As companies in all industries globalize, service providers are scrambling to build global locations as well. In the March 20 eWeek Road Map cover story, I reported how one global company, Procter & Gamble, is being served by another, outsourcing partner Hewlett-Packard. The operations of both companies do an intricate worldwide dance, trimming costs from and expediting accounts payable operations.
Analysts agree that such a relationship makes sense. If you are a multinational company, you should look for a global services provider. "A global presence is important to the extent that vendors are able to tap into a global resource pool to minimize costs—this is becoming a key requirement in successful BPO [business process outsourcing] delivery and a key buyer expectation," said IDC analyst Romala Ravi in Framingham, Mass.
But is globalization right for everyone?
No. Many companies dont have the resources or management expertise. And, for those companies for which globalization is right, there is a right way and a wrong way of globalizing.
First, there is a price to be paid for being global. There are travel, time zone, language and cultural barriers. If you cant skillfully overcome these obstacles, your costs will rapidly outstrip any business benefits you may achieve. Globalization veteran Ted Raffetto, New York-based CEO at Vanco USA, an aggregator of worldwide telecommunications services, put it this way: "To establish a unit in a country—legally and in terms of tax laws, regulation requirements and so on—can be very challenging. Thats on top of understanding the local culture and the local norms."
Second, if wage arbitrage ever goes away, well all be asking, "Why are we here?" Despite what people say about business advantage, rather than low-cost workers, being the reason they look offshore, lets not kid ourselves. The main reason people send work abroad is that another countrys prevailing wages and cost of living are less. Once the work is there, you can talk sensibly about tacking on business advantage, but not before.
In any case, when the sands of global wage rates shift, you have to be ready to move. Many providers of global services realize just how fragile the ecosystem of wage arbitrage is. Having lived by the sword of labor arbitrage for years, no one is more acutely aware of its perils than the Indian outsourcers.
At Februarys Nasscom conference in Mumbai, India, Genpact President and CEO Pramod Bhasin told an audience, "The day another country is cheaper than India, then well go there." HCL Technologies President Vineet Nayar warned, "India will have to become more efficient, or China will do to India what India has done to the U.S." Thats the provider side of the equation speaking, but you get the idea.
As you globalize, you will soon realize that you dont have all the answers. Raffetto, a 20-year veteran of the telecom industry, said that in former times, a company would globalize by taking its homegrown processes and transplanting them abroad. However, he said, that kind of command-and-control thinking is becoming obsolete. Increasingly, companies are realizing that to succeed, they need to seek out and act on input from local managers in host countries.
We may live in a small world, but its a world in which one size doesnt fit all. The pioneers of global sourcing are finding out what works, and what doesnt, by trial and error. ´
Stan Gibsons e-mail address is email@example.com.