Outsourcing Leaders Speak Up

Offshore Outsourcing is an emotional subject these days and many senior managers are uncomfortable talking openly about their company’s projects for fear of being labeled unpatriotic job killers. One fellow from California told me that when he accepted a posting to run his company’s offshore facility in Philippines, a number of co-workers came to his office to let him know he was “tearing apart the very fabric of our nation.”

Even big-talking CEO’s, who can usually be counted upon to hype their company’s cost reduction strategies, are often remarkably silent about offshore outsourcing. They seem to put the subject on a similar level as pornography – they all want to sneak a peek at it but none want to admit to do so.

Happily, there are some who will talk about their experiences with Offshore Outsourcing and their comments are useful for the rest of us. Most seem optimistic and think the future of offshore outsourcing is bright. Nevertheless, no one should be misled that running an outsourcing facility in a developing country is a Sunday afternoon picnic. There are serious frustrations that must be contended with.

Charles Phelps is the Texan who runs the large Manila-based design engineering center of Fluor Daniel, one of the world’s largest engineering companies. The facility has been in Philippines for many years and is now able to develop complete engineering designs for large facilities in the oil & gas and manufacturing sectors. Charlie speaks highly of his Filipino employees. He says, “Our clients are always impressed when they visit our office. They see the smiles, the friendly atmosphere, the positive attitude of our team and immediately are impressed.”

Charlie became rather testy with me when I referred his center as a “back-office operation.” He said something to the effect of, “Richard, don’t you ever call us ‘back-office.’ We are a ‘Global Service Partner’ within Fluor’s world-wide operations and leading edge in our areas of focus.”

He also presented an interesting slant to the job loss worries at some US companies. Charlie believes employees at Fluor feel their jobs depend on offshore engineering design groups like his in Manila. Without Filipino engineers, their project bids would not be competitive in today’s global market.

Neil Elias started the Manila-based Business Processing facility of AIG, the world’s largest insurance company, from scratch a few years ago. He has good things to say about the quality and quantity applicants available for his processing work – all of whom are university graduates. He says his employees have a “real desire for training and a service orientation.” As well, Neil says government, schools and industry are all working together to make it a success.

John Standring is the talk of Manila these days for turning around the outsourced IT operation of Safeway, the mammoth supermarket chain. When John came, it was common knowledge among the local industry that the operation was a poor performer. After being extracted from a third party provider, the center lost its first General Manager just 5 months later. John’s turn-around results are said to have been dramatic and faster than most people here anticipated. He seems to enjoy talking on and on about his success but concedes that it was really just a matter of putting the right people in the right positions. John says the people you can hire in Philippines are not much different from those you can hire in the US or Canada.

Klaas Brouwer is Vice President of Global Technology for NASDAQ-listed Innodata Isogen, Inc. The company’s 5,000+ offshore employees provide high-end content and knowledge management services to US and European clients. Klaas is based in Manila but oversees operations for all facilities worldwide. When I asked him what advantages he has by operating offshore, he says it’s “the people.” For once, this fast-talking Dutchman had to be prodded for details about this. He said that people in western countries will work late to finish a job for the first week but you get a lot of long faces if you ask them to do this again for a second week. In Philippines, people work until the job is done, however long it takes.

Then there is the qualification availability. Klaas mentions that positions occupied by basic college graduates back in Europe are being taken by lawyers and doctors in his current company. He also talked about his people being loyal, friendly, trusting, on and on.

Salary costs are probably the only significant positive that business leaders are not overly keen to boast about. It is no secret, however, that these offshore employees who are so admired by their employers are available for a few hundred dollars per month. Despite the bashfulness, we can be sure that this factor warms the heart of many a CEO back in the home office.

But we all know that you don’t get something for nothing. There are plenty of problems operating offshore facilities and we should be aware of a few of them.

All offshore managers say there is a strong deficiency of management talent. In developing countries, it is not always easy to hire managers off the street who are capable of performing at international levels. And since outsourcing is such a new industry and growth rates in employment have been so astounding, it is understandable that there hasn’t been time to develop enough quality managers. As the industry continues to thrive, this predicament will only get worse.

Another increasing concern of senior managers is that their qualified staff are being hired away by overseas companies. Japan, Singapore and Saudi Arabia are examples of countries that are aggressively pursuing Filipinos and Indians. While writing this report, I received a distressed email asking for assistance, “They are going to try to hire away from me 20 of my top designers and ship them up to Japan after some language training. This will hurt me big. You know this company?” This threat is a currently an ongoing concern for those employing technical people and indications are that other skill sets could soon be impacted.

Another interesting challenge that most senior managers contend with has to do with perceptions of their company’s US and European teams that their operations are job killers. The result, the managers feel, is vastly increased scrutiny of offshore performance, and even a reluctance to work with the offshore operation. In turn, the offshore managers say they are forced to drive quality of Philippine and Indian output “above that of the work being performed in developed countries.”

Of course, there are a lot more challenges than the few discussed above. But, these are said to be manageable and more than outweighed by the advantages of working offshore.

International Executive Search in Southeast Asia

Chalre Associates is an Executive Search partner to multinational corporations throughout the Asia Pacific region but with specific focus in Singapore, Philippines, Indonesia, Thailand, Vietnam, and Malaysia.  Our purpose is to enhance these organizations by identifying, attracting and developing outstanding people.

Richard Mills CFA