By Jagdish Dalal
Last month, almost one third of India was in the dark. A massive electrical grid failure brought inter-city trains, local subways, elevators and shop lights to a grinding halt. BPO centers ran operations on their backup generator sets as they prayed for the restoration of power before they run out of diesel. Many of them had disaster recovery operations in full deployment. This was the second power outage in less than one week, foreboding bad news to come. I am sure that many clients who have outsourced their work to India dipped into their original due diligence list and updated it for auditing current and future “infrastructure”.
As part of our own due diligence framework, we look at overall country infrastructure and its stability and suitability for BPO destination. Although, infrastructure is generally considered more stable and newer in many of the Latin American countries, there are some of the dimensions of infrastructure that we look at, require a more thorough due diligence – before and during BPO operations. As attached figure (below) shows how we segregate infrastructure for analysis and evaluation.
A country’s political and economic infrastructure has a direct impact on BPO company’s (or a captive center’s) ability to establish and effectively manage the operations. This is not about the political and economic stability (they are factors of another set of evaluation) but the infrastructure necessary to operate. Evaluation of political infrastructure assures that political climate of the country is well defined, understood and can be “trusted” to keep a steady path forward. A country that is “secretive” about its governance, one ruled by a despot (think about Syria, North Korea or Iran) would be considered having a risky “political infrastructure”.
Economic infrastructure eases access to capital as well as legal system that support economic activities – such as Intellectual Property protection and usury laws. In order for the BPO business to build and grow, it is essential that there are options available for raising the necessary capital and an ease of accessing it. Countries that have captive capital markets and where economy is controlled by government and a handful of anointed capitalists, it would be difficult to obtain capital at a competitive rate. Countries, such as Venezuela where the economic certainty is dependent on the directions from the president and federal government, BPO businesses may find it challenging to trust that the capital will be available when required.
Access infrastructure is not only ease of reaching the country but also access within the country. As more and more countries are developing BPO sites – as a tax-free zone or a development park, concentration of businesses is growing. This taxes the local infrastructure to the limit, which wasn’t designed for high traffic when built. If you are anywhere near Guragaon (Delhi) or Bangalore or Sao Paolo, Brasil or MDSI in Manila, you are dealing with a large volume of traffic of all modes, and are looking at endless traffic jams and long commute times.
Many countries have invested in developing these zones but haven’t invested enough in road infrastructure. Countries like China have made it a priority to build roads to enable business centers to have easier access. Besides the road infrastructure, many of these locations do not have adequate supply of hotel facility to accommodate all foreign travelers. Western businessmen are accustomed to a higher level of comfort and amenities. Some of the providers in India have resorted to building their own supply of rooms or contracting with larger hotels on a permanent basis.
Many of the emerging destinations also suffer from air links between their major centers and foreign locations. Airports are not built to handle the traffic and airlines do not have the necessary capacity to shuttle people. Until recently, major Indian airports were rated among the worst in the world for access, amenities and convenience. This makes for a longer and uncomfortable travel between U.S. and those locations.
Physical infrastructure includes utilities that many of the western countries take for granted: power, water and sewer. Indian government officials admitted during the recent power outages that the India’s electrical grid system was totally inadequate, outdated and falling apart. This is true of many developing nations where such grid systems have not been built to handle large loads and provide “clean” power to business centers.
Off-line power generator systems are considered a required facility for all such centers and are brought on line more often than one realizes. Backup generators do accomplish their task well but in locations where distribution of power source (diesel mostly) is dependent on access infrastructure, they offer another source of worry – getting trucks to the generators in time to replenish. This leads to building ever increasing storage tanks.
BPO centers can get along without power from grid but when there are power related problems, it disrupts personal lives of workers. Power outages or “brown outs” (voltage drops often are referred to as that) play havoc with personal lives of workers. This coupled with disrupted access infrastructure – affected by power problems – create a challenge for maintaining a fully staffed, undistracted workforce at BPO centers.
Inadequate water and sewer supplies do not directly impact the BPO center operations but create further distractions for the workforce. Many of the emerging nations in Asia, Central and South America also suffer from harsh weather – monsoons, tropical storms. Without adequate water disposal facilities, many of these locations flood easily, creating further disruption in transportation of workers. There have been many instances where these centers have had to keep their employees at the center because they could not get back to their homes and new workers could not come into take their place. This not only increases costs but affects employee performance and therefore delivery of service.
Educational infrastructure deals with a countries’ ability to have enough workforce trained and educated in relevant fields. Many of the emerging nations have been investing in developing their educational systems to be able to do that and have made a tremendous progress in last couple of decades. However, many of these educational institutions have not modified their curricula and teaching methods to adequately prepare the student body in fields that are in demand. For example, there is a high demand for workers with a specific IT technology background (Java) in a country. However, the educational institutions cannot keep pace with market demands in that country and as a result companies would be reluctant to set up an IT service center there until those skills are easily available. Since the rate of change in the BPO/IT service industry is quite rapid, educational institutions have to change their approach quickly but that has not been the case in most countries.
Second aspect of educational infrastructure deals with imparting business skills, in addition to technical knowledge of the field. This would include communication skills (not just spoken English) – including writing, speaking and presenting. Services businesses in many of the countries therefore end up creating their own facility for these “soft” skills. This adds to the service costs and enables students to be better prepared to switch their employers once well developed. This increases the employee costs tremendously.
It is a common practice to perform due diligence on destination and sites by clients and BPO providers. There are many sources of information and due diligence checklists that help them perform the due diligence. However, in our experience we have found that most of them do not delve into the infrastructure analysis diligently. As discussed above, some of the infrastructure related issues do not surface until an event occurs or when time passes and there is real experience. Our approach has been to develop an extensive set of “scenarios” during due diligence and understand what options may be available for clients and providers. In one of our scenario based analysis, we found that provider’s infrastructure defense was based on depending on another factor that could have gone wrong as well.
Many nations have built adequate infrastructure to attract and retain BPO providers and have promoted attractiveness of the location. However, a detailed due diligence on the infrastructure using a framework similar to one described here can identify weaknesses early and may help make the decision to either not locate there or take actions that can mitigate adverse reaction.
It is quite clear that over a period of time most of these destinations will have adequate infrastructure to support activities and it will no longer remain a topic of concern. Till then, scenario-based due diligence is a must do.
Jagdish(Jag) Dalal is Founder and President of JDalal Associates LLC (JDA) and Managing Director, Thought Leadership for IAOP and a world-renowned consultant in the field of outsourcing. Dalal is a Certified Outsourcing Professional (COP®). He can be reached at JDalal@JDalalAssociates.com