By Kirk Laughlin

Is it possible that IT departments will thrive, while at the same time outsourcers will continue to play a vital role in supporting corporate IT services?

As the U.S. battles to emerge from a bruising economic climate and new resource-efficient solutions like cloud computing become more mainstream, a key, strategic question confronts countless CIOs: how much of the IT function should be outsourced and how much should stay in-house? Some CIOs have taken the boldest of all steps by outsourcing the entire IT function (as CIO Brent Hoag has done at Wisconsin-based Diversey), while the majority of CIOs look to balance in-house resources with a combination of onshore and offshore managed services providers.

Managing complex IT outsourced relationships, determining what is truly strategic and stays inside the corporate four walls and what gets outsourced has defined the path most CIOs have walked over the last several years. However, are we finally reaching a point where the path diverges and decision-makers must choose between one path or the other?

Reality Strikes

The proposition of all-or-nothing options does not really match the reality of the highly dynamic role of IT which needs to scale, shift, re-allocate and augment at any given moment. Clearly, the role of the outsourced service provider is here to stay. Listen for example to what Jeff Relkin, director of IT for Quadel says in this recent TechRepublic interview:

“As technology becomes ever more commoditized and as the availability of objects for application construction without traditional development continues to expand, the need for in-house IT resources will dwindle. The overall organization of IT will also change, along with the skill sets required. IT professionals will need to become more mainstream business resources than ever before, with more emphasis on contributing to revenue generation rather than expense reduction.”

Another IT leaders, Michael Foerst (CIO of Missouri Employers Mutual Insurance), has a different take:

“Yes, on average it will be smaller but not because it is all outsourced. IT departments will leverage the capabilities of the cloud in order to allow their internal resources to become more familiar with the business and deploy technology solutions that will help differentiate their organizations in the market.”

And, finally, Lance Taylor-Warren (CIO of H.A.W.C. Community Health Centers) points out that – at the end of the day – the IT role will have to continue to stay flexible:

“Cloud computing is just one of many options that a company has to look at moving forward. No one knows what the next big thing will be. IT departments may shrink in certain markets, but health care IT is on the cusp of a huge growth phase due to health care reform and the requirements being forced on the industry by the federal government. Outsourcing can’t address the hands-on need.”

Danger of Playing It Safe

Because the IT department’s role has become more intertwined with actual business outcomes, the requirement that IT “speaks” in business terms will inevitably increase. Therefore, I’m quite sure that IT leaders with business acumen are going to be looked as as extremely critical to the overall value delivered by the business. Those who possess these skill sets are probably the “safest” of all IT professionals, especially for those individuals whose background is entrenched in the vertical industry where the company operates.

Meanwhile, the outsourcing partner can “play it safe” and continue to deliver commodity IT services and probably have quite a steady source of business. But the savvier players, those that can peer more deeply into the strategic challenges of their clients and truly commit to answering the call to drive innovation, are going to be the group that really defines the next-generation of world-class managed services firms. You might call them an “elite corps” of outsourcers – characterized by extremely robust process discipline, matched with both strong people and technical skills.

And that’s of course where the Nearshore players may step in, given their often strong cultural sophistication which – as we have talked about often at Nearshore Americas – gives these firms a critical advantage in digesting the true quandaries their clients end up in and devising solutions that can be properly explained and executed.

For Nearshore players keen to move into the elite level, the key qualification will be proven mastery in the vertical environments of your clients. Until that level of expertise is achieved, U.S. corporate clients will continue to source work to the farshore or decide that the in-house solution is the safest solution – but maybe not the most cost-effective.

The fallout from the visa hike issue is still being felt across the global outsourcing industry.  One of the obvious questions is whether large India firms will aggressively reshape their operating models to accommodate the new visa costs – or – is it just a mild bump in the road to continued expansion in the Americas?

Giving us an exclusive perspective on the issue is Ameet Nivsarkar , NASSCOM Vice-President for Global Trade, who is in charge of international and policy relationships for the India ITO/BPO advocacy group.

What long term impact do you think the visa fee hikes will bring to the way in which India outsourcing firms conduct business in the United States?

The fee per say is not going to be a large cause of concern. Our bigger concern is the direction all of this is taking. This is not the first attempt the US. Congress has taken to discriminate against India firms.

This is the first time we are seeing legislation go into law. Obviously India firms are concerned, and this certainly will add to the bottom line.

Do you anticipate that U.S. lawmakers will introduce further laws that will hamper or complicate business process and IT service delivery by Indian firms into the U.S.?

If you look historically in the past, in the last 18 months there has been many types of legislation introduced that go against India firms. There have been attempts made to completely ban access for visas for these firms.  As comprehensive as immigration reform is, we worry that we might see more issues on that front.

What is Nasscom doing to help educate and provide different perspectives for the lawmakers?

We have been working on this for some time. We have spoken to the lawmakers who passed this bill. We have made the case that US customers will ultimately be impacted.  I think this is being done with an eye on the elections – and unemployment is high, so there are political issues at play.

In your view, do you believe these actions are a determent to the long-term competitiveness of U.S. businesses?

Definitely the US is trying to stay competitive globally. Lawmakers seem to be taking a short term approach  instead of looking at the long term. The cost of doing business in the US will go up. Obviously companies will look at other options to do business. The objective the lawmakers are citing – to create more US jobs – is commendable but the reality is they are making it difficult to operate in or locate operations in the US.  It’s terribly short sighted. If you look at science, tech, engineering and mathematics- there are not enough skilled workers currently.

It is the view of Nearshore Americas that the new visa “surcharge” will become an incentive for India outsourcers to  rely increasingly on Nearshore operations to deliver services. Do you agree or disagree?

I would think so. Companies are going to evaluate all the options, whether Canada or Latin America. The visa fee issue alone is not a deal-breaker, but if we get to the point of another step that is a deal breaker, then providers are really going to evaluate their options.

What is your overall view on the value of Latin America in contributing to the success of India outsourcing firms? Are there any drawbacks you see in leveraging Latin America?

We believe the future is extremely bright. We do believe that  India will continue to  be the center of gravity in global services. Latin America can bring in language capabilities and time zone and proximity benefits and we are firmly convinced the way forward will be to have a globally distributed model – pulling on the strengths of every location worldwide.

Q&A with HP’s Keith Kerrison

By Dennis Barker

Keith Kerrison looks at the Nearshore region not in isolation but sees it for what it really is: part of the much bigger world. He’s been involved in sourcing applications projects (“mainly SAP”) for about 15 years, back when he was with Proctor & Gamble.

He came to HP as part of an outsourcing arrangement with P&G and now, as director of the Best Shore Application Services for the Americas Region within Enterprise Services, essentially has the job of running HP’s global applications delivery system. Besides being an expert on sourcing, Kerrison is also numbered among the Nearshore Americas Top 50 Power Rankings.

We asked him about global-sourcing challenges, the Nearshore region, what it takes to make clients happy, and Canada.

What’s it like to go from P&G to a giant tech company like HP?

Obviously it’s a big change to go from a company’s internal IT functions to a company where IT, rather than packaged goods, is the business. At HP there’s the scale of depth and capability, and you can always find the capacity to get things done. You can also leverage solutions developed at HP Labs. HP has the software and other tools, the infrastructure, the technology, and the people to be able to have that end-to-end reach to deliver solutions. In a typical IT shop you’re making relationships with contractors…. You don’t have all that scale and breadth that a company like HP can offer. That scale, those capabilities, and outsourcing experience became even richer after the acquisition of EDS [in 2008].

A consultant told us recently that no one has really figured out how to operate globally. You’ve helped define a global delivery model at HP. What does it take to make that global approach work effectively?

You have to think holistically about models. Early on the company assembled a brain trust to work through process models, best practices, and so on. One of the things we decided is that global delivery wasn’t just applications delivery but also infrastructure delivery. We integrate the applications work we do with our counterparts in the infrastructure area. We define a model that integrates onshore, nearshore, and farshore. We pull resources from various regions, various functions, and we have systems for passing the baton back and forth.

You need common terminology, you need consistent language, you need consistent standards and metrics, and you need the tools to make sure that everything is consistent across a network of centers. We’ve developed consistent processes for moving work. We had global methods for applications services at HP but were able to combine that with process methodology at EDS. With EDS we picked up a lot of expertise in how to move work. Consistent processes are deployed across all our centers. We’ve invested a lot of time and training in this, educating our workforce. How we operationalize applications management should be the same no matter where it’s coming from.

We wanted more than an India-centric capability. India of course is always going to be important, but we developed an approach that lets us leverage multiple connected hubs. This gives us scale but also proximity to clients. Large multinational clients look for our capability to be close to them.

What we did not want was a collection of distinct delivery centers. We put a governance structure in place to manage all our centers as a global structure. We invested in building capabilities across centers, creating a community of people and expertise across that organization.

Our largest multinational clients might take delivery from as many as 10 different locations around the world. We’re able to put that together seamlessly. But we only use, or would only add, a location that makes sense for the client.

Everyone expects that a provider will deliver on their SLAs, but that’s not enough to make a happy customer. To be successful you need to focus on the relationship and how to bring more value to the client. More value can come in various dimensions, like innovation.

Tell us how the Nearshore Americas region fits into HP’s world.

Our model is a global model, so we need to think of the Nearshore in that way. I manage my team as part of a global system rather than strictly regional. Our centers in Costa Rica and Argentina, for example, have a role to play in serving the U.S. but they are also woven into our global delivery model. A team in Argentina might serve clients in Spain because of the language affinity, but also might give clients elsewhere in Europe a better price. We think of our Nearshore centers as part of that global model, but they might also provide a local solution. Sometimes the best place is local. Sometimes it’s best to have that resource closer to the client.

But for reasons of scale, to get the capabilities you’re looking for, sometimes you have to go to India or China. Our ability to grow resources is better in those two countries. That’s why we’ll see more growth going to those farshore locations. The Nearshore will grow because we have multinational clients who want support in their time zone or want to follow the sun, but it will not grow as fast as farshore.

Many customers are looking for “India Plus One” capabilities. India provides depth, but for reasons of business continuity, some customers may not want to have all their eggs in one location. Maybe they keep two-thirds of their resources in India but the rest in a place like Argentina. They want to have some redundancy. In the Philippines, periodically a typhoon goes through there, so you may want some resources in another location. That’s smart business.

How do the Latin America centers differ?

Costa Rica today has a strong focus around SAP as a technology and applications management. Argentina has great capability around applications development, and Java for industries such as manufacturing and transportation. Brazil has a higher cost but a higher level of capability and a higher level of maturity. They’re focused on healthcare and communications. Costa Rica has the best cost structure, with Argentina now coming close, but if you’re trying to hire a high-level developer, for example, it’s going to be easier in Buenos Aires or Rio because of the size of the talent pool. Brazil we think of in a different context. We mainly focus on leveraging Brazil for domestic opportunities. We’ve grown these centers in a complementary way. We make sure we have a network of centers that don’t cannibalize themselves.

What do you think businesses do not know or appreciate about the Nearshore region (Latin America especially)?

Many corporations would consider outsource providers or delivery centers in the Nearshore region as places to get work done for local projects. But they might not have considered how Latin America can play into a broader model, a global delivery system. People gravitate to India, China, the Philippines, but may not think about how these Nearshore centers can play a role. I’ve worked with this region. There are great people, there is great talent in this part of the world. It would be a mistake if people think of those countries only in terms of Latin American delivery. Costa Rica, for example, is closer to Houston than parts of the U.S. are.

And how about our friend to the North?

I probably started with Canada back in the late 90s with P&G, and the cost structure then was about two-thirds of the cost of the U.S. Over time, though, the cost structure has become close to the U.S. The cost advantages have slowly eroded. But Canada still has a big role to play. In the Toronto area, for example, there’s a really great talent pool. There are high-end skill sets for client-facing roles and solution architecture. If you need those resources and need them close to the client, it makes sense. We have to recognize that for things like application maintenance, it makes no economic sense to do that in Canada anymore. High capabilities but relatively high costs compared to other locations.

What are the reasons some outsourcing projects do not succeed?

Everyone expects that a provider will deliver on their SLAs, but that’s not enough to make a happy customer. To be successful you need to focus on the relationship and how to bring more value to the client. More value can come in various dimensions, like innovation. Customers expect us to have all the resources to execute the work, but they look for more than meeting SLAs. They want innovation and thought leadership, even if they don’t mention it at the beginning. They want a partner who can deliver innovation that helps drive down costs or helps them achieve their business goals.

The biggest mistake is to look at outsourcing as a transaction. Customers are expecting more from a partner. We have to strive for service excellence but also a strong relationship with the client. If we wait for the client to ask us for that, we’re too late.

How do you think outsourcing is going to evolve in the next few years?

Everyone has played the labor arbitrage game. There’s going to be a bigger focus on leveraging software tools and automation to eliminate work, getting more for less. There’s a lot of noise right now around how cloud services will change the game. People will be thinking less about services and where they’re delivered from and be more interested in quality. Companies that will be successful are the companies thinking about those challenges today. How do you automate, how do you integrate? How do you streamline and virtualize that whole thing, service delivery from end to end? Where services are delivered from will become invisible.

By Linda Rosencrance

For years the refrain echoing in the ears of CIOs and IT decision makers has been “do more with less.” And in today’s economic climate, that refrain rings true more than ever.

With that mandate, the question is what can CIOs do to help their companies weather these tough business conditions? And since India is more expensive than ever, what is preventing those buyers from examining Latin America more seriously.

While labor costs may be on par with India, there are fewer cultural differences when working in Latin America. And geographic proximity makes communication easier and travel less expensive and less time consuming. Yet still many IT leaders seem to be reluctant to participate in nearshoring.  Find out what three IT executives told us about why Nearshoring is not as attractive as some of us think.

Perceptions: True or False

“I think some of the problems are the same as everywhere else—the nexus of control and part of what injures Latin America more so than other areas is the perception of government stability or instability. And also the perceptions around the various crime and the dangers rates—true or false,” said Joanne Kossuth, Vice President for Operations and CIO, Franklin W. Olin College of Engineering in Needham, Mass.

Another perception is that the Latin America doesn’t have the same infrastructure as countries where offshoring typically takes place, she said.

“If you look at China and Asia [IT leaders] think those people are really technical and they have this connectivity and they have bandwidth and those perceptions make people think they’re putting their data and their operations in the hands of people that get it,” Kossuth said. “And those are not the same perceptions about Latin America.”

Another reason companies are not jumping on the nearshoring bandwagon is because they really don’t know much about it. That’s because Latin American countries haven’t done a very good job at marketing the services that they can provide, she said.

Additionally, when it comes to outsourcing IT functions to Mexico, Kossuth said IT leaders are afraid to put their services in a place where the crime rate is high. “All we know about Mexico is what we see on the news and that’s people getting killed because of drugs,” she said. “And even if it’s not happening in the entire country and it might not be true in the area you put your services—you think it is.”

“I go to Juarez, Mexico and every time I walk over the Rio Grande Bridge I remind myself that I have no U.S. rights. So when I consider my data and processes going over into Latin America or Mexico I want to know what laws govern that data.” – Shaun Cooper, CIO New Mexico State University

Maturity Meter

Anand Ramesh, a research analyst at Everest Research, said one of the reasons that IT decision makers don’t want to outsource their IT functions to Latin America has to do with the level of maturity of the providers in that market.

“I don’t they’re reluctant to do it, it’s that they think that the [service providers] in Latin American countries are not as evolved as those in India,” he said. “They don’t think that the providers in Latin America have the same skill level in terms of talent and sophistication as the providers in India. So it naturally creates that concern in the minds of the decision makers about whether they could find the same kind of skills—the same breadth as well as depth and sophistication of skills—to be able to [handle] all the different IT services.”

Shaun Cooper, CIO, Associate VP of IT New Mexico State University in Las Cruces, New Mexico said he worries about placing protected student data in machines in other countries because, for one thing, he’s afraid he’ll lose control over that data.

“I go to Juarez, Mexico and every time I walk over the Rio Grande Bridge I remind myself that I have no U.S. rights,” he said. “So when I consider my data and processes going over into Latin America or Mexico I want to know what laws govern that data.”

Cooper said he’s also worry about the political stability in those countries.

“I remember a story about company that had some equipment in Fiji and there was a coup and all they had was about two hours to pull all their equipment out and get it on a plane,” he said. “How do I know there’s not going to be a coup [in those countries]? For me it really has to do with the laws governing the data and the stability of the country.”

But Steve Romeo, Vice President of Information Technology, Breg/Orthofix, a medical device manufacturer, in San Diego, said he’s starting to drift toward nearshoring because he thinks it’s a great alternative to doing on-premise development.

“In my case I started working with a firm in Tijuana and the beauty of that is that they’re so close we can just drive across the border to do scoping and have discussions,” he said. “but at the same they have a richly skilled development team that can accommodate everything from iPhone development to .NET development. And they have resources readily available and the talent pool is growing.”

Romeo said he’s seeing more momentum toward nearshoring especially as budgets have been reduced and turnaround is an issue.

“The challenge with offshore outsourcing is that when you try to scope something and there’s any type of scope creep or deviation or additional information is needed, it can be a challenge to have someone on the ground physically there to go through that process,” he said. “The resistance to nearshoring has always been the assumption that India has a much stronger talent pool than nearshore options. I agree that has been the case but that belief is fading now that the talent pool is growing in Mexico and Latin America.”

Linda Rosencrance is a veteran IT journalist who has been an editor and contributor to Computerworld for over ten years. (This is her first contribution to Nearshore Americas.)

By Kirk Laughlin

It’s not hard to remember back to 1995-1997, when the Internet boom began to gather some real traction. Firms like Netscape, Lucent and Cisco were suddenly red hot darlings that became emblematic of a new generation of  Wall Street investment targets. There were plenty of skeptics of course who didn’t like the price-per-earnings ratios of these companies or didn’t believe the aggressive forecasts of top executives. And then there were the very real concerns about risks and the seeming intangibility of the Internet, backbone buildouts and why broadband mattered. Back then, Google had yet to be born and the eye-ball grabbing power of search was not really well understood.

So, what does the investment climate of the mid-90s have to do with 2010 investment in Nearshore outsourcing? Plenty and I’ll explain why.

What’s We Have in Common

Fifteen years ago, investing in Internet and next-generation tech firms took some guts. Some part of you had to believe in a vision, and that explains why those who look at the world in purely rational, beancounter terms would never touch investments that had to do with the Web. They’d be happy investing in stalwart companies like Caterpillar (who revealed its HRO nearshoring journey to Panama last year) or Sears, with proven track records, miles and miles of history and the appearance of rock-solid foundations.

When you look at investment options in Nearshore outsourcing, you are seeing – from a very broad perspective – a group of countries and suppliers who have a lot in common with the Ciscos of 1995. Sure, there are plenty of Sofftek’s and Avantica’s who have been delivering Nearshore services for more than a generation, but the ‘newness’ of this industry can’t be understated. Tens of thousands of U.S. enterprises don’t know the first thing about delivering professional services out of Chile, El Salvador, Panama or Guatemala. In other words, the raw material to ignite the Nearshore firestorm has barely been gathered. But when you combine the technology underpinnings of the Internet, VoIP, and real-time collaboration tools along with the tectonic shifts going on with globalization and increasing exports out of lower cost nations, there is clearly a major upside ahead for this industry.

But you might be thinking, of course you would say that, your online business (Nearhore Americas) is built mostly around the emergence of Nearshore outsourcing. And that point would be valid. But I’m also an investor and one who is willing to take some risk for long-term reward. (I began investing in Emerging Markets back in 1997 after several trips to Vietnam, China and Thailand where it became evident that with the right governance, capital, rule of law and talent, sustained growth will naturally follow.)

Those who are currently sealing deals are destined to maximize their investments over the next five to ten years vs. those who still are waiting for a big seal of approval to appear somewhere so they are fully and absolutely confident the deal should go forward.

Risk: Front and Center

I speak to investors and outsourcing buyers all the time – and it’s remarkable how similar they sound when confronted with whether or not to take steps to invest in the Nearshore growth story. It’s almost as if they have to whip clear decades of conceived notions about Latin America and the Caribbean and, from scratch, embrace a new vision of the region that is based on 201o and beyond. In addition to recognizing the value of doing work in the region, they also have to confront the issue of fear. What are my risks? How do I know I can trust the privacy protection laws? Can I take my clients down to there on a regular basis? And what is my long term payoff?

The process of examining whether to invest should naturally involve in-depth  scrutiny. But that scrutiny should also very much include analyzing the level of risk you as an nearshore outsourcing customer are truly willing to take on. Page upon page of information within Nearshore Americas will – if we’re doing our jobs right – get you much of the basic information you would require about the markets themselves, the key in-country industry leaders and how to initiate and manage your engagements. But the next step – the one that involves committing to investing in Latin America or the Caribbean wholly depends on just how willing you are to “get in” at a time when the value is still significant.

The Real Winners

It’s interesting to recognize the fact that once buyers are active in the Nearshore market, they may actually find new providers or decide to switch county destinations. They are able to make these changes because they have achieved material advantages through first-hand experience that will drive them deeper into more value-based relationships. Those who are currently sealing deals are destined to maximize their investments over the next five to ten years vs. those who still are waiting for a big seal of approval to appear somewhere so they are fully and absolutely confident the deal should go forward.

I’m here to say that day will never come. The risk takers are those jumping on planes now to fly down to Jamaica, Costa Rica, Brazil and Mexico to get projects up and running by the fall. Fifteen years from now, who we will look back on as the real winners in the Nearshore outsourcing boom?

By Tarun George

Largely unnoticed by many site selection gurus, the offshore services industry in Canada has grown at a staggering rate over the last decade. According to Statistics Canada, between 1998 and 2006 the Canadian call center industry increased in revenue by 27% annually. But now the rise of new locations in Latin America and Eastern Europe as well as the recent economic recession may necessitate a change of strategy.

Analysts across the board are calling for a move into higher value services like IT – they say the current call center-focused model is just not profitable for the country anymore. But is Canada’s call center industry really on life support? We sat down with Peter Ryan, Lead Analyst for BPO and Contact Center Outsourcing at Ovum to find out.

Cost Spike

Canada’s strengths as a call center destination have always been the strong infrastructure and fully bilingual workforce. But as other offshore locations ramp up their capabilities, that competitive advantage is ever diminishing – and it’s mainly due to high costs. Some factors that make Canada much more expensive than its competition:

• Strong Canadian dollar: The Canadian dollar is much too high for companies to take advantage of, and it has been for years now. As Ryan says, “When companies initially came in, the rate was 65 or 70 cents US to the Canadian dollar, and at that time there were huge cost savings. But now for an outsourcer, a margin that used to be around 20% is substantially less”. The Canadian dollar has steadily appreciated since 2003 and has been hovering slightly above parity with the US dollar for the last year.

• Natural resources: The Canadian economy is currently driven by the exploding natural resources industry, which is soaking up all the labor that used to feed the call centers. The large oil companies working out of Alberta can pay young workers much more than the CAD$ 12 to 15 per hour that they can expect from most call centers. Contact Center Canada (CCC), a government-funded coordinator of the call center industry’s HR initiatives, reported that 34% of facilities in Canada are unable to find the correct numbers of staff with the right skills.

• Lack of call center properties: Another contributor to growing costs is that call center properties are much more abundant in the US than in Canada. “Properties like unused malls or car dealerships that can be converted into call centers – we just don’t have many of those here”, says Ryan, who lives in Montreal. “But there are plenty in the US now, especially after the recession”.

Canada’s substantially higher costs are a strong argument for ‘onshoring’ in the US, a trend that has been gaining momentum in recent years. In fact, Ovum’s last study on Canada completed two years ago found that with all factors considered, the US is now a cheaper location than Canada to source work from.

Many of the companies closing operations in Canada are re-opening them in select locations in Latin America and the Caribbean, where English proficiency is high but overhead costs are not.

On the  Ground

Although the call center industry in Canada still looks healthy, there are indications that resources are tight. Large scale layoffs and closures happen occasionally such as late last year when Convergys announced that it was axing its Winnipeg center – a reduction of 500 employees. BPO company Aditya Birla Minacs also closed its center in Nova Scotia earlier this year, laying off 200 people. Many of the companies closing operations in Canada are re-opening them in select locations in Latin America and the Caribbean, where English proficiency is high but overhead costs are not.

Part of the reason could be that Canada suffers from a visibility problem. Some analysts have remarked that the Canadian offshoring brand is just not out there. “It’s true, there’s never been a Brand Canada”, says Ryan. “Canada has always had a fractured approach to marketing, with Ontario selling itself or New Brunswick selling itself. It’s very province-based”.  Investment incentives are also always specific to each province.

Higher Potential

In spite of all this, it’s important to remember that there are contact centers thriving in Canada. Take Teleperformance Canada, which employs over 2000 workers and has offices in many of the major cities in the country including Toronto and Montreal. However it’s equally important to note that such a level of success is possible in Canada only with the amount of investment that Teleperformance can afford. Canada’s high costs make it difficult for smaller operations with limited capital to compete with firms in cheaper locations. But if you can get past that high investment, Canada can produce high returns.

“The advantage that Canada still has over other locations is a higher level of data protection, and laws governing piracy and IP rights”, says Ryan. Quality of work performance, and cultural affinity to the US are also important, especially in the call center industry.

So should the country deliberately move into higher value services like IT? A recent report by Statistics Canada stated that technology, research and higher education institutions were increasingly significant for the country’s offshore services industry. According to the report, “The Canadian telephone call center industry should move beyond the lowest labor cost phase of the industry life cycle. It is becoming important for call centers to offer higher value-added in terms of skills, both technical and linguistic, and technology”.

And would the profit margins increase if there was this country-wide move to value added services? “They definitely would, but the problem again is that your cost base is going to increase as well”, says Ryan. “These days it would be difficult to do a large scale IT service operation from Canada, because in India or Latin America you can find engineers just as qualified, at a lower price. But I think there is a move in Canada towards higher value”.

Was it Scott Murray’s brash and hard-charging style that led to his sudden departure as top boss at Stream Global Services this week? We may never know the real answer, but there are plenty of surprised looks on the faces of those who work at Stream or do business with the global call center and CRM giant, based outside of Boston. The announcement went out early today that Murray is being replaced by Kathryn Marinello, the former CEO at Ceridian, a major payroll and HR outsourcing firm.

CEO Recent Trades:

• Buy: Chairman, President and CEO R Scott Murray bought 250 shares of SGS stock on 08/10/2010 at the average price of 4.04. R Scott Murray owns at least 3,829,752 shares after this. The price of the stock has decreased by 2.48% since.
• Buy: Chairman, President and CEO R Scott Murray bought 1,000 shares of SGS stock on 08/09/2010 at the average price of 3.92. R Scott Murray owns at least 3,829,502 shares after this. The price of the stock has increased by 0.51% since.
• Buy: Chairman, President and CEO R Scott Murray bought 500 shares of SGS stock on 05/27/2010 at the average price of 5.82. R Scott Murray owns at least 3,828,502 shares after this. The price of the stock has decreased by 32.3% since.
• Buy: Chairman, President and CEO R Scott Murray bought 200 shares of SGS stock on 05/25/2010 at the average price of 5.5. R Scott Murray owns at least 3,828,002 shares after this. The price of the stock has decreased by 28.36% since.
• Buy: Chairman, President and CEO R Scott Murray bought 1,000 shares of SGS stock on 05/21/2010 at the average price of 6. R Scott Murray owns at least 3,827,802 shares after this. The price of the stock has decreased by 34.33% since.

Chile Claims Top Spot Based on Advanced Infrastructure

By Tarun George

Over the next five years, LatAm wireless network traffic is slated to rise at a CAGR of 86% – pretty significant compared to the 61% CAGR average for emerging markets as a whole. And yet Latin America is still a relatively small telecom services market. Despite advances in information and communication technologies (ICT), there are large discrepancies between countries – some with modernized and liberal telecom networks, and others with closed and politicized systems in place. If you’re a prospective sourcing client, those discrepancies can make or break your operation.

To clear the air, we decided to leverage some expert opinion and develop our  2010 Ranking of the Top Five Telecom-Ready Sourcing Destinations in Latin America.

As usual when we do rankings at Nearshore Americas, it’s important to note that the topic (in this case telecom) is the only factor we considered, and not other aspects of a great sourcing destination. The countries below are the ones we think are best able to support the requirements of sourcing companies, solely from a telecom standpoint. Some parameters we used to position our choices:

• Liberalization – How open is the telecom system for both international and domestic competition? How much control does the government have, and how politicized is the system?
• Modernization – The amount of investment in a country’s communications infrastructure, and the resulting maturity and next-generation features of the networks.
• Redundancy in the event of disasters – Senior Editor Dennis Barker recently reported on how critical it is for companies to maintain business continuity and data access.
• Level of broadband penetration – Can the country support the telecom needs of a scalable sourcing operation? Is the penetration only high in major cities, or is it more evenly spread?

We found that for the most part, countries with the highest economic growth and GDP per capita also have the strongest correlation with these parameters. We also found that mobile services in Latin America are generally very competitive, while fixed line markets are often closed with low penetration rates. That is improving however, and some of these rankings reflect the extent to which countries are developing their fixed line services.

Our 2010 Latin America ICT Ranking:

1) Chile

Chile is the country with the highest adoption of new technology in Latin America. One reason is the level of education of the public, and another is the lack of taxes for technology. The result is the most advanced telecom infrastructure in Latin America – one that ranked first in the region on the World Economic Forum’s 2010 Network Readiness Index. Chile offered 4G services like mobile WiMax before its competition, and congress recently passed a landmark Net Neutrality law that isn’t even on the table for other LatAm countries. In terms of broadband penetration, Chile again leads with 10.3%, although admittedly it is helped by its small population.

Even more telling than the modernized network is the level of open competition in Chilean telecom. The local population is served mainly by Telmex and Telefónica (or Movistar as it’s known in Chile), while international carriers like Orange, British Telecom and Verizon serve the foreign companies through their submarine networks. The liberal system is fostered by the national regulator Subtel. “Subtel ensures competitive prices, and also monitors the quality of services that each competitor offers”, says Jose Roberto Mavignier, ICT Industry Manager for Latin America at Frost and Sullivan. “It assesses factors like availability of connections to companies, time taken to solve connection issues, etc. It’s difficult to offer bad service since Subtel will hand out fines if those parameters are not obeyed”.

In the wake of the recent Chilean earthquake, everyone wants to know how resilient the country’s telecom system is. Consensus is that although very strained, Chile’s network stood up well in the aftermath. “Chilean company Entel was created in the 70’s as a redundant organization to prevent the failure of companies. There are many redundant networks, data centers are well protected, and installations are modern and prepared to resist natural disasters”, says Mavignier.

2) Brazil

“In terms of open competition, Brazil is getting there”, according to Roz Roseboro, Principal Analyst at telecom consultancy Analysys Mason. In the mobile arena there are seven different players, international and domestic, which is something you won’t see anywhere else in Latin America. “We also just heard rumors that Vodafone is considering entering the Brazilian market, as well as NTT from Japan. Everyone’s looking at Brazil to see if it would be profitable”, says Mavignier. Partly because of the many 3G operators, and partly because of its size, Brazil dominates Latin America in numbers of HSPA subscriptions, with around 57% of the regional total. For fixed lines, Brazilian provider Oi is number one, followed by Telefónica.

All this helps bring down prices and increase access to telecom, but Brazilian regulator Antel does need to be more proactive in increasing broadband competition. According to Cisco Brazil, there is strong demand in the country for broadband services, and Brazil must invest more in tech infrastructure. The country currently has fully digital fiber optic networks connecting all the major cities internally, and broadband penetration is at 5.8% with the state of São Paulo having the most number of connections. For its part, the Brazilian government is trying to take broadband access to the whole country and especially the smaller cities in the next three years, under the new National Broadband Plan.

In terms of quality of services offered, Antel is usually an efficient monitor – last year after four blackouts on Telefónica’s broadband, it ordered the company to stop sales completely until improvements were made to the service.

3) Colombia

Colombia’s telecom infrastructure has gone through a considerable amount of modernizing in recent years. What we see now are extremely well connected business centers, but poor service availability in smaller urban areas. “As long as you’re setting up a big plant in one of the centers, connectivity is not a problem”, says Wally Swain, Senior VP of Emerging Markets at Yankee Group. “Colombia also has very liberal Free Trade Zone rules that allow you to bring in telecom options quite cheaply”. The country is now investing more in fiber optics, and has good satellite coverage as well as 3G and GSM coverage.

There are at least three important mobile operators in Colombia: Movistar, América Móvil and Tigo. The mobile market is modernized and is one of the fastest growing in Latin America. Even better, the government is being proactive with a strong regulatory framework that encourages competition. Unfortunately for outsourcing however, Colombia’s fixed line sector seems to be stagnating according to ICT statistics company Point Topic. Broadband penetration is on par with other LatAm countries (currently at 4%), but there are only two strong local fixed line providers – ETB and UNE – and the state has substantial control over them.  Earlier this year Cisco analysts stated that because of slow growth in 2009, Colombia’s broadband market is reaching saturation point due to lack of exploration of new market niches. The country’s regulator CRT Colombia must work to open up the market to smaller businesses, as well as encourage more private competition in broadband services.

4) Mexico

Broadband is one of the highest growth sectors in Mexico’s telecom market, but we give low points here for the lack of competition. América Móvil (after taking over parent company Telmex) is dominant in the country. “Mexico is surprisingly stagnant given its size and economy”, says Roseboro. “They say they want to increase competition, and to some extent they’re opening up the mobile market. But there’s no opening up the fixed line side. New companies consider Mexico only for the mobile market, and I don’t see anybody reducing the dominance of Telmex”. However the government is now trying to regulate unbundled access for competitors – three companies including Telefónica recently won the rights to use the government’s fiber-optic lines to offer communications and internet services across the country independently, instead of going through Telmex.

According to Wally Swain, Mexico’s regulation body Cofetel is ineffective. “There’s a war going on between the communications ministry and the regulator, and the regulator is losing out. The rules say you can do certain things, but in practice there’s no control. The regulator has been unable to enforce what it wants to have happen”. Once again, things could improve with the new chairman of Cofetel who took office last month.

The lack of competition also contributes to a lack of modernization of Mexico’s telecom system. “Since the vast majority of networks belong to Telmex, they didn’t have to invest much to compete and be profitable. As a result, a very small percentage of networks in Mexico are supplied with new technologies”, says Mavignier. Overall however, Mexico is one of the best connected countries in Latin America, and home to a substantial number of large scale IT operations.  Its biggest advantage is being right on the US border.

5) Argentina

Argentina makes the list because of the size of its telecom market. With the third largest mobile market in Latin America after Brazil and Mexico, and a very high broadband penetration of 10%, Argentina has a well developed telecom infrastructure. Three main operators are Claro, Telecom Personal and Movistar. “The market is split up between the north and the south regions, and fixed line penetration is quite unevenly spread”, says Roseboro. “They tend to focus mainly on the urban centers with the result that cities like Buenos Aires are completely tapped out”.

In terms of competition in telecom, the system is completely politicized. “The regulator has no independence from the Argentine government”, says Swain. “The Kirchners manage the economy by who is for them and who is against them. Fibertel, the most powerful media group fell out with them two years ago, and the government is still making problems for them”.

The main obstacle to telecom modernization in Argentina is really economic development. It’s why the country hasn’t invested much in its networks, and why there’s not much competition. But as international investors become more interested in Argentina, we’re hoping for a telecom revival.

Have opinions on our rankings? Make your thoughts known by posting comments below.

Redundancy and availability are essential checklist items in disaster zones

By Dennis Barker

Earthquakes, floods, and hurricanes. Mother Nature has cruelly reminded us again this year that the Nearshore region runs the risk of natural disaster. Obviously anyone doing business in a meteorological danger zone has to think strenuously about their provider’s ability to recover from a disaster and maintain business continuity. Or maybe it’s not obvious.

Andrew Fazio, director of commercial sales at Flow, a telco/cable/Internet provider and data center operator based in Jamaica, told us that clients aren’t always aware of all the issues or ramifications connected to disaster recovery.

“Business continuity is a hot topic for us, and it’s in the forefront of our thoughts during hurricane season. But when we speak to clients about it, we find that they don’t always realize what’s involved,” Fazio said. “It takes up more discussion time than any of our other services because it hasn’t received enough attention, and people don’t always appreciate the effects of lost data.”

Such as: “Forty percent of all companies that experience a major disaster will go out of business if they cannot gain access to their data within 24 hours,” Gartner says.

Ask this during the pursuit phase: “Show us specifically how you will keep things running during a disaster.” And the particulars need to be detailed in the contract.

Here are some crucial elements that should be part of your discussion with an outsourcing provider and should be part of their recovery and continuity practices:

Risk analysis. What are the threats, and what are their potential costs? Knowing there’s a hurricane season is one thing, but getting details for the season approaching is what matters. At Flow, staffers meet with members of the Office of Disaster Preparedness and Emergency Management, as well as experts from the Meteorological Service, to get the lowdown on what might lie ahead.

The perfect partner would have a fully functional replica of your system ready to go, so that operations can be restored instantly.

A DR planning team. This should consist of the savviest IT people, at least one ultra-techie who knows how everything works, an operations person who knows how everything runs, and someone from the business side who understands business functions — and the company pessimist. At Flow, one person is dedicated to safety and disaster preparations, Fazio told us. This team should shape policies and procedures.

A DR action team. Does the provider have people who know data replication? Do they have certified DR engineers? Application and database specialists? Have any been tested by real disasters?

The IT plan. A well-designed configuration can go a long way toward averting disaster. Your provider should have a map that details every nook and cranny of their IT universe. Explore it. Ask them to explain how they achieve redundancy for every single essential item. How do they maintain high availability? Ask what happens if that power supply blows out or that backup server goes down. What’s the backup schedule? If their idea of backup is simply storing tape in another location, look for a different partner.

Ask about automation. “Data center automation is the point of doing things on a computer,” says Dana French, president of Mt Xia, a tech consulting company specializing in data recovery, business continuity, and design of very large data centers. “There’s a tendency with offshore resources to build systems that are managed on an interactive basis, whereas the goal in a business continuity environment is to build functions and systems to manage themselves.”

The battle plan. Of course they have a plan. But make sure it spells out who does what when, and spells that out for every possible scenario. Backed up with contingency plans, like who does what if X is out sick. You know that scene in the movies where one guy says “We better go to Plan B” and the other guy says “We don’t have a Plan B”? That’s seldom funny in real life.

Practice drills. The plan and all related procedures need to be tested. Ask your provider if they’ve simulated a severe power outage or server crash. Have they pretended to have an earthquake? Ask them what happened and what they learned.

Defined recovery points. The SLA needs to specify recovery point objectives (age of files that must be recovered to resume normal operations) and recovery time objectives. Specifics relating to redundancy and availability also need to be negotiated and included in the contract.

Hotsite. The perfect partner would have a fully functional replica of your system ready to go, so that operations can be restored instantly.

Ideally, a provider is able to keep your assets out of harm’s way. What Flow does is offer clients the option of colocation services in Curacao, “out of the hurricane zone and earthquake belt,” Fazio said. The company has its own fibre connection to its facilities on the Dutch island in the southern Caribbean.

Ultimately, French says, you and your provider need to look at things from the standpoint of business functions rather than system functions. “The big question should be how do I ensure that my business functions are running rather than my computers running,” he says.

“What I have found,” says French, who has outsourced projects to Mexico and Poland, “is that providers are more intent on tasks associated with the system rather than with business functions. They will perform that task as quickly as they can, and turn it over as quickly as they can, but they will not necessarily consider how that task ties into the business continuity environment. They end up retrofitting business continuity rather than building it in from scratch.”

Finally, when considering a provider, “concentrate on their understanding of business continuity principles and practices,” French says. “Have them explain their understanding of BC. Ask them to define it and what it means in terms of the services they provide. Ten people will give you 15 different definitions of business continuity. Pick the one that matches what you think.”

Senator Schumer probably doesn't realize the huge incentive he is helping create to boost outsourcing to Mexico.

In its Haste to Gouge India, Congress Neglects to Consider the TN Visa

By Kirk Laughlin

In what could be one of the most extraordinary examples of the self-defeating consequences of slapdash, politically inspired protectionism, the new Congressional border bill which partly takes aim at Indian outsourcers is likely to trigger a nearshoring bonanza – with Mexico poised to become a major beneficiary. But wait, isn’t Chuck Schumer (D-NY) who is a key sponsor of the bill, going to protect U.S. jobs? Actually no and we’ll explain why.

Taking Aim

First, let’s take a look at the bill itself which is designed to strengthen the Southwest U.S. border by hiring more law enforcement and deploying more high-tech tools to monitor illegal immigration. In order to fund the $600 million project, Schumer and co-sponsor Sen. Claire McCaskill (D-Mo.) are taking aim at companies like Wipro, TCS and Infosys which depend on non-immigrant “H1B” visas to transfer highly skilled workers from countries like India to come to work in the U.S. The bill would raise the visa processing fee by $2,000 per visa, a huge hike which has been called “discriminatory” by leaders from the India outsourcing industry.

The issue gets very interesting however when you take a step back to realize that Congress has basically exempted the TN Visa (borne from NAFTA)  from falling under the new levy, effectively emboldening the pursuit of highly skilled nearshore labor to supplant those inflicted with the onshore visa surcharge. The non-immigrant TN Visa enables Mexican nationals to transit without hassle in and out of the U.S. In addition to its close proximity to the U.S., the TN Visa stands out as one of the most compelling attractions of nearshoring to Mexico, and continues to be one an important value-enabler for companies like TCS,  Infosys, Dell, HP and Accenture among others.

An interesting side note: Infosys – which was directly embroiled in the Schumer bill controversy when Schumer referred to Infosys as a “chop shop” – recently told us that Mexico has a bright future for the firm. It appears the firm now has every reason to further expand operations in Mexico, given that it would effectively be penalized by bringing more workers onshore.

The NAFTA Professional TN visa has no cap,  is good for three years and can be extended

Unlike the H1 visa which reaches a cap sometime during the year and restricts further visits during that year or the L1 which requires sometimes complicated justification of domain expertise, the TN visa enables the free flow of employees to and from the US. The NAFTA Professional TN visa has no cap,  is good for three years and can be extended.

Adjusting Business Models

Further evidence that Mexico will win big when visa complications are put in place came two years ago when Phaneesh Murthy, president and CEO of IT services firm iGate, said during a conference call: “We will probably utilize a higher growth in our Mexican center by having more people come from Mexico to the U.S., where they don’t need the H-1B because of being part of NAFTA.” said Murthy, according to a transcript on the financial site Seeking Alpha. “So, I think our business models will change and we are ready for those changes in business model,” he said.

Mexico has somewhere between 500,000 and 600,000 IT professionals and the country graduates approximately 65,000 IT students a year. Both Guadalajara and Monterrey landed on Nearshore Americas ranking of the Six Leading IT Cities in the Nearshore Region.

The other consequence from the Schumer Bill (which was received congressional approval today) is that Indian outsourcers may think twice about bringing Indian nationals into the U.S., which may result in the U.S. collecting far less that the $200-$250 million it is projecting to fund the border programs.

Finally, it is the U.S. companies themselves – who are battling to compete in a fiercely competitive global economy – who really hold the cards. The Schumer bill does nothing to inspire long-term strategies to compel U.S. companies to keep jobs in the U.S. What it does do is pass along an increase to their operating costs in an assortment of mostly back-office, non-strategic functions – from application maintenance to business processing activities.

Of course economic reality will trump the politically charged motivations of the bill – which conveniently is being pushed through Congress to maximize the impact during the Fall election season.  And economic reality will be the driving force behind what is likely to become a huge boost for Nearshore outsourcing – and classically what Schumer had least hoped for.