Five Investments India is Making to Become China's "Plus One" in Manufacturing

Apple is in the news today for announcing that they will create manufacturing capacity in India to produce 25% of the world’s iPhones from there.  Apple is acting on a trend with other multinationals to reduce reliance on China as their primary manufacturing source.  The COVID-19 pandemic and geopolitical events such as the Russia-Ukraine war have vividly illustrated the fragility of the world’s supply chain.

India is one country that’s been working hard to become China’s Plus One and improve its attractiveness as a manufacturing hub.  Currently, manufacturing contributes 17% of the GDP.  The government’s goal is to expand manufacturing to 25% of GDP by 2025.  Below are five investments India is making to attract foreign investment and build domestic manufacturing capacity.

Investment #1: Production Linked Incentives (PLI)

The PLI schemes provide economic incentives to foreign companies, like Apple, to set up manufacturing facilities in India.  It also provides incentives to domestic Indian companies to set up or expand manufacturing capacity to increase employment and reduce reliance on imports to meet domestic demand.  These schemes are targeted at 14 key sectors including electronics, pharmaceutical drugs, and medical devices.  In exchange for investing in plants, machinery, and R&D, the government is providing various incentives for up to five years.

Investment #2: Special Economic Zones

India has approximately 270 Special Economic Zones (SEZ) to attract Foreign Direct Investment (FDI).  These SEZs give favorable tax treatment to companies setting up manufacturing sites.  Often, these zones are targeted at specific industries to develop manufacturing clusters.  As an example, Pune attracts about 20% of India’s FDI with a concentration in automobiles and durable goods.  Pune also serves as an engineering R&D hub for companies such as Tata Motors, Volkswagen, and Visteon.

Investment #3:  Road Infrastructure

India is focused on improving road infrastructure with agencies such as the Ministry of Road Transport and Highways (MoRTH) and the National Highways Authority of India (NHAI).  India’s roads support over 60% of freight transportation in the country.  In FY22, India completed over 6,200 miles (10,000 kilometers) of roads, up significantly from previous years.  Much of that has been built under the Toll-Operate-Transfer model where India builds the highways and then monetizes them by selling the right to operate the roads and collect tolls.  Companies like Canada’s Brookfield Asset Management are providing the capital for this monetization process.  The Indian government has even gone digital with the deployment of a Project Management and Data Lake cloud-based software used to manage the bid and execution process of all contracts.

Investment #4: Shipping Port Infrastructure

The Indian maritime sector accounts for 95% of export-import trade by volume.  Like roads, India has been actively working to build port capacity through the use of Foreign Direct Investment.  The Maritime Vision 2030 initiatives seeks to attract foreign investment to build and operate ports under long-term contracts.  A central component of the Maritime Vision 2030 is the creation of four mega-port clusters.  These will come in the states of Gujarat, Maharashtra, Tamil Nadu, and West Bengal-Odisha.  Key features will include port automation, seamless movement of cargo, and paperless transactions to create standard processes and provide access to real-time information for port management.

Investment #5: Human Capital Development

According to a 2020 World Bank study, India’s Human Capital Index places it 116th out of 174 countries.  The index measures a variety of factors including projected life expectancy and quality of education.  India’s population skews younger, with 65% of the population under 35.  As part of the challenge to develop skills to compete, India has a partnership with the World Bank to improve education quality.  Additionally, private companies run programs to further improve skills after completion of education at the university level.

Conclusion

India is not alone in its desire to take manufacturing from China.  Other Asian countries like Vietnam, Thailand, and Malaysia are also ramping up to compete.  However, India is making serious commitments to increase its global competitiveness and become a central part of the world’s manufacturing sector.

The Impact of Rising Trade Restrictions

Rising trade restrictions between countries can have significant economic and geopolitical implications, leading to a range of key issues that affect various stakeholders. The International Monetary Fund (IMF) has an interesting article out this month in Foreign Affairs in which they argue that the world is moving in the wrong direction by increasing the number of trade barriers.

According to the latest International Monetary Fund projections, annual global GDP growth in 2028 will be only three percent—the IMF’s lowest five-year-ahead forecast in the past three decades, which spells trouble for poverty reduction and for creating jobs among burgeoning populations of young people in developing countries. - International Monetary Fund

Since the Global Financial Crisis in 2008, growth in world trade has more or less leveled out, what some have described as “slobalization”. While the growth in trade has been slowing, the nature of trade is also morphing. In light of the Covid pandemic and the Russia-Ukraine war, countries are reevaluating which trading partners can be counted on in difficult times. This “friendshoring” movement will reduce supply chain risks, but also impact the cost of goods and services, with developing countries much more likely to feel the brunt of reduced trade and global growth.

Countries perceive trade restrictions as working in their best interests, but this is a short-term view. I’ve written elsewhere that India would do well to rethink its trade restrictions, including taxes on imported sub-components for the assembly of mobile phones. This is just one example where lessening trade restrictions would eventually lead to longer-term economic growth, with millions of Indians benefiting from a broad and efficient manufacturing economy.

Countries should be thinking about the following issues before they erect even more trade barriers:

• Economic Impact: Trade restrictions, such as tariffs, quotas, and import/export bans, can hinder the flow of goods and services across borders. This can lead to reduced economic growth and lower consumer welfare. Industries that rely heavily on international trade might face challenges in accessing foreign markets or sourcing necessary inputs, which can disrupt supply chains and lead to higher production costs.

• Price Increases: Tariffs and other trade barriers often result in higher prices for imported goods, as the cost of complying with these barriers is passed onto consumers. This can lead to inflationary pressures, particularly if the affected goods are essential or inputs for other industries. For Western countries, moving supply chains to “friendly” countries will almost surely have the impact of rising prices from both labor and materials.

• Reduced Competition: Trade restrictions can limit the level of competition in domestic markets, as they protect domestic industries from foreign competitors. While this might offer short-term advantages to domestic producers, it can lead to complacency, decreased innovation, and reduced efficiency in the long run.

• Global Value Chains Disruption: Modern production processes often involve components and materials sourced from different countries. Trade restrictions can disrupt global value chains, causing delays in production and increased costs as companies search for alternative suppliers. In an example like rare earth metals, there are relatively few countries that have these materials. Countries, and companies that need these materials for production will have to find a way to deal with these countries, even if they are deemed “unfriendly”.

• Retaliation and Trade Wars: When one country imposes trade restrictions, its trading partners might retaliate with their own restrictions. This tit-for-tat escalation can result in a trade war, where both sides suffer economic losses, reduced trade volumes, and increased uncertainty.

• Impact on Developing Countries: Developing countries often rely heavily on exports to drive economic growth. Trade restrictions can limit their access to global markets, reducing their ability to generate income, create jobs, and improve living standards.

• Global Economic Uncertainty: Rising trade tensions and protectionist policies can create uncertainty in global markets. Businesses might delay investment decisions due to the unpredictability of trade relations, leading to reduced economic activity. Already, many companies including Apple are looking at a China Plus One manufacturing strategy, given the geopolitical risks of dealing with China.

• Inefficiency and Resource Misallocation: Trade restrictions can lead to inefficient resource allocation as countries are forced to produce goods domestically that could be produced more efficiently elsewhere. This can result in a waste of resources and reduced overall economic output. It may also result in the misallocation of human resources, where domestic resources could be involved in higher-value activities if low value activities where outsourced to other nations.

• Neglect of Multilateral Agreements: Increasing trade restrictions can undermine multilateral agreements like the World Trade Organization (WTO), which aim to promote global trade cooperation, reduce barriers, and resolve trade disputes. A disregard for these agreements can weaken the international trade framework.

• Geopolitical Tensions: Trade restrictions can exacerbate geopolitical tensions between countries. Economic conflicts can spill over into political and security issues, making it more challenging to resolve international disputes.

According to the IMF, over the long term, trade fragmentation—that is, increasing restrictions on the trade in goods and services across countries—could reduce global GDP by up to seven percent, or $7.4 trillion in today’s dollars, the equivalent of the combined GDPs of France and Germany and more than three times the size of the entire sub-Saharan African economy.

Rising trade restrictions for goods and services between countries can create a range of negative consequences, affecting economic growth, consumer welfare, global cooperation, and geopolitical stability. It's important for countries to carefully consider the potential drawbacks of protectionist policies and to seek avenues for constructive dialogue and negotiation to address trade-related issues.

Questions:

• What do you see as the primary negative consequences of increasing trade restrictions?

• Do you think there are positive benefits that outweigh the negative consequences outlined above?

• How do you think companies should balance Foreign Direct Investment (FDI) against national interests?

Let us know your thoughts in the comment section.

Managing Knowledge Transfer in Global Business Services

In a rapidly evolving world, where information is constantly expanding and industries are in a perpetual state of change, the ability to effectively transfer knowledge has become a critical skill. Whether it's passing down expertise within an organization or sharing insights with a wider audience, mastering the art of knowledge transfer can unlock unparalleled success. In this blog post, we'll delve into the key elements of knowledge transfer and how they contribute to personal and organizational growth.

• Clear Communication: At the heart of successful knowledge transfer lies clear and concise communication. The ability to convey complex ideas in a simple and understandable manner is essential. This understanding will largely come from the requirements of the organization and the need to modify processes to reflect a desired future state. Whether you're explaining intricate technical processes or sharing strategic insights, choosing the right words and structuring your message effectively ensures that the recipient grasps the information accurately.

• Tailored Approach: Not all knowledge transfer processes are the same. Understanding the needs, background, and learning style of your audience is crucial. Tailor your approach to align with their existing knowledge and preferred methods of learning. Whether it's through written documentation, hands-on training, one-on-one mentoring, or group workshops, customization fosters better comprehension and retention. Often knowledge transfer occurs in waves to align with the rollout of a phased program. It’s important to align the need to have knowledge with the appropriate timing of the knowledge transfer.

• Documentation and Resources: Documenting knowledge in written, visual, or multimedia formats is invaluable. This ensures that information remains accessible even after the initial transfer. Detailed guides, manuals, videos, and presentations can serve as reference materials for individuals seeking to reinforce their learning or revisit specific concepts. Facilitated workshops to align multiple stakeholder perspectives is critical to ensuring global alignment.

• Patience and Active Listening: Effective knowledge transfer involves patience and active listening. Encourage open dialogue, questions, and discussions to gauge the recipient's level of understanding. Addressing doubts and concerns in real-time prevents misunderstandings from taking root and demonstrates your commitment to their learning journey.

• Practical Application: Theory without application is like a ship without a rudder. Incorporating practical exercises, real-world examples, and hands-on experiences helps solidify the knowledge transfer process. Practical application bridges the gap between theoretical concepts and their real-life relevance, empowering individuals to confidently apply what they've learned. Typically, there is a ramp up period where the receiving organization takes on a small amount of work, and then gradually takes on more work until they are covering a full work load.

• Feedback Loop: A two-way feedback loop is essential for continuous improvement. Encourage recipients to provide feedback on the knowledge transfer process. Were the explanations clear? Were the resources helpful? Did they face any challenges during application? Constructive feedback sheds light on areas that might need refinement and aids in fine-tuning your approach.

• Long-Term Support: Knowledge transfer doesn't end with a single session. Offering long-term support through follow-up sessions, mentoring, or guidance ensures that the transferred knowledge becomes integrated into the recipient's skill set. This support system bolsters their confidence and encourages them to explore further on their learning journey.

• Technology and Innovation: Embracing technology accelerates knowledge transfer in today's digital age. Virtual classrooms, webinars, interactive platforms, and online collaboration tools enable seamless sharing of information across geographical boundaries. Innovation in knowledge transfer methods enhances engagement and accessibility.

• Cultural Context: When transferring knowledge across diverse cultures and backgrounds, it's crucial to consider the cultural context. Cultural nuances can impact how information is received and understood. Sensitivity to these differences fosters a more inclusive and effective transfer process.

• Measuring Success: Establishing clear metrics to measure the success of knowledge transfer is essential. Are recipients applying the knowledge? Are they achieving the desired outcomes? Regular assessment helps identify areas of improvement and quantifies the impact of your knowledge transfer efforts.

In conclusion, knowledge transfer encompasses a blend of communication, customization, practicality, and ongoing support. Mastering these key elements not only enhances personal and professional growth but also drives organizational success by fostering a culture of continuous learning and innovation. As the world continues to evolve, those who can adeptly transfer knowledge will stand at the forefront of progress.

Determining the keys to globalization success

The complexity of globalization precludes any easy answers when it comes to achieving success for the finance organization. Every finance organization needs to understand the competitive landscape in which it exists in order to position finance as a true value-added partner that understands and provides strategic context around business decisions.

In order to do that, the finance organization needs to incorporate the following seven key lessons to position finance as a truly global organization that provides the capabilities, flexibility, and scalability to drive continuous business value over time. This first post introduces the seven keys. In subsequent posts I’ll expand on each one.

The seven keys to globalization success are:

• Align finance capabilities with strategic intent

• Align finance operating model to support strategic capabilities

• Establish global operating standards

• Control through a global governance model

• Develop a global managerial mindset

• Maintain a global performance monitoring system

• Create a scalable yet agile organization

Global Business Services is a key design consideration as finance organizations position themselves for the future.

City Profile: Chengdu, China

The Chinese government has actively worked to create additional economic zones for international investment.  Increasingly, these have been further inland to leverage population centers where wage inflation hasn't been as strong.  The city of Chengdu, the capital of Sichuan province, is one city that has been developing to serve the needs of multinationals.

In 2007, this city of 14 million was designated as a Special Economic Zone (SEZ) by the government to spur investment and development.  Among the incentives are favorable tax programs to promote investment.  Investment in Chengdu is being driven by both the national government as well as Foreign Direct Investment (FDI).  Much of the FDI is directed towards the information technology sector, but manufacturing, transportation and financial services have also benefited from FDI.  Chengdu is one of 21 cities designated by China's State Council to serve as a model for the outsourcing industry.

Chengdu is one of the four major international air hubs in China after Beijing, Shanghai and Guangzhou.  An Airbus 380 can land in Chengdu.  In late 2012, British Airlines established a non-stop flight from London Heathrow.  A number of other international carriers, including Air China, Lufthansa, United, Cathay Pacific and others also fly into Chendgu.  The city is not more than 2.5 hours flight from Shanghai, Beijing, and Hong Kong. 

Language capabilities in Chengdu include Japanese, Korean, English and, of course, Mandarin and Cantonese Chinese.  Other languages such as French, German, Russian and Thai are also available.  A number of companies have set up in Chengdu to establish Asian regional hubs or global service centers capable of serving operations outside of China.

Salaries are typically lower than more established cities like Shanghai or Bejing.  In Shanghai or Beijing, for instance, a college graduate can earn a salary of 3,000 RMB or more per month.  In Chengdu, an equivalent degree would bring a salary of around 1,850 RMB per month, a savings of almost 40%.

Office rent for Class A office space is very competitive with more established locations in China.  Following are typical rents in RMB/Square Meter/Month (Source: Cushman & Wakefield analysis)

• Beijing                 525
• Shanghai            415
• Shenzen              288
• Guangzhou         220
• Chengdu             161

Multinationals with operations in Chengdu include Intel, Amazon.com, ANZ Bank, Microsoft, Motorola, Toyota, GE, JP Morgan Chase, and Nippon Steel.  More than 200 of the world's top 500 enterprises has a presence in Chengdu.  Additionally, a number of companies have set up Shared Service Centers to support business in China and across Asia.  These include Siemens, DHL and Maersk.

If you're looking for an Asian city to establish a Shared Service Center, it may make sense to look at Chendgu and discover what a number of other multinationals have discovered.

China FDI falls. Are cheaper rivals to blame?

While China as been a go-to destination for all sorts of work, including back office service centers, Foreign Direct Investment (FDI) has fallen relative to last year.  No firm conclusions can be drawn from this one statistic alone, but it does raise the question of investment choices as companies evaluate where to make future investments..  

It's no secret that China's coastal cities aren't the bargin they once were.  However, they're still proven locations within China to set up shop, and there are up-and-coming locations in China's interior such as Chengdu, in the Sichuan province in Southwest China.  The challenge for China is that it's lower cost neighbors have been watching China's success and working to emulate them.  That means more choices for Western companies to invest.

A recent article from the South China Morning Post has the details.  Here's an excerpt:

China’s foreign direct investment inflows fell at their fastest rate in more than three years in January, highlighting the challenges it faces competing for funds with cheaper rivals in a sluggish global growth environment.

China Commerce Ministry data on Wednesday showed the world’s second-biggest economy drew in US$9.3 billion (HK$72.12 billion) of foreign direct investment (FDI) in January, down 7.3 per cent on a year ago.

The fall was the steepest in year-to-date inflows since a 9.9 per cent drop in November 2009, and it was the worst January performance in four years.

January FDI was down from December’s US$11.7 billion, with inflows from key Asian economies and the United States down in the latest period, reflecting what analysts say are foreign perceptions of a decline in China’s near-term growth prospects.

Zhang Zhiwei, chief China economist at Nomura in Hong Kong, said the continuing fall in FDI – the longest consecutive run since the global financial crisis – was indicative of the rising competitive challenges facing the world’s biggest manufacturer of exports.

“We expect more multinational companies will increase investment in cheaper countries, such as Vietnam and Indonesia,” Zhang told said.

If nothing else, this story illustrates that companies increasingly have choices when it comes to Asian operations.  A country like Vietnam doesn't necessarily have the infrastructure or trained labor pool that China has, but it isn't for lack of trying.  These countries are making investments in these very areas and may soon be credible alternatives to China for locating operations, including back-office staff for finance and accounting.  

Can business schools teach globalization?

It's always been the goal of MBA programs to offer relevant education that aligns with real world demands.  With the increased emphasis on globalization, MBA programs have tailored their programs to provide a stronger understanding of globalization.  But just how effective have these programs been in adapting to real world globalization issues?

The Wall Street Journal conducted an interview with Pankaj Ghemawat, a professor of global strategy at the IESE business school in Barcelona, Spain.  His central premise is that schools need to do a better job of explaining, not only the opportunities of globalization, but also the limits.  He points out that the common perception is that globalization is much further along than it really is.  The world is getting flatter, but it's not nearly as flat as people think it is.

Another point made by Professor Ghemawat is that more MBA programs are incorporating trips into their program to expose students to other cultures.  But how much can really be assimilated in a one or two week trip to another country?  Can it impose the illusion of understanding which could actually be damaging to students understanding of globalization?

These are relevant questions for finance organizations that are recruiting from MBA programs.  What skills should a finance organization expect from new recruits?  What additional training is required to develop a mature understanding of the opportunities and limits of globalization?  In subsequent posts I'll discuss my thoughts on what finance organizations can do to develop global competencies, not just with newly hired MBAs but with their global organization.

It's an interesting read and you can catch the entire interview at Can Globalization be Taught in B-School?

Unilever partners with Capgemini to enhance global service delivery for finance and accounting

As finance organizations continue their quest to build global delivery capabilities, some companies are leveraging the networked organizational model.  In this archetype, companies partner with 3rd party service providers to provide capabilities that provides services that would be difficult to replicate in-house. An example is the recently announced deal between Unilever and Capgemini to provide finance and accounting services to 130 countries.  An excerpt from the press release:

Paris, 19 December 2012 – Capgemini, one of the world’s foremost consulting, technology and outsourcing services providers has been selected by Unilever, one of the world’s leading consumer goods companies, as one of its global Strategic Suppliers under its ‘Partner to Win’ programme. Capgemini has also been awarded a more than €100 million five-year outsourcing contract for Unilever continuing its seven-year relationship delivering Unilever’s Southern Hemisphere Record to Report operations, global intercompany processes, as well as Access Control and Reporting & Monitoring globally.

Outsourcing a substantial portion of a finance organization is not for every company.  It takes a huge cultural shift to move in that direction.  However, for companies like Unilever, it enables them to create a more effective global delivery network for finance while enabling them to focus on their core business.

You can read the entire press release at: Capgemini signs a new Finance & Accounting outsourcing contract with Unilever.

China passes U.S. as top FDI destination

China recently passed the U.S. as the country of choice for Foreign Direct Investment (FDI). In the first half of 2012, China (excluding Hong Kong) received FDI of $59.1 billion compared to the U.S.' $57.4 billion (Source: Global Investment Trends Monitor released by the United Nations Conference on Trade and Development).

Not all is rosy for China though. According to an article in the China Daily, China is losing some investments to neighboring countries in Southeast Asia. An excerpt:

Developing economies for the first time absorbed half of global FDI in the first half of 2012, despite a decline of 5 percent year-on-year.

"China is experiencing structural adjustments in their FDI flows, including the relocation of labor-intensive and low-end market-oriented FDI to neighboring countries," said the report.

Members of the Association of Southeast Asian Nations demonstrated strong attraction for global foreign direct investment. FDI inflows to Cambodia surged by more than 165 percent year-on-year in the first half, while inflows to Thailand rose by 62.1 percent and inflows to the Philippines increased by 10.6 percent, according to the report.

"For investment oriented with low costs, pulling out is normal and will continue in the future owing to China's rising costs and appreciation of local currency," Zhang said.

You can read the full article at: http://usa.chinadaily.com.cn/business/2012-10/29/content_15854071.htm

Brazil power outage reveals strain on country's infrastructure

Brazil has been in the news lately, and not for the reasons it would like.  Brazil recently suffered a failure of its electrical system that impacted large portions of the country, and highlighted the strain of growth that has been placed on the country's infrastructure.

Brazil has been at the forefront of economic development in Latin America.  Cities like Sao Paulo and Rio have been traditional choices for Shared Services but other cities like Campinas and Curitiba are also experiencing growth as more multinationals move into those cities.  The overall effect, along with the demand for electricity from Brazil's population, has put the spotlight on the country's infrastructure. Other sources of blame for the failure include government regulation, forced rate cuts and inadequate investment in transmission capabilities.

An article from Businessweek highlights the problems.  Here's an excerpt:

Power was knocked out in 11 Brazilian states last night, leaving residents in the dark for several hours as the country’s latest blackout raises questions about the reliability of the electricity grid.

Power failures can occur in any country.  Just ask India.  But as multinationals evaluate various locations around the globe for potential shared service center sites, it's good to keep in mind which countries can keep the lights on.

Source: http://www.businessweek.com/news/2012-10-26/brazil-suffers-fifth-power-outage-since-crackdown-on-utilities

Chile focuses higher education on global sourcing

An article at Nearshore Americas discusses Chile's focus on higher education and how they're working to equip Chileans to compete in the global market.  Of interesting note is that only 4% of Chileans speak English at the professional level.

An excerpt:

CORFO (Chile's Economic Development Agency) has a national English language registry that counts 46,000 Chileans.  In 2011, some 8,050 of those registered sought out testing and 34 percent of them tested at an intermediate level.

“CORFO is still giving grants to study English.  It is a model that has been adopted by other countries in South America.  Really only about four percent of Chileans speak and write English at a professional level, that is why bilingual call centers have never been so popular here.  Those that have a high level of English are usually working in some other capacity like KPO or IT Services,” added Stojkovic.

You can read the full article at: Chile’s Short History of Reshaping Higher Education to Power Global Services

Genpact Inaugurates Delivery Center in Dubai, UAE to Serve Middle East and North Africa-Based Clients

A press release from business process outsourcer Genpact announces the opening of a new delivery center in Dubai, UAE.  Here's an excerpt from the press release:

Genpact Limited (NYSE: G), a global leader in business process and technology management, today announced the opening of its Dubai, United Arab Emirates (UAE) global delivery center. The 80-seat modern center set up in Dubai as a licensed partner of Dubai Outsource Zone (DOZ) will provide business process services such as claims processing, customer service, collections, treasury operations, finance and accounting, analytics and risk-related services for clients in the Middle East and North Africa.

"We are delighted to begin operations in Dubai and hope to grow this center into a 500-person center in the next three years," said Tiger Tyagarajan, President and CEO, Genpact, speaking at the opening. "Not only will the center deliver business impact through our uniquely scientific Smart Enterprise Processes (SEP^SM) framework, it will also help our clients make smarter business decisions through our Smart Decision Services comprising analytics and research, reengineering and risk management."

Setting up operations closer to clients is part of Genpact's growth strategy and the decision to set up in the UAE is based on the excellent infrastructure, supportive government policies, connectivity with the rest of the world, and the ease of doing business in Dubai. Genpact now has delivery centers in 17 countries around the globe.

"The Dubai center will increase our capabilities to deliver services in Arabic and we will initially be focusing on clients in the UAE, Kuwait, Qatar, Bahrain, Oman and the Kingdom of Saudi Arabia markets," saidVishal Pandit, SVP and Business Leader, Middle East at Genpact. "We will be providing project-based analytics and reengineering services as well as transaction processing and customer care services."

Dubai Outsource Zone caters to organisations specialising in services such as business process outsourcing, knowledge process outsourcing and legal process outsourcing. Additionally, it offers an environment that attracts different elements of the value chain, including banking and finance, insurance, IT, legal and airlines.

Philippine Outsourcing Threatened by a Lack of Trained Workers

Despite the global slump, and perhaps because of it, the outsourcing industry is struggling to find enough trained workers to meet expected demand for outsourcing.  Mayala Business Insight has an article describing the problem.  Here's an excerpt:

THE outsourcing industry may be hard-pressed in adding 80,000 to 100,000 new jobs every year due to what is now described is the acute problem of declining trained manpower.

But despite this, the country’s information technology and business process outsourcing (IT-BPO) industry remains optimistic of hitting double-digit growth in revenues this year.

"80,000 is a stretch," said Trade Secretary Gregory Domingo at the sidelines of the 3rd International Outsourcing Summit (IOS) at Sofitel Manila yesterday.

Addressing the delegates earlier in his welcome remarks, Domingo said: "It is a supply-side problem, not a demand-side problem."

Coming from a wide base of 600,000 workers in the industry, adding 80,000 to 100,000 workers every year suited to the industry’s requirement is a challenge.

Here's the link to the full article: Outsourcing Threatened by a Lack of Trained Workers.

China remaining competitive despite a rise in labor rates

One of the questions around globalization is the issue of China's continued competitiveness in the face of rising labor rates as well as regional competitors.  The conventional wisdom is that China will lose its competitive edge due to increasing pressure on labor rates.

Turns out that hasn't come true, at least not yet.  A study recently released by the global bank RBS indicates that China continues to remain competitive.  Labor rates continue to rise, but other changes in China's economic environment are offsetting some of the cost pressures.

Here's an excerpt from a Wall Street Journal article:

RBS’s top China economist Li Cui writes in a research note published Wednesday that “evidence of China losing out is still absent.” Her view is that China has been remarkably adaptive to rising labor costs and a strengthening currency.

“One would have expected that labor intensive industries should have been hurt the most given their thin margins and relatively weak pricing power in the global market. However during this period China’s exports of light manufacturing products has risen to about one-third of the world markets (from 22% in 2005), dominating other regional competitors,” she writes.

Another website, The Edge (Malaysia), expands on the shift towards capital intensive exports which has the effect of reducing the impact of rising labor rates:

“But actual evidence of China losing competitiveness is still largely absent. In fact rising labour costs have gone hand-in-hand with China's rapid growth in global market share (from 7%% in 2005 to 11% in 2010).

“The rise in capital intensive exports has been a big part of the change. Machinery and transportation is now the largest category of exports, accounting for 53% of the total Chinese exports, up from 39% in 2001. In these sectors increases in labour costs have relatively minor effects,” said the report.

Due to the dynamic nature of globalization, no country can rest on its past accomplishments.  But given the ambition and talent of the Chinese people, it's unlikely that China will be out of the game any time soon.

Link to the Wall Street Journal article: China Isn't Losing Its Manufacturing Competitiveness After All

Link to The Edge (Malaysia) article: No Actual Evidence China Is Losing Its Competitiveness, Says RBS

India Sees FDI Increase 43 Percent in April

A new article by Dezan Shira & Associates discusses a new report on Foreign Direct Investment (FDI) in India.  India is showing a sharp increase in April over the prior year for new investment.  An excerpt from the article:

Indian foreign direct investment in April grew at a rate of 43 percent year-on-year, up from US$2.17 billion in 2010 to US$3.12 billion this year.

The statistics show a global economic recovery, particularly in European regions. Mauritius, Singapore, the United States, United Kingdom, Netherlands, Japan, Germany and the United Arab Emirates were the major investors in India.

In particular, the highest investments for the month came from Singapore (US$1.17 billion), followed by Mauritius (US$976 million), Japan (US$235 million), France (US$220) and Cyprus (US$170 million).

India’s services sector was the leading sector in terms of FDI with the overall monthly statistics as follows:

• Services (US$658 million)
• Construction activities (US$311 million)
• Power (US$256 million)
• Computers and hardware (US$96 million)
• Telecommunications (US$46 million)
• Housing and real estate ($38 million)

 It's no surprise that services is the top category for FDI, but it's interesting that construction and power generation are also a focus.  This represents a prime area for FDI in India as the country works to upgrade its infrastructure.

Continue reading India Sees FDI Increase 43 Percent in April at India-Briefing.com.

Ernst & Young survey on India Foreign Direct Investment (FDI) shows investor optimism

A recently released survey by Ernst & Young shows that executives of multinational corporations still see India as an attractive place to invest.  The survey included approximately 500 executives and indicated that India is seen as a "global leader in education, R&D, innovation, and as a producer of high value-added goods and services".

The study was led by Rajiv Memani, Country Managing Partner at Ernst & Young India.  For the details, Ernst & Young encourages people to contact them (Hey, they've got to have a reason to fund the research!).

You can read more at Reaching towards its true potential - Ernst & Young's 2011 India attractiveness survey.

Globalization as a Transformational Lever for Finance

I have a new article posted today about leveraging globalization for finance transformation.  Here's an excerpt:

There is no doubt that globalization has had a profound impact on the way companies operate.  Yet many have successfully leveraged the dynamics of globalization to create sustained competitive advantage.  As a critical partner in the development of corporate strategy, leading finance organizations have made globalization a key component of their service delivery strategy to strengthen analytical insight, manage enterprise risk and achieve a competitive cost structure.

Continue reading Globalization as a Transformational Lever for Finance.

Deloitte Opens New Sourcing Center in Shanghai, China

A brief article on the Shanghai Daily website discusses a new delivery center opened by Deloitte.  It will serve China and portions of Asia and provide IT and BPO services to clients in that region.  This move was inevitable given the opportunities in that region.  Look for more service companies to set up BPO service centers as the market continues to grow.

DELOITTE Touche Tohmatsu Ltd has opened a global delivery center in Shanghai, the first of its kind in China.

The new GDC facility, located in the Zhangjiang Hi-Tech Park, is expected to employ more than 8,000 employees in future, which makes it the biggest facility among Deloitte's 11 global GDC centers.

The center will provide Deloitte's Chinese and North Asia enterprise clients information technology and business process services. It will help clients save cost and improve work efficiency.

Deloitte's biggest GDC center now is in India with 8,000 employees.

Here the link to the article: Center Opens.   (The Chinese make a lot of great products, but their journalists need to work on the creativity of their article headlines.)

India Leads the World in Wage Hikes

An article from Industry Week discusses the double-digit wage hikes employers can expect to hand out.  According to the article, wages are set to rise almost 13%.

An excerpt:

At the fastest pace in the world, Indian corporate salaries are set to grow by 12.9% this year and will keep rising at this level for up to five years, a consultancy forecast on March 8.

Indian wage growth slipped to an average 6.6% in 2009, the survey said, but quickly moved up the following year to 11.7% as India shed the effects of the global economic downturn.

"We expect Indian salaries to grow by 12% to 15% over the next four to five years for sure," Sethi said.

Continue reading India Sets World Record for Double-digit Wage Hikes.

China Phasing Out More FDI Tax Incentives

For years China has aggressively courted foreign owned firms with a number of tax incentives.  China has had to balance the economic incentives necessary to draw foreign firms with their desire to nurture and protect domestic firms. 

Chris Devonshire-Ellis at China Briefing has an interesting article on China's shift towards domestic firms through the phaseout of certain tax incentives for foreign-owned entities.  An excerpt from the article:

Foreign investors have long enjoyed a variety of incentives, including the once very attractive five year tax breaks, but these are now long consigned to the scrap heap as China aims to put foreign investors on the same financial platform as its domestic companies. However, in some regards this makes it harder for foreign companies to compete. While legally foreign investors should be treated the same way as domestic corporations, in reality they are not. Foreign invested enterprises are considered as Chinese companies in law, however treatment of them in administrative areas often leaves them at a decided disadvantage when compared with Chinese owned domestic businesses.

An interesting note in the article is that China is reforming its capital markets to enable foreign-owned firms to raise capital in the Chinese capital markets.  Previously foreign-owned entities have been prohibited from doing so.

You can read the full article at: China Phasing Out More FDI Tax Incentives