globalization today

GlobalizationTodayBringing Markets TogetherDecember 2012

Also in this issue:International Trade Protectionist Agenda for Obama’s Second Termby William B. Bierce

Page 28

Profile of the 2012 3S Awards Winners. by Luiza Oleszczuk

Page 38

Two Faces of Outsourcingby Nicole White

Page 50

Brazil Chile Colombia

Indonesia Poland China

Turkey Czech Republic Malaysia

Emerging Markets

Xi’an: Silk Road to Silicon Road tRip RepoRt

by Thom Mead

emeRging nation analySiS: MAuritius and iNdONEsiA

by Bobby Varanasi

emeRging nation analySiS: POLANd

by Thom Mead page 12 page 16 page 24

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insideDecember 2012

5 publisher’s Note

6 News Feed What’s new and noteworthy in global commerce.

16 perspective oN emergiNgglobal sourciNg locatioNsmaritius aNd iNdoNesia by Bobby Varanasi

38 proFile oF the 2012 3s awards wiNNers by Luiza Oleszczuk

50 outsourciNg: eFFective maNagemeNt or busiNess risk? by Nicole White

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Trip reporT: Xi’an China– From Silk road To SiliCon roadby thom Mead

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by William B. Bierceby Thom Mead

InternatIonal trade ProtectIonIst agenda for obama’s second term 2013-2017

TRIP REPORT: POLAND: NOT YOUR AVERAGE OUTSOURCING DESTINATION

FOUNDER & PUBLISHERAli Comelek

[email protected]

EDITORIAL and PRODUCTION

EDITORIAL DIRECTORAli Comelek

[email protected]

AD PRODUCTION MANAGERDonna Eastman

[email protected]

GRAPHIC DESIGN AND PRODUCTION Webstaze Design Studio

www.webstaze.com

Locations:Scottsdale, AZ, USA

Atlanta, GA, USAXi’an, China

Mailing Address:6501 E. Greenway Pkwy., Ste 103-494

Scottsdale, AZ, 85254, USAPhone: 1-602-492-4194

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did not exist before, and in other cases have rendered other industries obsolete. Industries such as commercial GPS (once only a military application), the smart phone, the triple play and quad play of telecommunications, how changes in government can bring forth unprecedented growth as in the case of Colombia and China. All are market forces, and depending on your perspective, your place in the world, the industry in which you work, these forces are impacting our lives every day, and like an ecosystem, they all eventually impact us around the globe.

In the coming months, Globalization Today will lead a collaborative initiative with other leading organizations around the world, and launch a series of awards recognition to honor those who are making these emerging markets emerge. The award winners will be announced in our December issue each year going forward. You can expect to hear more about this in the coming months, with applications being accepted around the mid-year timeframe.

As always, we welcome your thoughts and contributions on this and any other that we cover. We are, afterall, a company whose purpose is to help you grow, make connections, forge relationships…and organization built for you, supported by you, and reflective of you.

All the best for the New Year!

This month, Globalization Today begins a look into emerging markets, in what will become a regular feature issue every December for us. We do not look at it through the singular, narrow perspective that it is often cast, but rather at all emerging markets, however they be defined. Some will take an economic perspective, looking at GDP growth, imports and exports, unemployment and such. Other will look at societal factors, adoption of democracy and human rights. Still other may look at new markets being created by technology, convergence of industries, and other factors that have brought about industries that previously

Ali ComelekFounder and Publisher

Founder and PublisherGlobalization Today Magazinewww.GlobalizationToday.com1-602-492-4194

FOUNDER & PUBLISHERAli Comelek

[email protected]

EDITORIAL and PRODUCTION

EDITORIAL DIRECTORAli Comelek

[email protected]

AD PRODUCTION MANAGERDonna Eastman

[email protected]

GRAPHIC DESIGN AND PRODUCTION Webstaze Design Studio

www.webstaze.com

Locations:Scottsdale, AZ, USA

Atlanta, GA, USAXi’an, China

Mailing Address:6501 E. Greenway Pkwy., Ste 103-494

Scottsdale, AZ, 85254, USAPhone: 1-602-492-4194

NEWs fEEd

GlobalizationToday December 20126

Interesting news this week from Information Services Group (ISG) this week is that cloud computing is beginning to change the IT outsourcing sector. It was always inevitable that cloud computing would become a feature of more contracts and, according to ISG there were three times as many deals with a cloud component in 2012 than in 2010. It found that there were 110 deals globally included cloud in 2010, 220 in 2011 and there will be 300 in 2012.

300 deals globally might not seem a lot but these are big deals. ISG’s TPI index tracks deals worth millions. The research found that software as a service is the most common cloud based service being taken on. ISG also revealed that half of service providers say that cloud computing is a feature

of at least 25% of their pipeline opportunities One supplier that is seeing more of its IT suppliers business involving the cloud is Infosys. BG Srinivas, who heads global financial services at the company, said the recession has driven customers to look for more flexible ways of paying for services. As a result there is interest from customers in Infosys platforms as service. Infosys has a range of Edge products. These are platforms, delivered via a private cloud.

They are designed as a service for a particular part of a business.

Computer Weekly/TechTarget research into cloud services that 20.4% of European businesses surveyed have used third parties to support cloud implementations and only 10% of North American businesses. Next year looks set to see an increase with 29.2% of European businesses plan to use third parties to supply cloud services compared to 18% in North America.

what You Need to kNow iN the world oF outsourciNgNEWs feed

cloud FiNallY begiNNiNg to shake the outsourciNg iNdustrY www.computerweekly.com

NEWs fEEd


Companies signal long-term confidence in the eurozone economy by balancing cut backs with investments to gain competitive advantage. Half of eurozone-based companies are actively seeking acquisitions within the eurozone in response to the currency and debt crisis, according to new research by Accenture. The survey of 450 business leaders in countries in and outside the eurozone also reveals that although 44 percent have accelerated their investments in emerging markets as a result of the uncertainty, companies in the currency area continue to invest in their eurozone operations.

The research, published in a report: Exploring the Eurozone: take cover or take advantage, covered France, Germany and Spain, as well as China, the UK and the United States. Ninety-six percent of responding companies have revenues of at least $1bn and more than half report revenues of at least $5bn. A majority (55 percent) of worldwide respondents say they are delaying investment in the eurozone and exactly half say their long term investment

plans are now more focused on emerging markets due to the debt crisis. Nevertheless, confidence in the currency area remains as a quarter of French and Spanish respondents (25 percent and 27 percent respectively) and 64 percent of German companies say that the crisis has made them accelerate their investment at home or elsewhere in the eurozone.

Fifty percent of surveyed eurozone companies say they will begin to seek acquisitions in the currency area immediately or have already started doing so (58 percent of German, 57 percent of Spanish and 36 percent of French respondents). This compares to 38 percent of companies outside the Eurozone. Likewise, eurozone companies are more likely to seek joint ventures (JVs) in the currency area in response to the crisis. Forty-five percent are actively seeking JVs compared to 34 percent of companies outside the eurozone. German companies are most eager (56 percent) followed by Spanish companies (48 percent).

“It is inevitable that slow growth and uncertainty in

Europe will make investment to emerging markets look attractive,” said Mark Spelman, managing director, Strategy, Accenture. “But the eurozone remains a good long term bet and a significant number of high performing companies see opportunities for organic and inorganic growth. This is less a case of outside investors snapping up distressed assets, and more about companies sharpening their competitive edge and gaining market share on the back of their confidence in the European economy.” Outside the eurozone, Chinese companies appear keener than those in the US or the United Kingdom to take advantage of the crisis and increase their investments in the currency area, according to the survey. 25 percent of Chinese respondents say they plan to accelerate their investments in the eurozone due to the crisis, compared to three percent of US and 11 percent of UK companies. Seventy-one percent of Chinese respondents are seeking acquisitions in the eurozone or will shortly begin to do so, compared to 20 percent of US and 30 percent of UK companies.

www.globalservicesmedia.com

euro debt crisis drives search For eurozoNe acquisitioNs aNd accelerates iNvestmeNts iN emergiNg markets, acceNture surveY FiNds

NEWs fEEd


Key controls for “detection of suspicious trading activity” failed at an India outsourcing unit, contributing to $2.3-billion loss caused by a rogue trader of global banking giant UBS, a joint probe by British and Swiss regulators has found.

This is the third instance when outsourcing of key oversight jobs by global banks (British giants HSBC and Standard Chartered being the other two) to India has come under the regulatory scanner abroad for ineffective controls against suspicious financial transactions. UK’s Financial Services Authority (FSA) fined UBS 29.7 million British pounds (about Rs. 265 crore) for failing to prevent large-scale unauthorised trading in this case, while Swiss regulator FINMA (Financial Market Supervisory Authority) also said it has found serious risk management deficiencies and major control failures at the bank.

In its probe report, FINMA said that UBS’ back office operations team was responsible for ensuring timely

confirmation of deferred-settlement trades, identified through “a specific report maintained by an outsourcing

provider based in India (the ‘T+14 report’)”. The probe found that the bank’s online trade supervision system SCP (Supervisory Control Portal) and the ‘T+14’ report “were key controls for the detection of suspicious trading activity, but both proved to be ineffective. “The failures of these controls serve to illustrate poor organization and risk

management within UBS,” FINMA said. FSA and FINMA jointly initiated a probe in September 2011 after it came to the light that a London-based trader of Swiss banking major had caused substantial losses totalling $2.3 billion (about Rs. 13,000 crore) due to unauthorised trading on the bank’s Exchange Traded Fund (ETF) desk.

iNdiaN outsourciNg uNit blamed For $2.3 b loss bY ubs trader www.profit.ndtv

NEWs fEEd


BP has been banned from pitching for future US federal contracts as a repercussion of the Gulf of Mexico oil spill. The suspension comes from the Environmental Protection Agency (EPA), who have temporarily banned the energy giant from bidding for gas and oil exploration licenses and fuel contracts to government departments. The ban will not be lifted until BP can demonstrate that: “it meets federal business standards”, said the EPA.

The ban could see significant damage to the company’s

Google has moved to increase its cloud market in Europe through the expansion of infrastructure-as-a-service (IaaS) infrastructure and the reduction of cloud storage costs. Cloud storage costs have been cut by 20 percent with Google’s IaaS offering now undercutting the price of Amazon’s S3 storage cloud. Google has moved to comply with European Union data compliance regulation and establish sites in within the EU in order to create close links to

reputation, investment plans and shareholder profits, and had not been predicted by the company, with general counsel

the European market, provide physical access to the company

Rupert Bondy saying that there had been: “no indication that any agency would move to suspend or debar us”.

and ensure compliance with data regulation.

bp baNNed From Future us coNtracts www.sourcingfocus.com

google expaNds cloud iaas services iN europe www.sourcingfocus.com


Before Lehman Brothers disintegrated in September 2008, investment banks and wealth management firms enjoyed returns on equity of as high as 20 percent. The cost of capital is typically around 10 percent. “It was a very profitable business based on the leverage those companies used,” explains Sud, Wipro’s head of financial services, BPO, for the US. Today, however, the cost of capital is basically the same. But these firms have struggled to get their profitability to match that percentage, according to Sud. One huge cost center is back office operations. Sud estimates that large banking conglomerates have up to 7,000 FTEs supporting back office operations out of which over 3,000 FTEs typically support investment banking operations.

Sud posits outsourcing just 30 percent of the back office can improve the return on equity. Service providers like Wipro currently service capital markets operations in several functions like:

• Clearing, settlement and reconciliation• Reference data, client and account data• SEC borrowing and lending• Interest claims• Asset servicing• Loan administration

the capital markets offeringWipro invests in analyzing client operations to design the target operating model (TOM).

The TOM design considers various aspects like risk, regulatory aspects, process maturity and standardization, process criticality and dependency. The analysis helps in determining outsourcability index by process. Several capital markets processes include operational risk and liability considerations due to operational errors. Wipro’s team benchmarks operational losses and error rates based on past data. Wipro is accountable for losses in excess of the error rate of the customer’s in house team. The TOM design, including the operational liability and benchmarking, takes up to four weeks.

Once the process is outsourced, Wipro commits to year-over-year productivity improvements as well. “We have to do better than the in house operation or else there is no value to the customer,” says Sud. Wipro has a strong culture of lean and has invested in several tools to enable automation and increase productivity. “We are a technology organization. Our goal is to constantly find ways to improve and automate processes,” Sud says. The result: Wipro’s tools reduce manual hand offs.

The tools and investments in lean allow fewer people to do the same work. In one instance, the size of the operation was reduced by over 250 FTEs for the same volume of work through automation and year-over-year productivity. In addition, “service providers like Wipro live and die by SLAs. Within our BPO offering

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every operational item that impacts a business outcome has an SLA,” the Wipro executive says. “Our dashboards and SLA monitoring tools provide transparency to clients on the outsourced operation.”

Technology tools and operational SLAs have made a difference. The provider currently has 2,500 FTEs serving seven capital markets and financial services clients. “In every case, we have been able to further improve the client operation,” says Sud.

Why now?Profitability is just one driver. HR is another. The stock market is a cyclical industry. During boom times the investment banks and wealth management firms ramped up to handle the escalating volumes. Then, when the inevitable bear market appeared, these firms had to lay off employees. This was a tough model for HR to administer.

Outsourcing removes that headache because it’s the service provider’s responsibility to staff accordingly. “We have a monthly scaling process so we can plan appropriately,” Sud reports. The service provider offerings have matured, too. Wipro’s solution includes documentation and dashboards, two things often missing in the in house operations. “These offer complete visibility into our capital markets operations. They are an essential part of our ecosystem today,” he says. In addition, Sud says solutions like Wipro’s have a “strong supervisory” component. Outsourcers understand the importance of accountability when the trade settlements are in the millions of dollars. Wipro’s contract also guarantees annual productivity improvements. Should the capital markets firms actively adopt outsourcing? Both executives of these companies and their shareholders are doing the math.


triP rEPOrt: Xi’AN, ChiNA

This was my third trip to Xi’an this year, and I never tire of returning here. The city never

ceases to amaze me on so many fronts. From its historic past as the ancient capital of China for 13 dynasties, to its current notoriety as the home of the Terra Cotta Warriors, to its international diversity, to its prominence as the third largest municipal economy in China, behind only Shanghai and Beijing.

It is for these reasons, and many more, that more than 1200 foreign companies (including 100 of the Fortune 500 and other well known multi-national companies) have established operations in the Xi’an Hi-Tech Industries Development Zone Well known, leading brands, both foreign and domestic, such as Samsung, Applied Materials, GE, Cooper, Texas Instruments, Nokia, Siemens, Fujitsu, Shell, HSBC, Schneider Electric, Huawei, Neusoft, BYD Automotive, and PCCW all have established operations here.

Most of these corporations have located in the burgeoning Xi’an Software Park within the Xi’an Hi-tech Industries Development Zone, a 307 sq. km development devoted to attracting, cultivating, and supporting both domestic and foreign companies with new state of the art facilities, abundant human and natural resources, and numerous incentives to make it appealingly easy to quickly establish a world-class operation. Whatever direction one looks, they will see dozens of tower cranes busily at work building new facilities for incoming future tenants. Of the 307 sq. km devoted to the High Tech Zone, to date, only 16.3% has been built out so far, leaving ample opportunity for future growth and new tenants.

In an effort to be eco-friendly, 43% of the park has been allocated to “green space”. Indeed the park has an airy, spacious feel with its tree lined boulevards and the buildings not being built

Trip Report: Xi’an China – From Silk Road to Silicon Road

by Thom Mead



Yet, despite its “Tier 2” classification based on population, and as such, it does not rank among the top 10 urban areas in China in terms of population, it nonetheless has the third strongest economy within China. According to a July 2012 report by the Economist Intelligence Unit, it was recently named as one of the 13 emerging megacities, or megalopolises, in China.

Yet unlike Shanghai, Beijing, and other more well known cities to the east, the cost of living, wages, and cost to establish and run a business in Xi’an are nearly half those of most of the cities in the eastern half of China. Some in Xi’an try to draw the analogy of city’s status as the High Tech Capital of China to that of “Silicon Valley” in the United States. However, with its strong high tech base and lost cost structure, it would be more accurate to compare it to Austin, Texas…only 10 times larger.

It is a city that actively embraces its ancient past with its heritage and fame garnered from the Silk Road linking China to the West hundreds of years ago, the massive, imposing Ancient City Wall that encircles the older original part of the city, its many museums and of course its most notable fame being the home to the Terra Cotta Warriors archeological site.

Although within a Communist run country, Xi’an is quick to showcase international heritage and roots of tolerance by way of its Muslim district, with the largest Muslim temple in China. Almost seamlessly coexisting are these icons of its past linked to the future with modern office parks, quaint Western styled housing developments, the dancing fountains in the city center, and a huge modern International airport that can accept international flights without the need to first transfer at Beijing, Shanghai or Guangzhou. Building on its epic past, Xi’an is building with its eye on the future.

While businesses of all descriptions are

immediately adjacent to one another as would normally happen in older cities that are space constrained. I noted even the bus stops, standard glass and steel structures in most places, are covered with vines in Xi’an, optimizing every opportunity to be green. Creating such a spread out development has also necessitated the construction of additional light rail and other mass transit in an effort to ease and defer the traffic congestion which will inevitably come with the rise of China’s middle class contributing to China being the fastest growing market for new car sales in the world.

Xi’an is a land of contrasts. By China’s standards, the greater Xi’an urban area is considered a Tier 2 urban area, and boasting a population of “only” 10 million people, its size would equal or best rival, more well known, competitor urban areas outside of China such as Bangalore (5M), Chennai (4M), Bogota (8M), Manila (10M).

Trip Report: Xi’an China – From Silk Road to Silicon Road

by Thom Mead



welcome in the Shaanxi Province, home to the City of Xi’an, the region has built a solid foundation upon 4 primary industries:

• Electronic Information – This includes such industries as: Communications, Electronic Devices, Software and BPO, Avionics, IC and Semiconductor

• Equipment Manufacturing – Traffic equipment, Refrigeration equipment, Power equipment and the embedded systems associated with these devices.

• Biomedical Industry – Pharmacy, Traditional Chinese Medicine, Plant Extraction, Chemicals, Medical Equipment

• Modern Services – Research & Development, Financial Services, Information Services, Logistics, Creative Industries.

At the recent Xi’an 7 Annual Software and Services Summit, held at the Shangri-La hotel, within the Xi’an Software Park, several hundred people, representing companies within China and abroad, gathered for 2 days to learn of the latest developments being planned for the Xi’an High Tech Zone, recent improvements made and those underway, as well as to gain market insights to help companies accelerate their success through numerous presentations and networking opportunities. The conference was organized by numerous Chinese governmental entities, and sponsored by world renown organizations such as ISG, Globalization Today, National Outsourcing Association (NOA), and other prominent organizations, too numerous to mention. Being the 7th such conference in Xi’an, and with more than 1200 foreign companies operating there currently and its strong economic base, the

event speaks to the region’s relative maturity and historical success in attracting corporations.

Current and projected availability and a talented workforce are critical components of the sustainability of a region for future growth and to be able to attract the caliber of business of Xi’an seeks to lure. In his presentation on the first morning of the conference, the director of Xi’an Commerce Bureau, Lv HengJun, highlighted the 3 part plan and associated investments that have been made for future development of the human capital in the region. His remarks were as follows, “First, relying on the construction of Xi’an Institute of Software Services Outsourcing, professionals, encourage and guide various types of colleges and universities together to speed up service outsourcing personnel training. Second, special funds to guide the implementation of the “custom” business-oriented personnel training program to enhance the skills of employees and the overall quality of all-round. The third is to increase service outsourcing demonstration zone development efforts, and give full play to the industrial agglomeration to attract talent, training, retention and development of “depression” effect, and efforts to promote the rapid and healthy development of the city’s service outsourcing industry.” While he could not go into great detail in the time allotted to him, it is apparent they have a refined, well thought out approach to ensuring the long term viability of the region, made possible by strong support by both government and industry.

As for the conference overall, having attended similar events around the world, and with all Xi’an has to convey at such a venue, I would recommend the conference be expanded by at least one more day, as many of the presentations that were given were too brief (15-20 minutes on average) to go into meaningful detail and no time was allocated for questions. Expanding the venue by at least one more day would enable more depth

Thom Mead Thom has been a key figure in structuring and closing more than $17B of outsourcing transactions in his career. Thom was VP of Marketing, Alliances & Channels – North America for Firstsource, CMO for

EXLservice, SVP - Sales for Spherion, VP of Sales and Marketing for Unisys Outsourcing and VP of Global Marketing for ACS where he also served as president for an ACS BPO subsidiary.Thom can be reached at:770-769-7795 [email protected] www.linkedin.com/pub/thom-mead/0/224/a98

About the Author



accomplished so far and retain their leadership position.

With a diversified and vibrant economy, extensive investments in infrastructure already made and still going strong, generous incentives to attract small and medium businesses as well as the largest foreign multi-national corporations… now would be a great time to engage with the Xi-an Hi-tech Industries Development Zone about how they can assist your business. You will find a very willing business partner, eager to help you get your business established. I would not wait until next year’s conference to learn more. Include it now amongst your initial list of potential destinations when looking for a high potential, high tech, low cost destinations and make the trip. However, if you do wait until next year, I look forward to seeing you at the conference.

and more importantly, enable those attending with more networking opportunities between each other, officials from the High Tech Zone and the local government. It is such interactions that ultimately result in business being done. From the conference, and my interactions with other delegates, I got the impression Xi’an has a more conservative approach to promoting itself than most of it peers, perhaps to ensure a more measured pace and more effectively manage change. However, locations such as Chengdu, Changsha and Shenzhen are seemingly investing more in promotion and, as a result, more frequently come up in conversations in the West as destinations to consider in China. Time will tell which approach is better. Perhaps it is by design that Xi’an is one of the best kept business secrets in China. In keeping with its master plan, Xi’an sees nothing in the future that could signal a slowdown of their economic engine. When I asked if they had any concerns about perhaps overbuilding and soon may be sitting on a glut of vacant commercial and residential real estate, Chen Hui, the Deputy Director for the Administrative Committee of Xi’an Hi-tech Industries Development Zone replied, “We are not concerned, certainly not for the next 20 years. Half of all real estate we develop, both commercial and residential, is already spoken for before we even break ground, and the other half is spoken for before the development is completed.” However, while Xi’an was one of the 5 original hub cities designated as an investment center for Outsourcing within China, today, there are now 21 cities in China with the same charter, competing for the same business clients…and the competition is really raising the bar on the promotion front. It remains to be seen if Xi’an will remain a relative secret, or if they invest more in Marketing in the future to promote their region and can as a result can successfully garner the recognition they deserve for what they have


EMErGiNG NAtiONs

EMErGiNG NAtiONs

Since the advent of India and the Philippines as proven destinations for global sourcing, a host of nations – mostly emerging/ developing – have sprung up either as credible alternatives to these traditional locations, or as new locations for “seemingly” new value-based provisioning of IT and business process services. Not all have lived up to the marketplace expectations having oversold themselves in the melee of positivity fueled both by the vendor and advisor

community, supported by location assessments parlayed by a range of entities- research and consulting firms alike. From AT Kearney’s ranking on competitiveness to city assessments by neoGroup or Tholons, to identification of potential new locations by KPMG and Forrester, the buyer marketplace has been provided with an array of choices on the location shelf. From positioning much the same rhetoric – cheap labor, voice competencies, tax holidays, and a growing economy – these nations

by Bobby Varanasi

perspective on emerging global Sourcing locations

MAuritius

iNdONEsiA


EMErGiNG NAtiONs

have gone through various trysts and travails across all the continents. Some have retained their positioning (not always accepted positively of course), while others have learned, and made relevant course corrections to create a distinctive positioning that has aligned itself to changing buyer dynamics. From across Latin America, Sub-Saharan Africa, Middle East, to Eastern Europe and Asia-Pacific, there are many nations vying for an increasing piece of the global pie. This paper looks at one location that has made a course correction at the right time and veered away from the location clutter – Mauritius.

iNdONEsiA

MAuritius


EMErGiNG NAtiONs

futiLitY Of BEiNG A ME-tOO

Mauritius, a small volcanic island nation in the southern Indian Ocean, adjacent to the large island of Madagascar, east of the continent of Africa, with a population of a little over 1.3 million emerged from the colonial clutches of the Dutch, English and subsequently the French, to drive an economy based purely on sugar and tourism. Realization that their fortunes are invariably tied to creating sustainable and fast-growing economic sectors that could reduce their inordinate dependence of imports, the nation took a plunge into creating an ICT sector that could support the needs of its erstwhile colonial masters (namely France and the UK) through provisioning competitive yet cheap labor. Much like any other emerging nation, Mauritius did the minimal in provisioning dedicated technology parks (thanks to investments from India), and tried to garner investments into the ICT sector (where the positioning was that the nation was a compelling offshore destination). Alongside Kenya (38 million population), South Africa (51 million population), Ghana (25 million population), Mauritius in the initial years starting 2000 continued to woo investors deploying much the same rhetoric. Various French companies did invest in Mauritius, predominantly owing to a population that spoke French/Creole and came significantly cheaper. However this entry into the sourcing industry did little to the nation per se which was struggling with its own economics (given lack of sustainable sectors that could contribute to GDP growth). Meanwhile buyer locations continued to compare this small nation with other Sub-Saharan African locations like Kenya, South Africa and Ghana, notwithstanding the fact that none of these locations had yet lived up to the promises being made (pointedly aligned at comparing themselves to be better than India

using operational indices alone). While the economic crisis put a big spanner in

the works with global sourcing in general, a host of emerging nations had lost out on delivering upon their claims. Significant causes for such failure included (but not limited to) lack of structural reforms, policies or infrastructure that could cater to the growth that was being projected for the ICT sector (and outsourcing providers from within). Mauritius did realize early on in 2010 (unlike other nations like Ghana, Kenya, South Africa, Senegal, Malaysia, Jamaica, Serbia, Poland and Uganda to name a few) that their leadership couldn’t be sustained through competing with proven locations where both depth and breadth of various sectors could


EMErGiNG NAtiONs

enhance the value proposition of such nations. They had to realign their positioning while not compromising on the nation’s endeavor to create a sector that propelled their GDP and reduced their dependence on imports and a mono-crop economy. Five pillars of the economy were identified, and fiscal support extended (including policy changes to support quick growth and ease of doing business). One of these pillars is the ICT sector.

Like any other emerging nation, a long-term Vision was established (a 2030 Vision document in this case) where emphasis on creating the right infrastructure, modifying policies that promoted job creation and entrepreneurship were pursued aggressively.

rEALiZAtiON & LEAdErshiP

While this approach has been replicated by many other nations with similar aspirations the interesting twist came when the first submarine cable landed in Mombasa, Kenya in 2009. Until the advent of this cable, Sub-Saharan Africa was hardly connected to the rest of world, delaying access to the Internet and inhibiting growth of the sector. Mauritius embarked on some landmark initiatives like putting a deadline for making Internet a basic human right (incidentally the second nation on the planet to do so after Finland), investing in bandwidth and various communication technologies (through opening its telecom sector to private players), investing in local loops to compliment access to the internet for both Sub-Saharan Africa and into Europe, and last but not the least, developing relevant policies around Data Protection, deregulation of the telecom sector, investments in FTTB and FTTH initiatives (including levering WIMAX), establishment of an ICT regulator (and not just an agency), participating in the Broadband Commission of the UN, and formulating regional policies in terms of promoting specificities of smaller island economies as also investing in creating a regional IXP platform for sharing bandwidth while increasing utilization (and thereby promoting e-commerce within the African continent) have become laudable initiatives.

Going forward Mauritius is readying itself to take on a regional leadership role (for the entire Sub-Saharan African continent) through creating an ecosystem and enabling environment, where government leadership and foresight have been accepted as a foregone


EMErGiNG NAtiONs

conclusion. The performance of Mauritius in this regard, where the nation’s collective endeavors at creating an environment first (across both regulatory and business environment) have been globally acknowledged (by both UN and the World Bank) as the most appropriate and sustainable manner in which to develop a sector, and leverage the sector’s positive impacts. Further, Mauritius’ emphasis on regional leadership through sharing its learning and best practices have been lauded as forward-looking and extremely far-sighted as well.

Mauritius is now well placed to become a de-facto regional leader in the ICT sector, with many nations from Africa willing to learn from the nation’s successes, and customizing such experiences to transform their own internal economies. While much has been done, said and gained through positive regulatory environments, concerted market outreach and leveraging partnerships (like UNECA , SADC , COMESA ), these are still seen as reflective of strategic economic endeavors. The next level would be to ensure that the private sector in Mauritius (and as an extension, from the larger continent of Africa) is inextricably included into implementation aspects surrounding ICT’s role in core economic sectors (Healthcare, Education, Government, Transportation, Logistics, Retail, Telecommunications, Media & Entertainment, Agriculture, Commodities, Manufacturing and the like). This is where we see global sourcing playing a pivotal role in furthering the development agenda. A nation whose actions need to be observed closely as Mauritius takes on the mantle of regional leadership for Africa and contributing to the fast-paced growth envisaged for the continent.

EMErGiNG NAtiONs

Economic growth propelled by the belief that BRICS nations would drive the new age of global growth has for long been accepted as the new normal. During this time, while some nations within this block did live up to the expectations (albeit briefly in the case of Russia), South Africa and Indonesia were included into this block given the transitions undertaken in these countries both politically and economically. While a lot still

iNdONEsiA


EMErGiNG NAtiONs

needs to be done to create appropriate sustainable business environments to grow new-age sectors, it is quite interesting to note the quick-paced actions taken within these nations to promote ICT sector development with the end goal of reducing poverty through creating a well-informed and knowledge-enabled citizenry. This paper looks at one location that has recently staked its claim to being a provider of services too – Indonesia.

NEW Kid ON thE BLOCK

Indonesia, which comprises 17,508 islands, has a population of 245.6 million, the fourth most populous country after China, India, and the United States. It has Muslim population with about 300 ethnic groups, mostly deriving from European, Malay, Chinese, Arabic, and Indian influences. Being the largest economy in Southeast Asia, a member of the G-20 major economies, and the only Southeast Asian nation belonging to OPEC, the nation is poised to leverage a growing economy through adopting policies around liberalization of telecoms, deregulation in capital markets, reforms to tax, customs and financial services and inclusive growth. Indonesia’s market economy is heavily influenced by its government with over 164 state-owned enterprises are under its management, and despite corrupt practices and adverse impacts during the economic crisis, growth has continued to be fueled by a burgeoning emphasis on domestic consumption.

Indonesia is positioned to make great strides in the development its Information Technology sector. Today the country is moving away from its dependence on exports and restructuring its strategy to meet the challenges of an economy driven by IT and IT-related services. Many economists expect growth of USD $700M this year, with a compound annual growth rate (CAGR) of around 15% over 2010-2014. As the country’s IT service market grows, most of these will concentrate on services that include system integration, professional services, training, support systems, internet services, and global sourcing. Indonesia is continually liberalizing economic policies to support its outsourcing industry, including the Indonesian call center market. Aside from this, the government is implementing developmental strategies


EMErGiNG NAtiONs

including the simplification of investment procedure and tax deductible expenses, and of training and research improvements for development programs. Indonesia was severely impacted by the recent global recession, but has responded effectively and efficiently because of the lessons learned from their 1997-1998 crisis. The Indonesian government established fiscal policy tools to lessen the economic impact, and the two instruments that it used were the tax-saving program for households and businesses and additional spending on infrastructure projects for private sector and household spending.

While the positivity surrounding a more liberalized economy spells opportunities, inherent structural inefficiencies surrounding lack of infrastructure, spread of economic well-being, significant population under the poverty line without access to government services or even basic necessities have curtailed the nation’s efforts at creating inclusive growth (notwithstanding the near impossibility of administering a population of over 200 million spread across 17000 islands). While Jakarta, the capital city has been the recipient of much of the benefits accruing on the nation, only two sectors seem to have created some level of opportunities – telecommunications and banking. While retail, hospitality and tourism have burgeoned in Jakarta and Bali (the tourist hotspot), there’s much to be done in terms of creating sustainable economic environments that could wean people away from traditional cottage industries into contributing citizens. However, penetration of technology products, fueled in particular by the rapid adoption of handheld mobile devices has seen a mammoth growth in technology products, services and applications. The demand continues

to surge, further fueled by a strong resilient culture and localized nuances. In this context, Indonesia presents itself as a sizable marketplace ready to adopt new solutions and services through leveraging modern technologies. The standard assumption – emerging nations align themselves only to become suppliers of sourcing/ business services for other nations – doesn’t hold sway in Indonesia. An increasing awareness to the benefits of technology and information is fueling much of the local demand. Given the nation’s emphasis on domestic growth, there is significant room for players to provide and purchase outsourcing services so long as their impacts are localized, and aimed at Indonesians.

MisuNdErstOOd dEfiNitiONs CAN CrEAtE hAvOC

Unfortunately for the industry, a recent furor over outsourcing has been significantly amplified much to the chagrin of various players in the economy hoping to leverage outsourcing and create jobs/ value. There seems to be significant confusion in the basic understanding of what outsourcing means. Employers in Indonesia deployed the traditional method of recruiting contractors for low wages without attendant benefits around healthcare etc has for long been a way to contain costs in a significantly volatile economy (until it stabilized in early 2010). However, in October this year, given miserable work conditions, low wages and zero benefits, over two million workers (with support from various trade unions) from various industrial outfits went on a nationwide strike on 3rd Oct demanding fair pay and benefits, crippling productivity and putting a spanner in the


EMErGiNG NAtiONs

works with foreign investments. While these workers belonged to the largely industrial and manufacturing sector, the term “outsourcing” that has been used frequently to describe the practice of employing labor on contract has taken the brunt of the wrath. Employers in turn have begun to hyperventilate about lost business opportunities. However, to placate the large base of contract labor, a regulation has been proposed by the Manpower and Transmigration Minister that employers were not permitted to augment their employees by leveraging contractors for jobs beyond five non-essential services - cleaning service, physical security, catering and mining supporting jobs.

The agony of a misplaced definition, lack of understanding of what outsourcing means, and confusing non-muster labor resourcing with a risk-based, results-oriented, technology-enabled, knowledge-centric industry is palpable to see, and quite concerning in the context of the larger missed opportunities one will encounter going forward in the nation. The inability to leverage a proven business model within the nation will perhaps come back to bite Indonesia significantly, unless the nation, and its Manpower Ministry clearly understands the distinct nature of outsourcing and its delineated disconnect with provisioning non-muster labor for cleaning, catering and security jobs. Much needs to be done to educate the nation in general about outsourcing, global sourcing and its benefits. While the current situation in the nation may warrant caution, and while I completely empathize with the plight of the non-muster labor, the damage a misnomer can cause is palpable. While a choice exists to either ignore the nation, or educate it, I would

prefer the latter given its economic might, strong domestic consumption, demand for and appreciation of technology, and the general opportunity outsourcing, and technology-enabled business services can create in alleviating the plight of the citizens. Hopefully the nation will learn to distinguish contract-labor with outsourcing clearly and not kill an opportunity to create prosperity and growth, just for misusing the term.

About the Author

Bobby Varanasi Matryzel Consulting Inc

Bobby is one of the top 25 most powerful leaders in the global sourcing space, and the [founding] Chairman & CEO of Matryzel Consulting Inc, a strategy consulting, sourcing advisory and management firm headquartered in New York.

Matryzel advises corporations and governments worldwide adopt concerted strategies aimed at enhancing competitiveness. He advises federal governments across four continents on ICT sector development with particular emphasis on policy development, industry-government partnerships. Bobby has advised Fortune 500 companies on Strategy, M&A, JVs, Process Reengineering, Pricing Strategies, Sourcing Relationships, Business & Financial Modeling et al, contributing immensely to global sourcing for clients. He is a sought-after speaker globally.


triP rEPOrt: POLANd

I recently returned from a business tour of Poland as an outsourcing destination, wherein I met

with numerous business and government leaders who helped me to better understand this sleepy little gem of an outsourcing destination. Here are my observations:

on the poSitive Side:

Poland has its act together…at least from an infrastructure and delivery standpoint. My perceptions prior to going there were rooted in the Cold War, Communist run period of overcast, polluted skies from factories that had not been modernized since WWII. I can probably thank Hollywood for perpetuating the Cold-War era image that always portrays such locales in a dreary black and white context that largely formed the basis of my incorrect perception. I was pleasantly surprised to find a thriving economy, a nation clearly focused on environmental issues, modern buildings, and a proud, capable people. There is clearly an effort underway to upgrade and modernize the country, its buildings and infrastructure. They are doing an exceptional job at renovating what is there to preserve the historical charm and magnificent architecture from days gone by while providing all the modern necessities we have become accustomed to in the West. The city of Warsaw was nothing short of spectacular visually. The Old Town District, was completely renovated to its pre-WWII appearance, an amazing feat by itself. The city of Katowice

Trip reporT: poland

By Thom Mead Not Your average

outsourcing destination

in a period of transition will soon be a thriving, beautiful metropolis with a regional population comparable to Atlanta. While construction cranes were visible in nearly every district, they have taken great strides to preserve the city’s character. But despite its tourist charm, delicious food, and good quality of life, Poland is ready for business, outsourcing business to be specific.

Sitting in Central Europe, Poland bridges the East with the West. Its people and culture are a blend of the two with a clear desire to embrace the West. Fiscally prudent, they managed to avoid the financial crisis that has befallen most of the Western countries through sound, and conservative fiscal policies. In a moment of sarcasm, one official commented “Poland was not smart enough to understand how the whole derivatives market worked, so they just avoided getting involved altogether”. It’s education system is heavy in Finance, Engineering, and Music.

On the latter, it is no wonder they produced


triP rEPOrt: POLANd

to be the Country Manager for Poland, I would have no hesitation to move me or my family here. I cannot say the same for several other, more well-known outsourcing destinations.”

While learning the language would be helpful for living there, it is not as necessary for conducting business. The overwhelming majority of the country, below age 40, speaks English as their second language, and it is becoming increasingly common. I was impressed with their grasp of the English language. In many foreign countries, it has been my experience that many who claim to speak English, do not understand the subtleties, cultural and contextual aspects of the language. When running a 24/7 operation, it can be problematic when the people say “Yes”…meaning they understand the words, and the sentence…yet most do not understand the underlying meaning. From my experience, I did not sense this shortcoming among the Polish people.

Poland openly recognizes it cannot compete with many of the larger offshoring destinations from a sheer numbers of people standpoint. It is not running head first into the transaction intensive, people intensive, low cost wins commodity outsourcing arena. Instead, they are playing to their strengths. With a highly educated workforce, they are focusing more in the KPO areas related to Finance, Engineering, R&D, Application Development and High Tech sectors. And though they face stiff competition from other locations for this work and their wage rates are not at the same price point as some locations further East…their cultural compatibility, grasp of the language and passion for work needs to be factored in as well. When Outsourcing projects and programs around the world succeed, it is usually not because the price was lowest. It is because of the working relationship of the people involved. For those who seek low cost as a lead factor, they should add something back for the

the great pianist Chopin…whose music can be heard everywhere…in parks, in elevators, restaurants, and even in special benches along the street specifically designed to play music while you wait. Chopin, clearly a symbol of national pride, underscores the country’s love of music…everything from Lady Gaga songs played on the bus to a strong affinity for jazz. As a place to live, Poland is rich in the arts, deep in culture, and a joy to behold. Unlike some destinations I have frequented around the world, one can feel completely safe in Poland. There is not the ever present para-military presence so common in many other countries. While police and security were present, it was on par with the United States. There when you need it, but not like in some countries where policemen with sub-machine guns are at the entrances to fast food establishments. As I told the Mayor of Katowice when we had dinner on my last night there, “If I was with an American company and was selected


triP rEPOrt: POLANd

cost of rework when the thing you bought at the low price is incapable of delivering the results you sought. Had one looked at the cost of non-performance, and the underlying soft issues…then destinations such as Poland should be in the mix as a viable consideration. Early in my career, a Senior VP at EDS once commented, “The soft issues are the hardest to manage and the most expensive to correct”. In my 25 years in the industry, he was spot on.

on the otheR hand…

I am generally not that easy to win over, and my visit to Poland as a leading outsourcing destination was no exception. Here are my other thoughts:

Marketing and Promotion: The country has quite a bit of room for improvement here…but, they are not much different than many other aspiring countries in this regard. The rapid rise of India can be traced in good measure to the work of NASSCOM…promoting the country as a destination for the good of all the individual locations and companies involved. Once the buyer has accepted the location, the sub entities can duke it out for market share. Brazil has been gaining momentum as well thanks to BRASSCOM. Other countries, like Poland, that have a sub-optimized marketing/promotion model, also continue to struggle for visibility. The competition is not the other cities in Poland…it is the other countries. When all factors are considered related to price, Poland should be an option worth considering. From a packaging standpoint, there is considerable work to be done to portray the country, and the various municipalities in the best possible light. If I want to buy a car, I do not need to see the warehouse of parts. I need to understand what the fully assembled vehicle can do for me. Same for the messaging I heard…less fire hosing the visitors with mountains of data they will never remember, and

focus more on the value it provides and how you are differentiated. They have a great “product”…but now they need to apply their legacy of innovation to messaging. More selling, less telling.

To be world class, one needs to benchmark against the rest of the world, not just your neighbors. There were endless presentations comparing Poland as a destination with other regional countries such as Estonia, Lithuania, Romania, Bulgaria, Germany, France and Finland. In my 25 years in the Outsourcing industry, I cannot recall ANY of these coming up in a conversation in the US when discussing possible places abroad to offshore work. Perhaps among the European companies these are considerations, but I suspect they too are looking at the more common destinations that other leading global companies are considering. China and India have some very talented people who do high end KPO as well and Poland would be wise to benchmark against this subset as well…because the companies they are courting will be doing it. Just like the getting on the PGA Tour…being the best golfer in your country may not even


triP rEPOrt: POLANd

qualify one to play and be competitive on the PGA Tour. How many great college athletes never lived up to their billing when they turned professional? If you want to run with the big dogs, you need to get off the porch.

Not to get mixed up in terminology here, but most of what I saw and heard while in Poland would be more classified as offshore, captive centers and shared service centers, serving an internal client. This model seems to fit well there, allowing a slower, more measured growth. Anyone with such needs should seriously consider Poland as an option. But for the supplier, I remain skeptical about the sustainability of the workforce and infrastructure to rapidly absorb a large influx of potential business from the ITO/BPO/KPO supplier base. In destinations such as India, China and the Philippines, they are building as fast as they can to meet expected demand…essentially building on spec…and they cannot build fast enough. I heard a more conservative commercial building story in Poland that suggests little to no large scale commercial building is done on spec.

For an outsourcer about to land a new contract needing 3 centers for 500 people each, they cannot afford to wait a year for the buildings to be built and are not inclined to scatter the work to dozens of smaller locations in the interim. Poland needs to be ready when the demand is there. Time is money.

in SummaRy,

If I was looking for an offshore destination that has an attractive price point, and exceptional work ethic, great place to live, is culturally and linguistically compatible, and takes less than half the time to reach than many other destinations…Poland would definitely make my list. We will cover Poland…and its Tier 2 competitors, in more detail in our Emerging Markets issue in December. I loved Poland, but it is nice to be home.

Thom Mead Thom has been a key figure in structuring and closing more than $17B of outsourcing transactions in his career. Thom was VP of Marketing, Alliances & Channels – North America for Firstsource, CMO for

EXLservice, SVP - Sales for Spherion, VP of Sales and Marketing for Unisys Outsourcing and VP of Global Marketing for ACS where he also served as president for an ACS BPO subsidiary.Thom can be reached at:770-769-7795 [email protected] www.linkedin.com/pub/thom-mead/0/224/a98

About the Author


Obama’s second term

In the Romney-Obama debate on October 3, 2012 (before elections on November

6), President Obama called for “economic patriotism.” How will it affect market access for cross-border business services and foreign manufacturing? What steps should be taken now by business executive, American importers of consumer products, sourcing managers, foreign outsourcing service providers, globalizing enterprises and environmentalists?

I. Trade Agreements. Since the 1950’s (and especially the 1990’s), globalization has grown based on bilateral and multilateral free trade agreement (“FTA’s). FTA’s lower or exempt imports from tariffs, reduce regulation of imports, open markets to access by foreign suppliers and foreign service providers on “most favored nation” and non-discriminatory “national treatment” basis, and establishing

minimum standards for each country in the World Trade Organization (“WTO”) to honor intellectual property rights and international law on compensation for any expropriation. Bilateral FTA’s can provide competitive advantages for the trading partners to increase their exports between each other.

International Trade Protectionist Agenda for Obama’s Second

Term, 2013-2017 by William B. Bierce



II. Obama’s “Leading from Behind” on Globalization Policy. Supported by unions and labor, President Obama has hardly been a leader in trade liberalization. In fact, he waited three years before submitting three Bush-era FTA’s for Senate ratification only reluctantly. In September 2012, he engaged in China-bashing

by bringing a “dumping” case on auto parts and barring a Chinese-owned company from acquiring land near a military training ground. The Constitution designates the President to conduct diplomacy and, in effect, initiate FTA negotiations. As suggested in Richard Miniter’s book, Leading from Behind: The Reluctant



President and the Advisers who Decided for Him (Macmillan 2012), having outsourced the health care reform to then House Speaker Nancy Pelosi and Senate leader Harry Reid, President Obama has outsourced to Congress the job of providing a vision for future FTA’s and future regulation of global trade.

III. Conditions for Expanded Market Access. Among the various trade regulation bills introduced in the current Congressional session, one proposes the most comprehensive road map for the Democratic Party’s agenda on trade protectionism. In a proposed “21st Century Trade Agreements and Market Access Act,” S. 3347 (introduced June 27, 2012 by Sen. Sherrod

Brown (D., Ohio)), new trade policies would need to be satisfied before any new FTA could be ratified by the U.S. Senate. Even if not adopted, the proposal identifies key regulatory issues that may restrict free trade in goods and services to the United States.

Under such proposed policies, the U.S. would adopt new labor and environmental requirements that would be imposed on foreign direct investment into the U.S. Such a program could hurt trade in services “outsourced” to foreign countries that do not meet “core labor standards.”

Also, each U.S. law implementing future trade agreements between the United States and a foreign country would need to satisfy



agriculture and renewable energy, state-owned enterprises. For FTA’s with developing countries, the proposed law would require foreign governments to swallow American political advice on issues of “diversity of development,” respect for “basic rights” and avoiding “the unsustainable use of natural resources.” Violations of the FTA agreement would subject a country to the trade remedies, dispute resolution and enforcement mechanisms and penalties built into the FTA.

This article will address key issues involved in outsourcing (both technology-based teleservices and manufacturing services), technology licensing and FDI.

U.S. Regulation of Offshore Outsourcing. The draft law would regulate offshore outsourcing by defining labor standards,

Global Labor Standards. Rather than allow each country to adopt its own labor laws, the “21st Century Trade Agreements” bill would require each country that is a party to a FTA to adopt, maintain and enforce (without derogation whatsoever) local laws and regulations (including in any special export zones, or “SEZ’s”) that establish “core labor rights” as defined by the International Labor Organization, such as

(i) freedom of association and the effectiverecognition of the right to collective bargaining,

(ii) elimination of all forms of forced orcompulsory labor,

(iii) effective abolition of child labor, and

(iv) elimination of discrimination in respect of employment and occupation.www.is.gd/7UiIhg

mandatory legislative standards. The proposal does not contradict or abandon existing open-market obligations that guarantee reciprocal “most-favored nation” treatment and “national [equivalent] treatment.” Rather, they set up a framework for what former President Bill Clinton consciously abandoned in 1992-1993: minimum labor and environmental standards by foreign countries for managing their internal economies as a condition of “free trade” with the U.S.

Such minimum standards would apply in a number of areas: labor, environmental protection and public safety, food and product health safety, trade in services (including “offshore outsourcing”), foreign direct investment (“FDI”), government procurement, intellectual property,



the United States” to consumers in the United States must comply with “applicable United States environmental, land use, safety, privacy, transparency, professional qualification, and consumer access laws and regulations.”

Reciprocal Privacy Regulations. The draft bill would require that services may be provided to consumers in the United States by service providers in other countries only if those countries have privacy protections and protections regarding confidential information “that are equal to or exceed” the protections provided by United States privacy laws and regulations.

Existing U.S. law would be turned on its head. The U.S. (and foreign country) would each agree be legally obligated to apply “core labor principles” defined by a UN body, the ILO.

Environmental, Health and Public Safety Standards. The environmental provisions of the bill would require the U.S. and foreign countries to put environment and public safety standards in a priority ahead of promotion of trade or investment, whereby businesses could not trade in products that are “illegally harvested or extracted or trade in goods “derived from illegally harvested or extracted natural resources”.

Trade in Services.

Sector-by-Sector Reciprocity. A key agenda would be to limit outsourcing to sectors where the U.S. has bargained for reciprocity. If the agreement contains any provisions relating to services, the bill would adopt detailed, sector-specific evaluations of market access for strict market-by-market access analysis. The FTA would apply the agreement only to such enumerated service sectors in a list promulgated by the foreign country.

Specific Bans. Each country could maintain or establish a ban on services that it considers “harmful to public health or safety, the environment, or public morals,” but only if the ban is applied to both domestic and foreign services and service providers.

Prohibit Offshoring of Consumer-Related Services. Pure offshoring would be banned for consumer industries. Service providers in the foreign country who would provide services “through a commercial presence in



governmental service providers (federal, state and local) the right to deliver “essential public services.” Such governmental would retain the right to regulate “services provided to consumers.”

U.S. Regulation of Foreign Direct Investment. To the extent any market-opening FDI rules are agreed, the draft law would impose several conditions.

National Priorities. Each country would reserve its ability to regulate foreign investment in a manner consistent with its “needs and priorities.”

National Security. Public services would not be required to be privatized. Protected “public services” would include, but not be limited to, services relating to “national security, social security, health, public safety, education, water, sanitation, other utilities, ports, or transportation.”

Local Governments Exempt. The draft would provide that local governments are not subject to the service sector obligations under the FTA.

Consumer Protection and “Essential Public Services.” The draft would reserve to U.S.



National Treatment. Applying the principle of “national treatment” (already incorporated into the WTO Uruguay Round agreements), foreign investors operating in the United States would not be afforded greater procedural or substantive rights under the trade agreement than those afforded to domestic investors under the Constitution and laws of the United States.

Non-Discrimination. The draft would refine the principle of “non-discrimination” (already incorporated into the WTO Uruguay Round agreements) by ensuring that the adoption or application by any government of a nondiscriminatory measure intended to serve a public purpose would not be prohibited by the trade agreement and could not be a violation of the agreement.

Definition of a Covered Investment. In a novel approach to FDI rights, the draft would define “investment” to mean “only a commitment of capital or the acquisition of real property.” It would exclude “the assumption of risk or expectation of gain or profit.” This particular definition could be construed to prohibit investors from Muslim countries from obtaining the right to invest in U.S. “sukuk” bonds that require, as a condition of Koranic investment policy, the sharing of risk from operations and the repayment of futures.

Nationalization and Expropriation. The law would limit protections against expropriations to direct expropriation of real property. It would define “direct expropriation” as government action that destroys all value of the real property permanently.

No Super-Rights. The draft law would define the standard of minimum treatment to provide that

foreign investors do not have greater legal rights than United States citizens possess under the due process clause of section 1 of the 14th Amendment to the Constitution of the United States.

U.S. Standards for Counteracting Adverse Foreign Intellectual Property Requirements. For any FTA that addresses the protection of intellectual property rights, the FTA would be required to “promote adequate and effective protection of intellectual property rights.”

Mandatory Pharmaceutical Licensing. This draft law would require that no future FTA could defeat the rights of pharmaceutical companies to decide on the terms of licensing and production for the least-developed countries. Contradicting



efforts by LDC’s to get the WTO to mandate cheap pharamaceuticals, this rule would prohibit any FTA that, “overtly or in application,” could force U.S. pharma companies, under foreign local law, to be susceptible to foreign mandates to grant compulsory licenses to U.S. patents in order to alleviate “a national emergency or other circumstances of extreme urgency” such as public health crises that include HIV/AIDS, tuberculosis, malaria and other epidemics. US foreign trade partners could not, under this draft law, implement novel doctrines that defeat basic intellectual property rights by accelerating the “exhaustion of intellectual property rights” and thus put pharma or other IP rights into the foreign local “public domain” where competitors could sell knock-offs without paying a royalty.

Trade Remedies and Safeguards. The draft standards on trade remedies would specifically grandfather existing U.S. trade laws, particularly the right to impose antidumping and countervailing duty and restrict or ban imports under “safeguard laws.” A new FTA that has any trade remedies provisions (protecting the foreign country) would need to “establish mechanisms to address and remedy market distortions that lead to dumping and subsidization, including overcapacity, cartelization, and market-access barriers, by imposing strong sanctions against subsidies, including applying countervailing duty laws in cases in which exporters receive tax rebates for indirect taxes upon exportation.” Similarly, the U.S. would retain the right to “maintain adequate safeguards to ensure that surges of imported goods do not result in economic burdens on workers, firms, or farmers in the United States, including providing that such safeguards go into effect automatically based on certain criteria.”

For international trade lawyers, these principles are nothing new. What is novel: their application to currency manipulation and possibly even to telework.

First, new trade remedies would add new protections from abusive foreign currency manipulation, targeting China’s “undervalued” Renminbi, where the foreign currency “is deliberately misaligned to gain a competitive advantage in international trade,” and, hence, the U.S. could apply “safeguard remedies that apply automatically to offset substantial and sustained currency movements in cases in which the currency of such a country is deliberately misaligned.”

Second, based on the vague text, traditional countervailing duty remedies could apply to the work product of teleservices (outsourced work product). Such an extension of anti-subsidy



remedies would impact services from countries that provide grants, tax exemptions and other incentives for new job creation, training costs, and other expenses of servicing a U.S. clientele. In the U.S. federal system, the taxation of interstate telework and work product delivered remotely remains an open question, pitting the e-retailers like Amazon against the bricks-and-mortar stores. A similar conflict plays out internationally in the field of teleservices.

III. Critique. The policies behind this draft law reflect American labor unions’ policies towards limiting global trade to make it more reciprocal. Unfortunately, this policy “too little too late.” President Bill Clinton intentionally dropped any mandatory labor and environmental standards from the WTO trade agreements in 1992-1993. To impose them now would violate such agreements. This is a back-door attack on U.S. obligations under WTO trade agreements that are nearly 20 years old.

A more honest, though more disruptive,

approach would be to simply seek abolition (or “temporary” safeguard exemptions) of existing WTO obligations pending adoption of bilateral treaties imposing such new labor or environmental standards. Clearly a “beggar thy neighbor” trade policy would have major repercussions on the U.S. domestic economy. It is highly unlikely that President Obama would take any steps to push for such a radical realignment of “free trade.” In short, existing multilateral trade agreements are “safe” from major changes.

Legislating Foreign Policy: Questionable Constitutionality. The new trade policy attempts to establish by law, as a “point of order” under the Senate’s parliamentary procedures, for ratification of an FTA. An artifice of a “point of order” (parliamentarian rules) would prevent the Senate from considering a non-compliance FTA. Arguably, such statutory procedures may be unconstitutional. This would prevent the President from the freedom to adopt foreign diplomacy under his own policies. They would



prevent the Senate from exercising its unfettered discretion in its constitutional role for “advice and consent” to treaties. Persuasion of Foreign Governments. The draft legislation raises important considerations of reciprocity and abuse in outsourcing. It is not protectionist insofar there are no changes in existing WTO obligations. However, it threatens future FTA initiatives that do not meet the proposed new standards. It may have persuasive value for future trade agreements, but should not change anything that is based on the current multilateral trade regime under the WTO.

IV. Recommended Actions for Global Entrepreneurs. Overall, the proposed trade agreement restrictions will not do major damage to the U.S.’s current trading partners.

Targeted Countries. Reading between the lines, the proposed “21st Century Trade Agreements and Market Access Act” spells potential trouble for China and Russia if they seek special FTA’s beyond the WTO agreements.

Outsourcing Industry: Localization. Today, foreign companies enjoy substantial market access to the U.S. under WTO Agreements on Trade-Related Intellectual Property Measures (“TRIP’s”) and Trade-Related Investment Measures (“TRIM’s”) and the General Agreement on Trade in Services (“GATS”). Tomorrow under market access conditions, this will not change unless a foreign country wanted greater access to U.S. markets. In that case, foreign service providers (BPO companies) could experience demands for greater local workers in the U.S., reciprocity for American companies to invest and compete locally abroad in each specific sector.

Privacy. After the election, we can anticipate

that the U.S. would even fix its patchwork of

privacy laws, which do not provide the basic protections under the EU and Canadian privacy laws, to harmonize state and federal rules. Thus, increased globalization will be more regulated.

Corporate Social Responsibility. This proposed legislation would redefine “corporate social responsibility” even if there is no new FTA under negotiation. Instead, the principles could serve as self-guided internal controls and principles for ensuring mutuality in global trade benefits.

About the Author

William B. Bierce Bierce & Kenerson, P.C.

William B. Bierce is an award-winning lawyer in international business and technology with the law firm of Bierce & Kenerson, P.C. in New York City. He services businesses across the lifecycle,

technology providers and users, investors and governments. ?He is a recognized thought leader and has been quoted in the Wall Street Journal, the New York Times, Les Expertises des Systemes d’Information and other publications. He has written over 75 published articles as well as hundreds of internet articles (e.g., www.outsourcing-law.com) and dozens of speeches. He holds degrees from New York University School of Law (J.D.); University of Grenoble Law Faculty (Licence en Droit, with honors); Yale University (B.A.). Languages: English, French, some Spanish.


3s WiNNErs

For their achievements in empowering the local communities across the world by

sourcing their products, prAna received the 2012 Out-of-the-Box Award by the Global Sourcing Council (GSC) in the 3S Awards program (Sustainable and Socially Responsible Sourcing Awards).

In 1992 a California couple with a vision started their own fashion brand, cutting and sewing clothes for yoga and climbing in their garage and shipping them out in surplus fruit boxes. “For hangtags, we ground up old newspapers,

The GSC 3S Awards program recognizes exceptional achievements in the global sourcing marketplace, shown by individuals and organizations that exhibit a combination of positive social and economic leadership.

2012 GSC 3S Awards

by Luiza Oleszczuk

2012 Out-of-the-Box Award


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added essential oils and cut out the handmade paper with a pizza cutter. Our first employee slept on a hinged bed that turned into a shipping table by day,” Pam and Beaver Theodosakis, the founders of prAna, describe the beginnings of what is now a global business.

PrAna – an ancient Sanskrit word for breath, life and vitality of the spirit – is a fair trade apparel maker, one of the first ones in the United States. Their initial success and passion for creating a “product with purpose” lead them to source inspiration for their clothes from all

over the world – while keeping their supply chain sustainable and socially responsible. The company, partnered with Fair Trade Certified Apparel, empowers people and communities along the entire supply chain: the farmers, factory workers and consumers, through keeping the prices paid to these global suppliers (often rural) fair and the production process environmentally friendly.

“We’re always looking for new ways to fold the intention of sustainability into our materials and practices, working to reduce the impact on soils, water supplies and other natural resources,” the founders wrote on the company’s website. ”Every day we learn something new about the world and our need to be global citizens.”

“Winning the 3S Award is a great honor for all of the hard work that everyone at prAna, our customers, and the workers in the Fair Trade factories as well as the Fair Trade cotton farmers have done to create a new business model that benefits all involved,” Pam Theodosakis told GSC. Below is an interview Ms. Theodosakis gave after receiving the award.

can you describe the element of inspiration and purpose that pushed prana towards pursuing goals in sustainable and socially responsible practices, as opposed to a strictly profits-based model?

PrAna has always been a company with a conscience, the intention of the brand was never just to sell clothing. Born from the experience of people with active pursuits, an optimistic outlook on life, a deep connection to nature and our responsibility to it, prAna has inspired bringing

The GSC 3S Awards program recognizes exceptional achievements in the global sourcing marketplace, shown by individuals and organizations that exhibit a combination of positive social and economic leadership.


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like–minded individuals together over the last 20 years. Over time we have been formalizing our approach to sustainability integrating it into the materials we select, the places where we manufacture and how we do business. It is a constant learning process for us and a journey we are inspired to take.

how do you understand corporate social responsibility? how do you understand sustainable sourcing practices?

Social and environmental responsibility do not stop at our company’s doors. It is essential that we take responsibility all the way through our supply chain on the impacts our business decisions have on the people and environments where our products are made. Specifically with sustainable sourcing we have realized that we need to formalize our intentions. So while there has been a desire to source from suppliers that meet a certain standard of ethics, we have to put

that into practice. That is why we have adopted a policy and procedure internally to review and assess performance regarding sustainability and include that in our sourcing decisions.

did you – at any point – come to regret that your company is following this path? What were some of the biggest rewards?

There have been no regrets about trying to do the right thing and helping people improve their livelihoods. But it has not been the easiest path. Many times we have had product come from rural areas where it was wrong or late and we have had to explain this to our customers and have them understand the bigger picture of what we are trying to accomplish. But the biggest rewards is when we see our suppliers make the improvements that have been needed to either improve conditions for workers or their own business so that they can continue to stay in business.


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What do you think sets you apart – as far as business model is concerned – from other companies from your sector?

prAna stands out in the outdoor industry as one of the few brands that has put social responsibility front and center. Many brands just focus on environmental responsibility, but prAna has been a pioneer in social responsibility.

What do you think can be done to make the business world aware of the need for corporate social responsibility?

In many cases corporate social responsibility just makes common business sense. There is a say “you pay for it somehow” so if a company just chases cheaper prices they are paying for those cheaper prices in another way be it handling issues with activists, worker unrest, environmental degradation, or even PR to protect the brand image. By seeing a holistic perspective

of your business and making decisions that are good for everyone along the supply chain your business will be more successful. Otherwise good partners will go out of business and not help your company meet its goals.

how is caring for local communities with which you do business influencing the business outcomes in case of your company, or in general?

We are excited to tell the stories of change in the communities that we work with. The impact of our Fair Trade program has seen an 95% increase in financial contributions to workers since the first season providing Fair Trade Certified Apparel. This helps motivate the teams internally to talk about the Fair Trade program and what this means to work for a company that is taking a leadership role in providing Fair Trade Certified apparel in the market.

Pam theodosakis receives the 3s Awards from randy Lewis - senior vice president of supply Chain and Logistics for Walgreens


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Ajay Chaturvedi at the 3s Awards Gala in New York on Oct. 22

Ajay Chaturvedi receives the award from venu Palaparthi, vice President and CCO, transactions services u.s., the NAsdAQ OMX Group


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HarVa means Green for the villages and stands for “Harnessing Value” of rural India. Founded in 2010 by Ajay Chaturvedi – an Indian educated in the United States - the company is a rural start-up that focuses primarily on skill development, BPO, community-based farming and microfinance and currently employs some 370 people around rural India.

Mr. Chaturvedi, who had worked for global corporations like Citi and IBM before moving back to India to found HarVa, claims to believe in “the power of cost-effective innovation on all aspects that will lead to value creation across the world, especially in India” and supports “the Socio-Capitalistic business models as the drivers of inclusive growth,” according to HarVa’s website. He also thinks that the real growth in rural areas across the world and in India is yet to come and is possible only when “we get into the real fabric of the country and not just overlay thoughts and patterns from the developed nations.”

The company’s next great goal is to employ 10,000 women in HarVa’s rural BPO’s in the next five years, “Essentially creating a Digital network for our local communities,” as Mr. Chaturvedi put it.

Mr. Chaturvedi was already awarded the CNN IBN Youth Icon and Young Indian Leader of the year awards in 2011 and has recently

been nominated for the title of “Amazing Global Indian” by Times Now. Now, HarVa has received the 2012 3S Empowered Woman award in October, from the Global Sourcing Council (GSC), a non-profit organization with an educational mission to promote the values of Sustainable and Socially Responsible Sourcing among businesses, trade organizations, government agencies, and other non-profit organizations. Upon receiving the award at the Citi Executive Conference Center in New York City on Oct. 22, Mr. Chaturvedi gave the following interview.

What pushed harva towards pursuing goals in sustainable and socially responsible practices, as opposed to a strictly profits-based model?

We’ve heard capitalism being blamed across the world in the recent occupy movements and so have we seen the BoP businesses being criticized for romanticizing the poor. We are neither. HarVa calls itself a for-profit rural enterprise that follows its unique ‘socio-capitalistic’ business model. The essence and inspiration of our organization lies in the concept of creating and harnessing value out of places where none or little existed and operating profitably. We do it not just to empower the poor but because it makes sense to engage the so-called ‘invisible’ communities into mainstream economy for inclusive growth.


CSR extends far and beyond the boardrooms and ‘stakeholders’ of any organization. The real stake for a sensible organization is to be responsible and engage the community in a manner that the society benefits from it. We’ve all recently seen the

2012 Empowered Woman Award


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‘sustainability mandate’ in all private corporations but I believe that is something of core importance and had been overlooked till now. Even in present day CSR is an agenda for corporations but not a sense of co-operation.

We think that sustainability is achieved when you create an ecosystem of value and business co-creation and source your business in a manner that is rewarding both socially as well as financially. That is what HarVa stands for and what we believe is a sustainable sourcing practice.


Personally I’ve never regretted the decision I took to found HarVa and the direction we have set out on. Beyond just a business model, it is a profound Spiritual calling where some things are just known. On a more materialistic level, we’ve been on a bumpy ride. The biggest challenge for us was to head where no roads had been laid with no set standard. But then again, that also has been our biggest strength that allowed us to be innovative and unique. The biggest reward for us in our journey so far has been the trust we’ve built with our employees and the innovation that leads to value creation. To put in a crux, it has been a roller coaster ride and fortunately an amazing one that pushes us forward every time.


As I’ve already mentioned, we follow ‘socio-capitalistic’ business model and strongly advocate being more than profit. I am of the opinion that capitalism is not bad, but it has to be channelized well for us to make profit for the society. At the

end of the day, I believe all businesses need to have enough money to keep operating or they will inevitably close. Unfortunately, most businesses operating at BoP operate with the agenda of just ‘doing good’ and capitalize on the untapped market and that is what sets us apart. HarVa does not go in for the opportunity but creates where others failed to see any. Another important point that sets HarVa business model apart is that we do not look at the markets we source from as a consumerist economy to start with. We probably will come back around to tapping that consumer market in a couple of years after we have seen sustained development but not start out with it.


Well, for starters I think it’s essential that the corporations look at CSR as not a mandate that they have to publish in their annual reports but as a strategy for business development. Not look at Inclusion as an after-thought. Business world needs to embed co-invention and business co-creation that could bring them into close, personal business partnerships with the communities. There should be a deep dialogue with the poor that results in shared commitment which is born out of mutual sharing and learning. I think the need of the hour is to creatively marry corporations and community resources, capabilities and energies to bring out true CSR.


Caring and respecting our employees and their local environment is of utmost importance to


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us. I believe that human capital is of far more importance to us than the financial gains. Collaborating with the community and engaging them in mutual harnessing of value has been our biggest asset. It has allowed us to understand their ecosystem and thus modify ours according to our needs for better results and productivity. We think that we now need to shun the set beliefs and start a deep conversation with communities for innovation and invention. The trust we build in local communities helps us understand them and work towards inclusive growth in a real manner.

Keller, Vernon Naidoo, and Shawn Fremeth - committed to helping address this issue. They shared the belief that disadvantaged people can drive economic growth if they have the necessary skills, knowledge, and market access to generate income that lifts them out of poverty. They established Digital Divide Data (then called Follow Your Dream Cambodia) to offer youth a chance to join the digital economy and improve their standard of living. The founders sought to provide jobs and contribute to the country’s development by applying India’s business process outsourcing (BPO) model.

Digital Divide Data started with a small office in Phnom Penh, Cambodia, employing 20

In 2001, Jeremy Hockenstein, CEO of Digital Divide Data (DDD) - then a business consultant – visited Cambodia, where the mixture of poverty and progress caught his attention and became the inspiration for the company. Mr. Hockenstein noticed that - despite the existence of computer schools - there were few IT jobs available to graduates and no school-to-work programs to transition them into employment in the formal sector. The young people had limited opportunities to join the workforce and take part in the economic growth of a nation emerging from colonialism and war.

Mr. Hockenstein and a group of his friends - Jaeson Rosenfeld, Kathryn Lucatelli, Scott

2012 3s People’s Choice Award

Jeremy hockenstein receives the 3s Awards from Jeffrey Puritt, President of telus international


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disadvantaged high school graduates to provide BPO services to clients. Today, DDD operates in Cambodia, Laos and Nairobi, Kenya. DDD has successfully delivered hundreds of projects to international and local clients while employing over 1,000 staff, the founders boast. The jobs crated have enabled hundreds of families “to break the cycle of poverty and to build a better future,” they claim.

DDD founders are aiming to earn $10 million annually by 2016, which would enable them to graduate 350 youth each year from the work-study program the company offers.

DDD is the recipient of the 2012 3S People’s Choice Award, one of the five awards from the Sustainable & Socially Responsible Sourcing (3S) program (www.gsc3sawards.com ) by the Global Sourcing Council, an NGO focused on “greening” the global supply chain.

The below interview is with Michael Chertok, Chief Development Officer at Digital Divide Data.


Corporate social responsibility is a self-regulating mechanism that businesses observe to ensure that they comply with the law, ethical standards, and international practices. Companies carry out CSR to embrace their responsibility to create positive impact through activities, projects, and programs geared towards employees, communities, consumers, the environment, stakeholders, and the public.

Digital Divide Data helps companies demonstrate CSR in the way in which they source business process services. By sourcing a range of content processing services from DDD, companies receive quality services at a competitive price—and their sourcing business

contributes to developing the skills of youth in developing and emerging market countries.

At DDD, social responsibility starts with recruiting disadvantaged youth in developing countries and equipping them with the skills, education, and training they need to thrive in the BPO industry. With employment in our business, they build skills that enable them to earn incomes four times greater than the average regional wage. Some of them move on to occupy managerial positions within DDD; many take professional roles in other businesses, government and NGOs.

Digital Divide Data’s model views sustainable sourcing as a development opportunity for the people working in the sourcing industry. While employment in sourcing is often viewed as a temporary job for recent college


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graduates, DDD sees a job in sourcing as a long-term opportunity to gain professional workplace skills, personal development and financial independence. DDD has made a commitment to make sure women and people with disabilities can participate in this opportunity. Half of the youth we employ are young women and about 10% have physical disabilities. In spite of how society may regard their gender or physical disability, DDD’s employees are able to put food on the table, send siblings to school, give money to their parents, and gradually improve their families’ standard of living. Sourcing services from DDD enables clients to achieve this level of long-term impact through their business. This is an essential component of CSR--and the potential of sustainable sourcing.


Digital Divide Data pioneered the impact sourcing model, having operated this way for 11 years. While the journey has had moments of challenge, we have never regretted taking the sustainable sourcing path. We have reaped enormous rewards from seeing DDD graduates grow and succeed and we continue to be inspired by their individual stories. The story of Changtheng Heng is just one example:

When Chantheng Heng was a young girl, she helped her mother sell rice and bread in the markets of Phnom Penh. But in 2003, she started working at DDD Cambodia as an operator and could start to leave behind a life that promised only hard labor and low wages and no chance to shift her circumstances for the better. Her habits of hard work, however, helped her succeed in a competitive workplace where it was unusual to see a woman. “My motivation was the money and the thought that not many women pursue the field.” Her persistence and fearlessness paid off and she was soon promoted within DDD, first as a computer trainer for a group of young women who soon found themselves employed at DDD; and then as IT assistant, where she handled network administration and maintenance, user support and security. Seeing her excel in IT systems management, DDD supported her studies, as she completed a degree in Computer Science at the University of Puthisastra.

Chantheng used the skills and education she acquired through DDD to build a career that promotes technology education in Cambodia. She moved on from DDD to become a trainer for government officials to implement software systems using the Khmer language. She then advanced to designing and developing the


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Cambodian Ministry of Education’s Master Plan for Technology in Education. Recently, she completed a master’s degree in comparative local development. Today, Chantheng has the privilege of serving as the Deputy Program Manager for the Open Institute, where she creates proposals for Information and Communication Technologies (ICT) development in Cambodia.

“Technology in Cambodia is progressing. If technology can reach more people, women and men, in rural and urban areas, we can help society access better information and help people learn from each other not only here but in other countries.” Chantheng remains grateful for having crossed the opportunity divide and for DDD’s help in advancing her to where she is now. “I believe women have to have their own skills, have a better education, get the career they want, and learn anything that will allow them to be free.”

Chantheng and more than 500 other graduates like her inspire us every day to do what we do at DDD.


What sets Digital Divide Data apart from other companies is our long-term commitment to the development of our staff, including enabling them to gain access to higher education. DDD not only employs disadvantaged high school graduates in our BPO business but also sends them to universities to complete their degrees over about 4 years. More than 500 young people have graduated from DDD’s work/study program with college degrees. The flexibility of our staff ’s work hours allow them to perform their data management operator jobs for half of the day and go to school for the other half. DDD supports a

portion of their college education costs through scholarships; operators pay a portion with their earnings, sometimes supplemented by financing through low-interest loans from our financial institution partners.


The challenge is not so much to raise awareness in the business world about the value of CSR; there is already a fairly wide awareness of CSR. We believe the current challenge is to help companies see the opportunity to engage in CSR practices in their procurement practices. Many companies see CSR as an isolated division of a company that runs periodic programs. We are excited about companies that integrate principles of CSR into how they do business. For


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example, DDD and other sustainable sourcing companies could create more jobs and more opportunities for the disadvantaged if they could rely on recurring client work. There is an opportunity for companies to act on their CSR principles by making decisions to contract with companies like DDD that not only deliver high quality services at a competitive price, but also produce social outcomes. We would like to see more companies embracing CSR in their purchasing decisions.


We have had the privilege to forge client partner relationships with companies and organizations that share DDD’s commitment to sustainable

sourcing and social impact. We are especially proud of many of our local clients in Cambodia, Laos and Kenya whose projects deliver much needed business services. For example, for nine years, Mobitel, one of Cambodia’s largest telecommunications companies has been sourcing work from DDD. Their business has provided a first work opportunity for hundreds of youth. We thank our clients for their business, which helps us sustain our programs.

Luiza Oleszczuk Global Sourcing Council

Luiza Oleszczuk is a freelance journalist and a sustainable development enthusiast, as well as a part-time business research consultant specializing in the Eastern European markets. She holds a

Master’s degree in English from University of St. Andrews. Among Luiza’s interests are international business and CSR, the role of technology in social innovation, globalization and social issues related to it, policy and economics, and women in business and politics. Luiza also currently serves as Communications Director at the Global Sourcing Council, a non-profit. Her articles have appeared inThe Economist, The Christian Post, GSC Newsletter, Nowy Dziennik and other publications

About the Author

Jeremy hockenstein, CEO of digital divide data (ddd)


two faces of Outsourcing

Getting the most from outsourcing means determining the objectives upfront, as

well as which activities can be outsourced without significantly increasing operational and reputational risk. A robust internal governance model when drawing up the contract with the outsourcing provider is also critical to ensure that key decision-making is retained in-house:

caN You reallY aFFord to outsource?

Even when user provisioning in core systems is managed by a third party, the customer owns the data, and is responsible for protecting it. This is particularly true for confidential information, which may be covered by the Data Protection Act, or business sensitive information that would have a reputational impact if it were released.

Understanding the business process will help to ensure that the organization retains ownership of these steps. Business gatekeepers should be established with sufficient knowledge to act as approver for key points in outsourced processes. This may change the view of what processes are core to the business and therefore retained in-house.

Two faces of ouTsourcinG

By Nicola White in an effort to standardize and centralize

processes, as well as minimize costs, many companies outsource some or all

of their it processes. however, this must be planned for and managed correctly. Nicola white, quality director, turnkey consulting, asks if outsourcing can be

part of an effective management package or if it’s a more commonly a business risk.

Outsourcing IT - particularly when this is to cloud suppliers - creates additional compliance challenges. Often the provider is located in another country, which may increase the compliance risks because of complex data privacy requirements and legislation that exists around the world. Legal advice regarding local employment laws, IT regulation and data privacy is essential during the due diligence phase to reduce the likelihood of issues occurring later.

Including a regular compliance and performance review of the outsource provider in the contract also helps compliance requirements to be met. Incorporating penalties for failure to meet requirements is advisable, but the organization should also take some responsibility for notifying the provider of regulatory changes that may have an impact.

creatiNg aNd maiNtaiNiNg qualitY requires oNgoiNg eFFort From both parties

Organizations typically outsource to reduce costs and because other companies have a particular expertise that the customer does not want to develop in-house. This positions the outsource provider as the ‘expert’ in IT support, for example. In practice, many outsourced staff are junior resources with limited training, meaning some issues can take a long time to resolve and eventually cost more.

Outsourced staff capability and capacity is usually outside the control of the customer organization. However, it is possible to enforce training for support staff before they can access systems and service the account: the costs of this should form part of the contract negotiation.

Defining specific quality and performance related service level agreements (SLAs) helps to ensure that quality levels are maintained. However, SLAs must be carefully considered to avoid driving


two faces of Outsourcing

to define roles and responsibilities and manage access on that basis.

Internal control reviews such as segregation of duty reviews are encouraged across the support organization as well as the business to identify breaches and implement fixes. Other reviews such as continuation transaction analysis may also highlight risks such as fraud.

Ultimately, outsourcing may be the most appropriate, cost effective solution to IT, especially as cloud computing and new technologies bring down the cost. The key is a thorough risk assessment at the start of the process. This identifies what can be outsourced by showing the data, processes, decision-making and technology that are critical to the ongoing success of the organization.

the wrong behaviours. For example, setting an SLA that requires a helpdesk ticket to be closed within four working days may result in the ticket being closed without the issue actually being resolved.

Performance measures should contain an element of quality to encourage the behaviours that the organization wants to see and performance reviews should take place regularly with representatives from both parties.

process, what process?

One of the fundamental ways to ensure a consistent level of quality is to set standards that govern the processes to be outsourced.

Outsourcing an already weak process will only introduce further risk and inefficiency, and potentially impact the output. This might be increasing the risk of fraud in financial transaction processing, or inadvertently allowing users to bring down entire systems through a lack of access controls.

Having robust processes documented and available to the customer, where they touch customer staff, will avoid confusion and increase efficiency.

access coNtrols aNd audit caN help to maNage risk

However much the third party is a trusted extension of the organization, it is critical that someone inside the customer organization can assert control over core systems, in case of a disaster. Business continuity planning will help to identify scenarios where control and ownership must be retained in-house.

Suppliers may assert that staff members require full access to systems in order to provide the level of support required. However, this is rarely the case – instead the supplier and customer need

About the Author

Nicola White IT consultant

Nicola White has over 10 years of IT consulting and management experience with large-scale clients both in the UK and internationally. Nicola has held project management and project QA roles on

a number of ERP implementations and, has led IT change initiatives for a range of clients. She has participated in a number of IT due diligence projects from both buy-side and the vendor perspective and has experience across a number of different industries including retail, pharmaceutical, media and financial institutions.

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