Outsourcing's Next Phase Has Begun

Computerworld - Outsourcing in India has reached a near-term peak, and meaningful expansion from this point forward will result in higher costs and lower-quality delivery. Business leaders in Asia have been saying such things to one another for months now. Today, we are seeing deliberate action to move capacity from India to next-step destinations like the Philippines, China and Vietnam.

Even major business publications have picked up on the evolving situation. Both Forbes ("India: Good Help Is Hard to Find") and BusinessWeek ("India's IT Challenge") recently published feature articles that directly address the growing problems in India and the viability of the next-step destination countries.

Looking at current events in the Philippines, we can get a better idea what is going on. Sykes, a large U.S.-based contact center and IT support organization, has operations in both India and the Philippines. The company said it would shift much of its Indian capacity to the Philippines, where it already has 7,000 employees. "We moved calls to other facilities in Asia to get a higher rate of return," was the official statement from Dan Hernandez, Sykes' vice president for global strategies. But knowledgeable observers in the region say that the rate of return differential must be large for a company of Sykes' size and prominence to forgo India after already putting capacity in place.

Ambergris Solutions is another large contact center organization with operations in the Philippines. The company just received a $43.5 million investment through Telus International, a Canada-based global IT provider. Jim Evans, who played the key local role in coordinating the deal, says his company wanted a "strategic investment" in the outsourcing industry in Asia, and the Philippines offered the best long-term opportunity given all the options, including India.

As Asia-Pacific vice president for global business-to-business services provider GXS, Victor Lee oversees the professional and customer services operations in the region. His company made the decision to direct functions with a strong customer component to the Philippines because of better economics and results there. His company's analysis also indicated that costs were increasing disproportionately in India. As well, Lee feels that "having product development in India and professional and customer services in Philippines reduces risks."

More outspoken than most, Rick McGonegal is clear that India won't be part of his company's plans for the foreseeable future. He is the managing director of RCG Information Technology, another good-size IT provider. The company already has a strong offshore presence in the Philippines and has assessed the Asia-Pacific region for future expansion. India, he feels,