Global Services Offshoring: Trends and Impact in Latin America … · 2018-03-15 · Global Services Offshoring: Trends and Impact in Latin America and the Caribbean Gary Gereffi

Global Services Offshoring:gTrends and Impact in

Latin America and the Caribbean

Gary Gereffiy&

Karina Fernandez-Stark Duke University

Center on Globalization, Governance & Competitiveness

Inversión Extranjera en Servicios CorporativosOffshore en América Latina

, phttp://www.cggc.duke.edu

[email protected]

© 2008 Center on Globalization Governance & Competitiveness © 2008 Center on Globalization Governance & Competitiveness

Offshore en América Latina

CEPAL, Santiago Chile18 de Noviembre, 2008

Agenda1 Globalization & Development1. Globalization & Development2. ITBS Offshoring Industry

Gl b l T d i ITBS Off h i3. Global Trends in ITBS Offshoring4. India Case5. Latin America & ITBS Offshoring 6 Lessons and Implications for Latin 6. Lessons and Implications for Latin

America & the Caribbean

© 2008 Center on Globalization Governance & Competitiveness

2

The New Global Labor Market

• After 1989 3 billion workers from China India Russia and • After 1989, 3 billion workers from China, India, Russia, and Eastern Europe – half of world’s population – joined the capitalist world economy

• Technological changes associated with the Internet greatly expanded outsourcing & offshoring options, lowering the costs of doing business remotely and across borders

• Transnational Corporation (TNC) business strategies have been unrelenting in their search for cost-based efficiencies, especially on labor side but they also are looking for new especially on labor side, but they also are looking for new knowledge workers


3

Latin America and Information Technology-Based Services (ITBS)

Latin America and the Caribbean countries Latin America and the Caribbean countries are looking for new development strategies, beyond manufacturing and

t ti i d t iextractive industriesGlobal services offer an opportunity to take advantage of the more educated take advantage of the more educated workforce in the region Thus countries in Latin America and the Thus, countries in Latin America and the Caribbean have attracted a large number of offshore ITBS centers in recent years


4

2. Information Technology-

B d S i (ITBS) Based Services (ITBS)

Offshoring IndustryOffshoring Industry


5

Size of Global ITBS MarketSize of Global ITBS Market

Estimated Industry EvolutionEstimated Industry Evolution

Total, US billions

Information Technology

Business Process Outsourcing (BPO) &gy

Outsourcing (ITO)g ( )

Knowledge Process Outsourcing (KPO)

2005 $47 41% 59%

2006 $65 35% 65%

2007 $92 29% 71%

2008 $132 24% 76%2008 $132 24% 76%

2009 $192 19% 81%

2010 $281 15% 85%


6

Source: Boston Consulting Group. (2007). Estudios de Competitividad en Clusters de la Economía Chilena, Documento de referencia Offshoring, 18 de mayo de 2007

Supply of ITBS OffshoringSupply of ITBS OffshoringIndia World leader in ITO, BPO & KPO sales (US$ 40 billion in 2007 NASSCOM) (US$ 40 billion in 2007, NASSCOM) China More than US$ 750 million invested in this industry (2005-2008)Russia Strong presence in KPO activities. Large number of scientists CEE Serving West Europe Growing marketCEE Serving West Europe. Growing marketLatin America Serving mainly the US market and Spain Philippines Third in BPO services (US$ 1.5b in 2003 and estimated US$13b in 2010). Large call centers


call centers

7

Global ITBS Offshoring, 2005


8

Source: neoIT. Mapping Offshore Markets Update 2005http://www.neoit.com/pdfs/whitepapers/OIv3i08_0905_Mapping-Offshore-Markets.pdf

Global Demand for ITBS Offshoring by R i (BCG i )Region (BCG estimates)


9

Source: Boston Consulting Group. (2007). Estudios de Competitividad en Clusters de la Economía Chilena Documento de referencia Offshoring 18 de mayo de 2007

Global Demand for ITBS Offshoring by Acti it (OECD estimates)Activity (OECD estimates)


10

Source: OECD (2008). Regional Investment Strategy. Key findings of the Sector Specific Study. OECD, Private Sector Development.

Foreign Investment in Business gServices, 2007

Top Ranking Destination Countries by Estimated Jobs in Business Services- 2007

Estimated jobs


11

Source: IBM Global Business Services. (2008). Global Location Trends.

World’s Largest ITBS CompaniesUS

IndiaWorld s Largest ITBS Companies

Company Name City, Country Sales 2007 (USD Mil) Employees CAGR %

(2004-2008)

France

IBM ( International Business Machine) Armonk NY, United States 76,135 386,558 0.6

TCS ( Tata Consultancy Services) Mumbai, India 28,800 111,407 35.6

Accenture New York NY United States 25 313 170 000 14 4

4.8% Lat Am

Accenture New York NY, United States 25,313 170,000 14.4

EDS (Electronic Data System) Plano TX, United States 22,134 139,500 5.8

Capgemini Paris, France 11,497 86,487 N.A

ACS (Affiliated Computer Services_ Dallas TX, United States 6,161 65,000 10.7

Wipro Bangalore, India 5,064 95,675 38.9

Infosys Technologies Bangalore, India 4,144 100,306 40.7

Satyam Secunderabad, India 2,170 51,643 39.4

HCL Technologies Noida, India 1,879 50,741 34.9


12

Source: Duke University Libraries, Databases for Globalization and Economic Competitiveness. OneSource, Hoovers and DataMonitor.Source: Financial Express. (2008) IT firms cautions on local operations in Latin America

3. Global Trends in

ITBS Offshoring


13

ITBS Offshoring Global Value Chain- Main Activities

ITO BPO KPO

•Call centers•Research and

•IT maintenance

•Basic software operations

•Business processes (BPO when outsourced):

Horizontal business processes or back-office services: purchases

Research and Development

•Product development

•Analytics and data •Hosting

•Data entry & conversion

services: purchases, logistics, marketing and sales, etc.

Vertical business processes: claims and

mining

•Advanced vertical functions (services to medical, legal, processes: claims and

payments processing, insurance management, etc.

medical, legal, biotech, pharma industries)


14

Source: Adapted from Boston Consulting Group (2007), Castillo (2007), UNCTAD (2004), Evalueserve (2004).

ITBS Offshoring: Global Value Chain-Commoditization

Commoditized activities

In the past, KPO activities were kept

activities (ITO, BPO)

activities were kept inside the

organization. Now with global

availability of linexpensive talent,

these high-end activities are going

offshore


15

Source: Duke University Offshoring Research Network 2007 Service Provider Survey and Booz Allen Hamilton analysis

Global TrendsGlobal Trends

Commoditization of ITO & BPO activities

KPO activities are going offshore as never before (higher levels of skills)

Growing aggressively: India, Philippines & Central and Eastern Europe (CEE)p ( )

Global expansion: Large providers

Emerging regions: Latin America & the Emerging regions: Latin America & the Caribbean


1616

4 India Case4. India Case


17

Indian SuccessIndian Success

Jobs The number of IT BPO professionals employed in Jobs The number of IT-BPO professionals employed in India grew from less than 200,000 people in 1998 to over 1.6 million in 2007

Company training practices (e g Infosys’ new center Company training practices (e.g., Infosys new center can train 13,500)

Language Large English-speaking educated workforce

Companies Numerous indigenous companies

Incentives Government support in Tech Parks, NASSCOM lobby, involvement of universities and research institutions

Experience India has proven industry maturity Industry upgrading (R&D services activities)


y pg g ( )

18

Indian Service Provision, 2000Indian Service Provision, 2000


19

Source: Dossani, Rafiq and Kenney, Martin. (2007). The Evolving Indian Offshore Services Environment: Greater Scale, Scope and Sophistication. Sloan Industry Studies Working Papers, WP-2007-34, 49.

Indian Service Provision, 2006Indian Service Provision, 2006

The KPO market in market in India is

worth $2.5B to $3B a

year, and is lik l t likely to

grow to $10-12B by 2012


20

Source: Dossani, Rafiq and Kenney, Martin. (2007). The Evolving Indian Offshore Services Environment: Greater Scale, Scope and Sophistication. Sloan Industry Studies Working Papers, WP-2007-34, 49.Source: http://www.boston.com/news/world/asia/articles/2007/05/16/india_seeks_higher_value_outsourcing_work/

How? India has adopted the best practices of its Guru (the U.S.) and perfected these

50% of engineering graduates are not employable by TNCs. Country has weak infrastructure and weak education systemCountry has weak infrastructure and weak education system

Workforce recruitment skills forecasting, campus recruitment, internship programs, referral programs and creative recruitment methods, use of technology, gy

New employee training ‘Army boot camp’, 2-7 months training programs for ‘freshers’, specialized centers for training, extensive mentoring & on-the-job training

Ongoing skills development 40-150 hrs/year of formal training, online training, senior executives deliver training

Managerial development 3 years from ‘fresher’ to g p ymanager: managerial development in conjunction with top business schools, promotion from within, career progression

“How the Disciple Became the Guru”


21Source: Vivek Wadhwa. (2008). Facts and Myths in the Globalization Debate. Duke University. Pratt School of Engineering

phttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=1170049#PaperDownload

Indian Labor Force ‘Saturation’?Indian Labor Force Saturation ?

Innovative training systems and expansion to Tier II-III Indian cities are the new strategies to solve these issuesIndian cities are the new strategies to solve these issues

Hubs cities

Tier II & III& III cities

• Indian local governments are offering incentives to develop this industry

• Tier II & III cities offer cheaper labor force


Source: Everest Research Institute (2008). Picking the winners among tier 2/3 cities. An offshoring perspective.

Indian Lessons for Latin America and the Caribbean

Indian training system involve the Indian training system involve the private sector in ITBS education

Tier II & III cities in India deepen Tier II & III cities in India deepen national investment

G t i ti d t Government incentives and strong industry associations

l d l f ll fClear industry classification & collection of data


5. Latin America ITBS

Offshoring


24

Origin and Evolution of the ITBS gIndustry in Latin America

• Large US companies started operations • Large US companies started operations First PhaseFirst Phase

D ti i d l d d t d iD ti i d l d d t d i

a ge US co pa es sta ted ope at o s• IBM, Accenture, EDS, HP and Unisys in Mexico and Brazil, later in Chile and Argentina

a ge US co pa es sta ted ope at o s• IBM, Accenture, EDS, HP and Unisys in Mexico and Brazil, later in Chile and Argentina

First Phase1980s-1990sFirst Phase1980s-1990s

• Domestic companies developed products and services• Illustrative companies are Softtek (Mexico), Neoris (Mexico), CPM Braxis

(Brazil), Politec (Brazil) and Sonda (Chile)

• Domestic companies developed products and services• Illustrative companies are Softtek (Mexico), Neoris (Mexico), CPM Braxis

(Brazil), Politec (Brazil) and Sonda (Chile) Second Phase1990sSecond Phase1990s

• Entry of Indian firms to Latin America• The most relevant Indian companies are: Tata Consulting Services (TCS), Infosys, Wipro and Satyam among others

• Entry of Indian firms to Latin America• The most relevant Indian companies are: Tata Consulting Services (TCS), Infosys, Wipro and Satyam among others

Third Phase2000sThird Phase2000s

• Expansion of domestic firms from Mexico, Chile and Brazil to other countries in the region •US & India TBS Companies increase ITBS investments in smaller countries

• Expansion of domestic firms from Mexico, Chile and Brazil to other countries in the region •US & India TBS Companies increase ITBS investments in smaller countries

Fourth PhaseMid 2000sFourth PhaseMid 2000s


25

Source: Mullan, Jessica E, Kenney, Martin F and Dossani, Rafiq. (2008). Offshoring IT-based Services to Latin America: The Current State and Future Prospects.

Large Foreign ITBS Companies in Latin Companies in Latin

America and the Caribbean

Indian-GN, IN, Indianbased

companies

US-based companies

Genpact (GN) Accenture (ACC)

TCS, WP

ACC, IBM, EDS

Satyan (ST) IBM (IBM)

TCS (TCS) EDS (EDS)

Infosys (IN) Microsoft (MC)

GN, ST, IN, TCS, WP

ACC, Infosys (IN) Microsoft (MC)

Wipro (WP) Oracle (OR)

Sun Microsystems (SM)

IBM, EDS

TCS( )

Unisys (UN)

SAP (SAP)

ACC, IBM, EDS, MC, OR, SM, UN, SAP

More US based providers in Latin America and the Caribbean than


26

More US-based providers in Latin America and the Caribbean than Indian base providers. India is waiting for industry maturity

Major markets for Latin America and the Caribbean ITBS offshoring

Companies Companies headquartered in Spain get 24% of their ITBS

from Latin America and 24% from India


27

Sources : Arie Y. Lewin and Joan-Enric Ricart. Duke University Offshoring Research Network , Price WaterHouse Coopers, Business School: Universidad de Navarra. The Future of Offshore Outsourcing: Trends and Implications. Presented in The 2008 European Outsourcing Summit IESE Business School, University of Navarra Barcelona, Spain. & Business School: Universidad de Navarra (2007). Notes on Globalization & Strategy. http://www.iese.edu/en/ad/AnselmoRubiralta/Apuntes/EneroAbril2007/Espanadeslocalizacionconreservas.html

Latin America ITBS Offshoring by Function


28

Source: Arie Y. Lewin and Joan-Enric Ricart. Duke University Offshoring Research Network , Price WaterHouse Coopers, Business School: Universidad de Navarra. The Future of Offshore Outsourcing: Trends and Implications. Presented in The 2008 European Outsourcing Summit IESE Business School, University of Navarra Barcelona, Spain.

6 Lessons and Implications 6. Lessons and Implications

for Latin America &

the Caribbean


29

Four Pillars of ITBS Offshoring

Human CapitalHuman Capital Development

ITBS Offshoring

Industry

CompetitiveCluster

Government Incentives

InfrastructureInvestments


3030

Implications for Latin America & pthe Caribbean

Develop good statistics to track ITBS activities Develop good statistics to track ITBS activities, employment & investments

Specialize in appropriate niches Specialize in appropriate niches

Invest in ICT infrastructure

Diversify the pool of foreign investment

Create effective workforce development Create effective workforce development strategies (partnership between educational institutions & the private sector)


3131

Thank o fo o Thank you for your attention!attention!

Gary Gereffi&&

Karina Fernandez-Stark Duke University

Center on Globalization, Governance & Competitivenesshttp://www.cggc.duke.edu

[email protected]

© 2008 Center on Globalization Governance & Competitiveness © 2008 Center on Globalization Governance & Competitiveness

32

Documents

Global Services Offshoring: Trends and Impact in Latin America … · 2018-03-15 · Global Services Offshoring: Trends and Impact in Latin America and the Caribbean Gary Gereffi