Government Policies in BPO

Outsourcing is so imbibed in the fabric in the country and the Indian government has a national minister specifically for IT. The government favors IT foreign ownership and imposes no export taxes. In Philippines Government exempts companies from export taxes, fees, dues and licenses if they open in one of the country's IT parks. Government's task force charged with development of IT and knowledge process outsourcing (KPO) services. In Russia Government is erratic and, for now, sticking by old tax laws and structures that don't benefit business.

But a treaty with the U.S. could change things down the road.China's government has hampered growth due to trade policies and over regulation; intellectual property concerns linger. The hope is that these issues will evaporate as China blends into the World Trade Organization. In Canada Low or no political risk. Government gives tax breaks on IT exports. NAFTA provides free trade market for IT services. In Mexico NAFTA has opened up free trade markets, but Mexican government does not offer high level of incentives.

In Ireland Favorable tax laws and $330 million technology-education fund provide incentives. Low or no political risk. Done correctly, the leverage gained can be significant, ranging from a 30 to 80 percent savings. Some of these potential savings are "given back" through the increased cost of managing remotely and implementing a disciplined process, but companies are willing to carefully think through these other issues in order to achieve a significant impact. In Everest's experience, the best case scenario purely from exploiting labor arbitrage after all additional costs have been added back is in the 50 to 60 percent range.

So, when is labor arbitrage an appropriate strategy? Typically, the content of the process to be moved offshore is people intensive with at least 40 percent of the process cost relating to labor expenses. Examples include software application development, claims processing, and many clerical functions. Clearly, the labor content is not the only factor impacting the decision or else face-to-face sales forces would be gone forever! Indeed, the decision on what, if anything, to move offshore must be taken seriously. Although the exact approach will differ, a tiered philosophy is emerging as the preferred strategy. In this strategy, customer intimate functions are performed on-site, high trust functions such as inbound call center are in-country or near shore (e.g., Canada), and well-defined transaction processing is performed at offshore locations.