Outsourcing and Offshoring Alternatives to a Politically and Economically Unstable India

>challenger in the index of relative economic freedom.
As reported by the Heritage Foundation, the change
Given the recent political and economic instability inhas been nothing short of amazing. In 2000, Armenia
India, where is the world going for outsourcing andranked 84th in relative economic freedom. As of late
offshoring alternatives?2008, Armenia ranked 28th — ahead of
A few key players (and some familiar ones) areEuropean powerhouses Spain (31st) and France (48th)
emerging as leaders in the arena.and just behind Sweden at 27th.
Outsourcing: A love / hate relationship for U.S. I.T.Hong Kong ranked #1 on the list for 2008, with the
professionals.  Ask the average employee in any I.T.U.S.A. at #5.
organization, and hearing about fear of jobs going toThe appraisal of economic freedom is based on 50
India and China is almost unavoidable.  Although manyeconomic indicators within the following categories:
have started the move toward business servicecapital flow and foreign investment; financial systems;
management (BSM) to address the chaotic labormonetary, budget, and trade policies; salaries and
trends, I.T. labor itself still consumes over one-third ofprices; government interference in the economy;
I.T. budgets.  This figure is perfectly in line with aproperty rights and regulations; and black markets.
recently published Gartner report stating that 37% ofMany outsourcing experts are finding a presence in
the typical I.T. budget goes directly to personnelArmenia quite successful for many of their clients and
costs.  What are you as the CIO going to do topartners.  The cooperation offered by the Armenian
manage this frenzied situation?  Is outsourcing, orgovernment to ease immigration and visa restrictions
“offshoring,” the answer? for executives and other technical employees traveling
How can you outsource your operations to a foreignbetween Armenia and the United States has been a
country and still maintain compliance with best practicehuge advantage to many, and this is compounded by
frameworks such as ITIL or MOF?  How do yougreat satisfaction with the talent pool offered by this
maintain Sarbanes-Oxley, PCI, or HIPAA complianceEuropean country.
when utilizing 100% offshore resources with far lessHaving a stable presence in Armenia is but one
control? example of alternatives to the current Indian instability. 
Almost everyone in the I.T. sector has at least oneThere are numerous other alternatives as well, and
story about various operational tasks beingdiversification is going to be the keystone to success
“offshored” to India, and no call-center, networkover the next few years. 
operations center (NOC), or infrastructure team hasAs pointed out by one CEO, “...the logical approach
been immune to rumors of jobs going offshore.  Nofor today’s global economy is to diversify. 
longer are the cities of Mumbai and Delhi simpleMany of my contacts who previously invested heavily
manufacturing hubs and suppliers of raw materials. in Indian resources are already asking for new
The country is home to some of the largest corporatealternatives, and we believe the best approach is to
call centers and development centers in the world.  Insimply avoid the old cliché of “putting all the eggs
late 2005, the Indian outsourcing workforce numberedin one basket.”
350,000 individuals.  That total is now estimated atSingapore has emerged as another destination of
well over 800,000, with many new positions goingchoice, with an extremely stable economy and
unfilled due to the lack of qualified candidates.government as well as strictly enforced laws on
Eleven years ago this month, USA Today published anintellectual property rights.  Perfect English is widely
article titled “Can political instability be eliminated inspoken, and the country is considered one of the
India?”  Looking solely at the news of the past sixtop-five technical innovators in the world.
months, the answer to that question is an obvious NO.Originally founded as a British trading colony in 1818,
The trend toward a twenty-first century India has notSingapore joined the Malaysian federation for a short
fostered the sort of sweeping political change onetwo years ending in 1965. Now completely independent,
might expect from the world’s most populousSingapore is undeniably one of the most prosperous,
democracy.  Moreover, the unwillingness of the Indiandiverse, and cosmopolitan destinations in the world and
government to more robustly combat intellectualhas a per capita GDP greater than that of many
property theft is the stuff that causes your legal team“leaders” in Western Europe. 
to lose MANY nights of sleep. 
Recession has made its way to India as well.  The 4In 2006, the World Bank rated Singapore as “the
December 2008 issue of The New York Times ran anmost business-friendly economy in the world.” 
article discussing the wave of outsourcing firms scalingImmediately behind London, New York, and Tokyo,
back their daily operations in India due to the unhealthySingapore is the fourth largest foreign exchange
global financial climate.  As of this week, the Indiantrading hub in the world. 
rupee is at a record low.The country is home to three major state
 universities:  The National University of
India makes a strong case as the “global backSingapore, Nanyang Technological
office,” yet it has failed to produce an environmentUniversity and Singapore Management University,
supporting front-office operations such as productresulting in a literacy rate over 93%.  The island nation
innovation and corporate strategies.  The prevailingaccomplishes it all with a geographic size only three
thought of the past 5 years has been that Indiantimes that of Washington, DC.
outsourcing firms are masterful in the art of efficiencyThe Philippines and U.S.A. share not only a very similar
and product development measures.  What aboutlegal system but the English language as well.
now?Companies in the legal sector consider this fact
On 7 January 2009, Indian stocks took a nosedive inespecially attractive. Once a U.S. colony, the Philippines
the wake of announcements by Satyam Computerhas a workforce that is already familiar with many
Services that corporate profit summaries had beenlegal factors not readily obvious to those in countries
inflated for several years.  The announcement bywith less of a seasoned relationship with the United
Satyam’s chairman and co-founder that he hadStates.
directly falsified accounting documents on an ongoingA few facts about the Philippines:
basis has thrown the entire Indian outsourcing industry-  Population of 91,000,000 as of 2008
into dramatic turmoil.  As a provider of back-office-  550,000 college graduates per year on Average
services for many of the largest banks and healthcare-  Educated labor pool of Over 30,000,000
institutions in the world, the result of the SATYAM-  Entry-level I.T. salaries average $2500—$8000
crisis is nothing short of devastating.USD P.A.
 -  Top-quality CBD real-estate costs average $17
By Friday, January 9, 2009 news sources werePSF
reporting that interim CEO Ram Mynampati does not-  95% literacy rate
have faith that the firm can continue past the next-  English as a primary language
few weeks.  Mynampati stated they were working toOne of the topthree law firms in the world relocated
find the liquidity to pay current employees, suppliers,their entire network operations center from Chicago to
and creditors.Fort Bonifacio, Manila, in 2003. That operation has since
 grown much larger, also encompassing legal operations
In less than a week, the crisis has crossed the Pacificand software development.
Ocean and hit U.S. shores.  Auditing giantFrom 1997 to 2008, companies such as Citibank, Fluor,
PricewaterhouseCoopers is expected to pay a heftyIBM, Convergys, Telus, HSBC, Dell, JP Morgan,
price for the emerging fraud.  The auditor has beenSiemens, and Deutsche Bank have all opened major
responsible for Satyam financial oversight for overoffshore facilities in the Metro Manila area of the
eight years, and Satyam investors are expected to goPhilippines.
to court in attempts to recoup losses. According toMore than just a country filled with call centers, the
legal sources from within India, most are likely to attackPhilippines is home to dozens of offshore operations
PricewaterhouseCoopers directly rather than Satyam.involving network operations, wireless services, energy,
The tragic events of November 2008 in Mumbaishipping and logistics, legal and medical transcription,
clearly show that the concerns go much deeper. Overfinance and accounting, and software development.
200 people were killed in the attacks, and the entireThe country is now recognized by some as the top
central business district in Mumbai ground to a halt fordestination of choice in Southeast Asia. In 2006, the
several days, resulting in billions of dollars in lostcountry generated in excess of $3.0 billion in
labor.   Within one week of the attacks, fiveoutsourced operations, and that figure is expected to
high-profile Indian cabinet members were forced tomore than double by the end of 2009. The Philippine
resign.  On 1 December, TIME magazine posed thegovernment has targeted a global market share of 8
question “Will India’s Government Survive theto 10% in the O&O market by 2011.
Mumbai Massacre?”Regardless of where you go, there is no “single best
Many companies are selecting alternate destinations,answer” to every situation.  When looking for that
and some trends show an actual migration OUT of“trusted advisor” to help you make your next
India to other knowledge-rich environments such asoutsourcing, offshoring, development, or infrastructure
Singapore, The Philippines, Armenia, Pakistan, anddecision, you need a firm with the knowledge, process,
various Latin American countries.  Companiesdevotion, and proven direction to make it a success.
requiring less interaction with the public (for example, aOnly by in-depth knowledge of your core business can
software development center) may select destinationsany firm help in an effective O&O engagement. You
where English is not the primary language, or in someneed a firm that endeavors to understand and
cases, is not a language spoken at all.  Companiesoptimize how the process will enhance not only the I.T.
building public-facing operations such as helpdesks ordepartment, but all other business units as well.
call centers are being forced to reconsider earlier 
decisions, and many are moving to moreO&O will continue to gain momentum over the next
English-centric countries like Taiwan and the Philippines.few years, regardless of what happens in the Indian
Key players are making a strong case for themselvessubcontinent.   The recent events in India and the
as these trends develop.  In the Western Hemisphere,surrounding territories are but a small stumbling-block to
Costa Rica and Peru have marvelous records ofan ever-evolving global business model. 
rock-solid software development and high customer 
satisfaction ratings.  In Europe, Armenia is emergingBusinesses today realize that three very important
as a major powerhouse and model of efficiency.  Infactors have emerged in the outsourcing and
Asia, many are discovering that the almost-perfectoffshoring industry:
English spoken in Taiwan and the Philippines combined- O&O cannot and should not be based on the “one
with some labor costs equal to or less than those insize fits all” methodology anymore.   Diversification
India make each a destination of choice.  In fact, theis the key.
November 30 edition of The New York Times- Every situation is different.
Magazine featured a four-page article touting the- Unless you are prepared to invest in learning foreign
viability of the Philippines as a premier outsourcingtax and H/R systems, unfamiliar holidays, unique
destination.infrastructure, governmental regulations, and possibly a
While China, Russia, and Korea have fantastic talentfew foreign languages, you NEED a trusted advisor on
pools, the labor cost and in some cases difficultyyour side.
dealing with local and national governments make themCompanies and their investors who spent the billions of
less attractive to some U.S. based companies.dollars (and thousands of man-hours) building
While being one of the lesser-mentioned yet moreoutsourced operations based solely in India have found
historically colorful European countries, Armenia is athat trying to separate the technology from the actual
virtual strongbox of extraordinary talent.  Asbusiness process is not only foolish—it is futile.  
mentioned by the CIA World Factbook, 18% ofOutsourcing and offshoring can provide limitless
Armenia’s current population is under the age ofpossibilities, but they must be done with precision , care,
15, meaning the talent pool is poised for huge growth.and proper distribution.
Armenia declared independence from the formerRather than outright withdrawal from offshoring
Soviet Union on 21 September, 1991 and is now aoperations, now is the time for diversification.
bastion of political stability (a particularly attractive“There is timing in the whole life of the warrior, in his
factor for the O&O industry).  A healthy GDPthriving and declining, in his harmony and discord.
real-growth rate of 13.7% makes Armenia one of theSimilarly, there is timing in the Way of the merchant, in
top producers in the EU.the rise and fall of capital. All things entail rising and
Additionally, Armenia is rapidly becoming a majorfalling timing. You must be able to discern this..