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back to index backLATINtalk August,  2005

Mexico can prosper from nearshore outsourcing opportunities

Business process outsourcing or BPO” has become an important strategic tool for organizations around the world. BPO is defined simply as the transfer of the ownership of a business process to a third-party vendor whose core business is centered on that process. Today, organizations of all types are reducing costs, trimming headcount, and increasing competitiveness through BPO.

Globally, opportunistic nations have fostered the development of companies that excel in a wide range of business services. What began as a steady movement of primarily IT-related jobs to regions such as India and China has now become a massive migration with virtually no business service excepted. Today, processes from call centers to tax accounting to X-ray examination are being shifted to global centers of labor excellence.

Several nations, in particular India and China, have intensely focused on the BPO revolution to create new jobs —and new wealth— for their workers. Where opportunistic global leaders used to be interested primarily in attracting manufacturers to establish operations in their emerging countries, a few today are focusing on attracting business services. To highlight the economic impact of BPO, consider the following statistics from the Indian economy:

• 90% of new jobs created in India since 2000 have been in the service sector

• Business services is largest growth segment of the Indian economy

• BPO employment in India will reach 1 million by 2006, up from 200,000 in 2003

• The average call center in India now has over 1,000 workers, and expands at 100% per year

• Total BPO industry size in India is over $17 billion

People of all ages are prospering from the new jobs created by India-based entrepreneurs in the BPO sector. And the new jobs are usually located in bustling urban centers, housed in sparkling new office buildings, and surrounded by a growing number of restaurants, retail shops, and entertainment venues.

In India, a focus on exporting business services to companies around the world has helped develop a new generation of white-collar, middle-class office worker.

Experts predict that the BPO revolution is only beginning, and is expected to reach over $700 billion globally in the coming years. Historically, Mexico has not aggressively pursued BPO business, choosing instead to focus on manufacturing exports. However, as more and more manufacturing shifts to China in the coming years, the competitive playing field for manufacturing facilities will become difficult. China enjoys immense advantages in labor supply and wage rates, and Chinese manufacturers have dramatically improved efficiencies over the past several years.

Competing for low wage manufacturing jobs is not likely to create an upward prosperity cycle for Mexico.

Mexico has not emphasized development of the BPO services export industry. Some Mexican entrepreneurs have created businesses based on outsourcing and are experiencing rapid growth similar to that witnessed in other countries. Still Mexico must be more aggressive in its national pursuit of BPO opportunities. India, China, The Philippines, and other countries are actively expanding their BPO capabilities. Worker training programs, government regulations providing assurances of data security, and capital flows to business people capable of organizing and launching BPO-oriented ventures support their national strategic intent to increase BPO capacity. These countries have determined that exporting services is a major economic opportunity and they have established the technical and human infrastructures to accelerate growth in this area. Even though Mexico lags behind the global leaders in the BPO economy, it has many natural competitive advantages that it can leverage to gain a significant proportion of the BPO industry in the coming years if it acts swiftly.

BPO is often defined as being of three types: onshore, offshore, and nearshore. Onshore BPO means outsourcing to a domestic (U.S.) provider. Offshore BPO is the moving of service work to foreign labor pools far from the source (e.g., to India or China). Nearshore refers to moving service work to foreign labor pools near the source. Mexico is a nearshore BPO provider to U.S. companies, and it has several advantages that it must emphasize to win its share of the BPO pie, including:

• Proximity to the U.S. means easier set-up and management of the BPO process

• Spanish language is now common in many U.S. cities

• Time zone similarity allows real-time problem solving

• Similar work ethics and work styles enables rapid adaptation

• Many Mexican managers are U.S. trained

Mexico potentially can create hundreds of thousands of new office jobs by increasing its focus on BPO and services export. Instead of investing in economic development via job-training programs. Mexico should invest in entrepreneurs capable of launching BPO ventures that will create the jobs that Mexican workers will fill.

The window of opportunity in the global business services export industry will be open for only a few short years. After that, established companies will dominate, and competitive advantage will center primarily on service excellence rather than low labor costs. Mexico must decide now to compete for its share of the global BPO market, and develop and protect its unique nearshore advantages to sustain its position over the long term. The opportunity is there. The question is, will Mexico recognize it in time?

Source: Alliance magazine - GAI

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