Discussion Question

March 19 - March 25,2012 Bloomberg BusinessWeek

Companies&lndustries

solution: Chibuku Super. The product, now being test-marketed in Zambia, is sold in leak-proof plastic cartons and has a shelf life of 21 days. "I think it's a game-changer for us," Tiedt says. "It's not necessarily an on-premise drink anymore." —Clementine Fletcher with Ekow Dontoh

The bottom line SABMiller is expanding distribution of its cloudy Chibuku beer in Africa. It hopes the 58<t-a-liter drink will compete with home-brews.

Jobs

Outsourcing: A Passage Out of India

• Front-office jobs shift to Latin America and eastern Europe

*• "Having someone in about the same time zone is important"

For years there was pretty much one choice for U.S. companies seeking to move jobs offshore: India. Outsourcing grew to a $69 billion business there and transformed backwaters such as Chen- nai and Hyderabad into teeming cities. That wave has crested. In 2011 com- panies in Latin America and eastern Europe opened 54 new outsourcing fa- cilities, vs. 49 for India, according to in- dustry tracker Everest Group.

The two regions are challenging the

China

subcontinent's dominance in outsourc- ing as American corporations increas- ingly ship higher-level jobs offshore. India had substantial advantages in off- shoring's first phase: plenty of English speakers to staff call centers and enough tech talent to run remote data-processing and computer support centers-all at about a 60 percent discount to stateside workers. But having wrung substantial costs out of back-office functions, U.S. companies are exporting skilled white- collar jobs in research, accounting, pro- curement, and financial analysis.

Because these jobs aren't mass- processing functions, India's forte, there are greater opportunities for countries such as Argentina and Poland, which have higher labor costs than India. Using an outsourcing firm to hire an entry-level accountant in Argentina, for example, costs 13 percent less than a similar U.S. worker, while an Indian worker would cost 51 percent less. But many employers moving higher-end jobs offshore care about more than just getting the lowest wage. "The higher- value outsourcing jobs require a greater understanding of business context and a higher amount of interaction with cli- ents," says Phil Fersht, chief executive officer of HfB Research, a Boston out- sourcing research firm.

Cities such as Sao Paulo have large groups of young people with engineer- ing and business school degrees who speak English and are capable of doing

When It's Not All About Wages Pay of outsourced entry-level accountants in Argentina is higher than in India. But they still earn less than the $23 hourly wage in the U.S.

DATA: HfS RESEARCH, LONG-TERM OUTSOURCE RATE

everything from developing video games to analyzing mortgage defaults for U.S. companies. Brazil has the most Java programmers in the world and the second-most mainframe (COBOL) pro- grammers, according to Brasscom, a technology trade group in Sao Paulo. IBM located its ninth research center in the city in 2010, the first since 1998, when it opened a center in India.

It helps that the region's time zones are more in sync with those of North America. That's why Copal Part- ners, which since 2002 has built up its investment-research outsourcing business in Gurgaon, India, added an office in Buenos Aires. It's only a two- hour time difference for Copal's clients in New York. "If you're working with a hedge fund manager where yoti have to interact with him 10 to 15 times a day, having someone in about the same time zone is important," says Rishi Khosia, Copal's CEO.

Even Tata Consultancy Services- India's outsourcing leader, with estimat- ed sales of $9.8 billion in 2011 has 8,500 employees in South America, including Peru and Paraguay. And Genpact, the subcontinent's biggest business-process outsourcer, opened a finance and ac- counting center in Sao Paulo last year for U.K. drugmaker AstraZeneca.

Such "nearshoring" of jobs is also benefiting eastern Europe. The econo- my of Wroclaw, Poland's fourth-largest city, revolved around heavy indus- try during the Communist years. Now it's an outsourcing center, with 30 local colleges providing a skilled labor pool. Local outsourcing jobs doubled from 2008 to 2010, when centers were opened there by IBM, Microsoft, and Ernst & Young. The auditing firm in 2011 added a second center in Wro- claw, where workers provide legal, real estate, and human resources services to European clients. E&Y employs 1,300 people in six Polish centers.

Poland's Gen Y population is highly educated-about 50 percent of its 20- to 24-year-olds are in college, says Hersht, vs. 10 percent in India-and prolifi- cally multilingual. The 26 languages spoken at Hewlett-Packard's Wroclaw center make it ideal for serving its Eu- ropean, African, and Middle Eastern operations, saysjacek Levernes, who oversees outsourcing for those re- gions. The Wroclaw center

March 19 - March 25,2012 Bloomberg BusinessWeek

Companies&lndustries

employs more than twice as many workers as HP expected when it opened in 2005-2,300, vs. 1,000- and they perform higher functions. The Polish workers originally provided basic financial and accounting support;

now they handle marketing services and supply-chain analysis as well.

France's Cap- gemini Consulting has staked much of its outsourcing future on near- shoring, including financial and ac- counting centers

Outsourcing centers opened in Europe and Latin America

in 2011

in Guatemala City and Krakow, Poland. Bottler Coca- Cola Enterprises pulled jobs out of its Tampa, Dallas, and Toronto offices in favor of Capgemini's Guatemala center, for instance, and out of Paris, Brussels, and London in favor of Krakow.

HfS's Fersht, who's visited both, says each could pass for a U.S. office, except for the rich stew of languages- more than two dozen in the Krakow center and conversations in both Eng- lish and Spanish in Guatemala-and the workers' nearly uniform youth. The average age is 26, reports Cap- gemini, which hires from the pool of 30,000 graduates produced annually by Krakow's colleges. Capgemini has staffed up from 180 business-process outsourcing employees there in 2003 to 2,500 now.

Hansjörg Siber, head of Capgemi- ni's global business-process outsourc- ing operations, says the Guatemala center employs college graduates who can analyze the bottler's vendor agree- ments and optimize its procurement costs. Such jobs also require interact- ing with clients, an area in which he says nearshoring beats offshoring. "The Guatemalans speak English with an American accent, which is very well accepted," he says, "and not an Indian accent, which is not." Fersht cites an- other benefit: Capgemini's clients get the services of Polish and Guatemalan college graduates for the price of U.S. high school grads. © —John Helyar, with Mehul Srivastava

The bottom line As U.S. corporations try to outsource more-skilled white-coilar jobs, they're looking beyond india. Savings can reach 50 percent.

Compiled by Karen Weise

Facebook Yahoo! files a patent lawsuit

Yahoo! is suing Facebook for allegedly infringing on 10 patents covering technol- ogies such as online advertising, privacy controls, and messaging. These patents cover tasks required to "build a successful website," such as information customiza- tion and social networking, according to the complaint filed on Mar. 12 in federal court. Yahoo has been losing search and advertis- ing market share to Facebook and Google. In February it said the social network must pay to license its technology as other Web companies have done, Facebook, which is preparing for its initial public offering, says it will defend itself against what it calls a "puzzling" suit,

Volvo Wants a piece of Linsanity

Volvo is close to signing Jeremy Lin to en- dorse cars in China, according to three people familiar with the matter who declined to be named because the talks are private, Volvo Cars, owned by Zhejiang Geely, is bet- ting the New York Knicks point guard may help it make fur- ther inroads in China, the car- maker's fastest-growing market, Volvo alms to double global sales, to 800,000 vehicles, by 2020, For Lin, the talks may lead to one of his first endorsement contracts since rising to fame in February.

UnitedHealth Group Sizing up the market for genetic tests

Genetic tests may become a $25 billion annual market in the U,S, by 2021, up from $5 billion in 2010, says UnitedHealth Group, highlighting the need

to find out which exams work the best, A majority of the 1,800 DNA tests to identify or manage medical conditions still haven't been proved effective, according to the health insurer, UnitedHealth, which says three to five new tests are introduced each month, wants to see quicker, cheaper meth- ods for evaluating the tests to help rein in unnecessary costs as the industry grows.

Encyclopedia Britannica Halts the presses after 244 years

Say goodbye to the bound volumes of the Encyclopedia Britan- nica, The reference book publisher says it will discontinue its print version and go

solely online. The current edition, which costs $1,395 for 32 volumes, will be the last. Encyclopedia Britannica was founded in 1768 in Edinburgh with a three-volume first edition, according to its website. It published the first digital version in 1981 and now up- dates the Britannica.com website daily, com- peting with newer players such as crowd- sourced Wikipedia.

Banks A health checkup

The Federal Reserve found 15 of 19 banks have enough capital to withstand a severe recession, JPMorgan Chase and Wells Fargo passed the stress

test and got the go-ahead to raise dividends and repurchase shares. The Fed won't let Citigroup return more capital to sharehold- ers because it determined that would leave the bank without enough cushion in a severe downturn, CEO Vikram Pandit, whose bank got the biggest bailout in the financial crisis, says Citi will revise its plan, SunTrust Banks, Ally Financial, and MetLife also fell short.

PepsiCo Sam's Club's Brian Cornell to run Americas food business

Barnes & Noble Former Cablevision Systems CFO Michael Huseby named

finance chief ? CME Group CEO Craig Donohue to retire in December •

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