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OM in the News: Outsourcing’s Passage Out of India

March 22, 2012

“For years there was pretty much one choice for US firms seeking to move jobs offshore: India,” writes Businessweek (March  19-26, 2012). Outsourcing grew to a $69 billion business there that transformed backwaters such as Chennai and Hyderabad into teeming cities. But this wave has crested. Last year, companies in Latin America and Eastern Europe opened 54 new outsourcing facilities vs. 49 for India.

This change comes as American corporations  increasingly ship higher-level jobs (such as skilled positions in research, accounting, procurement, and financial analysis) offshore. Because these jobs are not the mass-processing functions that are India’s forte, there are greater opportunities for countries such as Argentina, Poland, Brazil, and Guatemala. An Argentinian accountant costs 13% less than one in the US (while an Indian is 51% less), but there are other considerations.  “If you’re working with a hedge fund manager where you interact 10-15 times a day, the same time zone is important,” says one CEO.

Brazil now has the most Java programmers in the world and the second most COBOL programmers. Poland’s Gen Y population is highly educated (50% of its 20-24 year olds are in college)–and prolifically multilingual. There are 26 languages spoken at H-P’s Polish center that serves its European, African, and Middle Eastern operations. They perform high-level services including finance, accounting, marketing, and supply chain analysis. Coca-Cola moved its finance and accounting centers in Paris, Brussels, and London to Poland as well. Other centers have been opened there by IBM, Microsoft, and Ernst & Young.

Even Tata Consultancy Services –India’s outsourcing leader (with 2011 sales of $9.8 billion)–has 8,500 employees in South America in an effort to “nearshore” to clients.

Discussion questions:

1. What are some advantages in moving higher-level functions to Eastern Europe and South America?

2. What are India’s outsourcing strengths and weaknesses?

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