The top three slots in AT Kearney's 2011 Global Services Location Index (GSLI) are occupied by three Asian countries: India, China and Malaysia
Boston: India remains the favourite back-office of the world, thanks to its "first-mover advantage" and deep skill base, according to global management consulting firm AT Kearney's ranking of the best outsourcing destinations, reports PTI.
The top three slots in AT Kearney's 2011 Global Services Location Index (GSLI) are occupied by three Asian countries: India, China and Malaysia.
The three countries have enjoyed the top three rankings since the inception of the GLSI in 2003, demonstrating "remarkable staying power, thanks to their deep talent pools and cost advantages".
"India is the all-around standout, able to provide manpower for any type of offshoring activity. With its first-mover advantage and deep skill base, it still maintains the lion's share of the IT services market," the report said.
Furthermore, the report says India has proven itself adept at competing in all dimensions of the industry, being the "preeminent destination and leader" in all fields of offshore services.
India has excellence in IT, thanks to its elite educational institutions, in BPO because of the large annual output of qualified graduates and in voice, because of the English language capabilities of its population.
"With its first-mover advantage and deep skill base, India remains the unquestioned leader in the index-half a point ahead of China and a full point in front of Malaysia.
"On top of that, India's IT services stalwarts are moving up the value chain," the report said, adding that companies such as Infosys and Wipro are developing their research and development (R&D) capabilities and expanding well beyond their traditional vendor roles.
Asia ranked highly throughout the rest of the top 10, which features Indonesia (5), Thailand (7), Vietnam (8) and the Philippines (9).
China has begun offering specialised skills not only in English, but also Korean, Japanese and Chinese.
However, China may not make a great impact in the call centre arena, the report said, adding that China's most attractive avenues are high-end analytics and advanced IT, where it is an alternative to Russia and Eastern Europe. Nevertheless, it can be a strong competitor to India in the BPO sector.
Indonesia, Vietnam and Thailand have not yet devoted as much as they can to promoting information and communications technology, but they score highly in the index because of their vast talent pools and competitive wages.
The Philippines, an early entrant into the service sector, is also relatively well-rounded.
It has had more than a decade to hone its capabilities and has now moved into IT operations from being primarily a contact-centre hub.
The Middle East and North Africa have also become increasingly attractive because of their proximity to Europe and their vast talent pools.
The United Arab Emirates climbed to 15th overall, serving as a regional services hub.
Other countries on the list of 50 are Germany (26), Singapore (32), Canada (39), France (44) and Australia (46).
While many European countries were badly hurt by the financial crisis, Estonia (11), Latvia (13) and Lithuania (14) saw their ratings climb.
These countries engaged in a process of "internal devaluation", cutting wages and expenditures, and as a result were able to offer highly competitive cost structures.
The UK was also able to benefit from a sharp drop in wages and climbed to 16th in the ratings from 31st in 2009.
The United States is the top customer for outsourcing services, accounting for 63% of global IT outsourcing spending.
Its tier-2 locations rank 18th as outsourcing locations, thanks to a combination of talent and accessibility.
Latin America continues to serve the US market well and is expected to grow in importance.
Mexico, in 6th place worldwide, leads the region, due to a sharp drop in wages over the year, increased attractiveness of "near-shoring" and a well-developed talent pool.
Chile dropped to 10th place from 8th, while Brazil was number 12 for the second straight year.
The Global Services Location Index analyses and ranks the top 50 countries worldwide for locating outsourcing activities, including IT services and support, contact centres and back-office support.
The rankings are based on a country's performance in categories such as financial attractiveness, people and skills availability and the business environment.
In Asia, families control almost two-thirds of the biggest 1,000 companies. These firms exert considerable influence in economies. But while family-owned businesses can do very well, minority shareholders usually take second place to the demands of the family
One of the most acute observations in literature comes from the first line of Leo Tolstoy's Anna Karenina. He wrote: "Happy families are all alike; every unhappy family is unhappy in its own way." It is an observation that investors in emerging markets would be advised to take very seriously.
Stanley Ho is an 89-year-old billionaire who lives in Macao. Like almost all Asian billionaires, Mr Ho had some very good connections. From 1557 to 1999, Macao was a colony of Portugal. Thanks to his first wife's connections in Portugal, Mr Ho was able to get a monopoly on gambling in 1961 that even survived the Chinese takeover in 1999 and ended only in 2002. By that time it didn't matter. Stanley Ho's fortune was in excess of $3 billion.
Mr Ho also was quite successful in begetting children. He fathered 17 by four wives. Predictably over the past month, there has been a dispute as to who controls his empire with a contest over his estate between wife number three and five children from the wife number two. This contest has been so far carried out in the press and on different media including television commercials, YouTube and often, daily press reports.
Although the final outcome remains rather uncertain, what is clear is that the minority shareholders of Mr Ho's company SJM Holdings have suffered. The company took in almost a third of the gross gaming revenues in Macao last year, but its shares have declined almost 10% and are selling at a steep discount to its competitors.
The problems of a family company are hardly unique to Mr Ho. In Asia, families control almost two-thirds of the biggest 1,000 companies. In Hong Kong alone over 70% of the listed companies are controlled either by their founders, or members of the founder's family.
South Korea is another example. South Korea is dominated by several dozen large family-owned corporate groups generally referred to as chaebols. These companies once controlled over 75% of the South Korean economy. Even today they dominate the most important part of the South Korean economy, the export sector, which represents 43% of the GDP. The small- to medium-size firms are relegated to the service sector which has in fact been shrinking from 55.8 % of the economy to 52.5%.
The heads of these chaebols have a long history of acting poorly. For example, Lee Kun-hee, the chairman of Samsung Electronics and South Korea's richest man, was convicted for tax evasion. But the conviction was expunged. Lee Kun-hee is hardly unique. South Korea's president Lee Myung-bak recently pardoned 74 top executives.
In essence the power of these firms extends throughout the economy. One way they are able to show disdain for the law is through their employees connections. At one point Samsung employed 44 former ranking bureaucrats, 28 former judges, attorneys and prosecutors, and five former journalists.
Like South Korea, India too is dominated by a few large family firms and the state. By 2005, 56% of the firms in India were under 20 years old, but they accounted for only 15% of corporate assets, 17% of sales and 13% of profits. Almost three-quarters of the economy was in the hands of either state firms or firms that existed prior to 1985. Again the network of connections of such family firms like the Ambanis and the Tatas can exercise enormous power in favor of their organisations as was illustrated in recent scandals.
But it is not just Asia where large family-owned companies dominate the economy. One of the worst examples is the power exercised in Mexico by Carlos Slim. Carlos Slim is one of the world's richest men. Through his company, Telmex, he operates 92% of all fixed phone lines in Mexico. His mobile phone company, America Movile, controls 77% of the market. Slim's wealth is due to his virtual monopoly that has remained strong despite a decade-long law suit.
The reason for the dominance of family corporations in emerging markets is simple. These are strong relationship-based systems. The rules, the law, the legal infrastructure are not sufficiently well developed to perpetuate the trust necessary for a more economically efficient rule-based system. You must do business with who you trust and, without the law, the people you trust are often only in your family.
Family-owned businesses can do very well, but they can cause problems in two areas. First, minority shareholders always will take second place to the demands of the family. This is especially true in relationship-based systems.
Most important though is that emerging markets will never be able to fulfill their promise, growth or completive potential until the government strengthens the rules to limit the power of monopolies and duopolies (both public and private), politically connected and protected businessmen, and other vested interests (such as privileged unions) that impede innovation, competition and growth.
(The writer is president of Emerging Market Strategies and can be contacted at [email protected] or [email protected])
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