of regional expertise within the organization or simply an attitude that cultural considerations are an “after thought.”

To truly minimize new geo risk, not only should the selection team conduct the formal process, but drive the due diligence from a grassroots perspective and through a cultural prism. Once this knowledge and, more importantly, experiences are gained, the transition or execution team should act as the “cultural interpreter” for the enterprise. This is crucial to see a new operation through to success.

Heather Littlejohns, Director-Operations at Aditya Birla Minacs and also an independent consultant, is responsible for strategic Country and Site Leadership and Client Relationship Management. She also serves as Partner & Contract Liaison, Implementation & Launch Project Sponsor and Government Point of Contact. Heather brings 16 years of rich and varied experience in directing, developing and implementing effective near shore and offshore BPO global service delivery solutions. Heather.Littlejohns-Brown@minacs.adityabirla.com