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Article Courtesy from
Business Panama
Business Process Outsourcing (BPO)
Opportunities for Panama?
By Kim Lino Young
Global Demand
Global corporations are seeking profits from any area that can contribute
directly to their bottom line. As global competition intensifies Chief Financial
Officers (CFO) are constantly searching for better margins on sales or ways to
minimize their costs. It is obvious that controlling and minimizing cost is a
good way to increase profit. Corporations have identified outsourcing as a way
to concentrate on their core competencies while exporting functions that are not
mission critical or simply less expensive to process elsewhere with similar or
better efficiencies. Corporations are outsourcing their back office and
Information Technology (IT) work to countries like India, China, Philippines,
Brazil, Singapore, Mexico, Chile, New Zealand, Malaysia, Ireland and Eastern
Europe. Any Business Process Outsourcing (BPO) decision must ensure that the
corporation strategic imperatives are included, it must be a sound business
decision, it must be measurable and, most of all, it must provide all the
safeguards that are required.
Forrester Research estimates that the BPO market will grow from $9 billion in
2003 to $146 billion in 2008. This represents 1,200,000 jobs moving offshore
corresponding to $50.8 billions in total wages. Corporations such as GE, IBM,
Capgemini, Accenture, Bering Point, CSC, Dell, Alcatel, HP, SAP, Sony, Nokia,
HSBC, Fidelity Investments, Citigroup, Standard Chartered, Nike, Cisco,
Motorola, Intel and others have jumped onto the BPO wagon. This growing
phenomenon is natural. Economic Times stated that Infosys and Wipro, two of the
largest BPO providers in India “grew in revenue by 40% and 35% and their
staffing by 46% and 35% respectively in the past twelve months”. Corporations
will move business into lesser cost countries (LCC) to stay competitive or risk
extinction. Boston Consulting Group (BCG) states “if wages increase at an annual
rate of 8 percent in China, while in the United States and Germany they increase
at annual rate of 2.5 percent and 2 percent respectively in 2009, the hourly
wages will be approximately $1.30 in China, $25.30 in the United States, and
$34.50 in Germany.” The wage gap increases rather than decreases. This is
globalization. Industrialized countries cannot match the huge reservoir of
educated, underutilized manpower of India and China. At the IT level, a software
engineer in India earns $2,000 per month while in Dalian (China) he/she will
earn $500. These are some of the cost parameters driving the BPO scenario. IBM
and Citigroup have recently consolidated their stake in the BPO market. IBM
bought Daksh, India’s third largest back-office services and Citigroup bought
the rest of e-Serve International (India) that it did not previously own.
The market for BPO is huge. In 1991 the export value of software in India was
$50. million, today it is $1 billion, and the whole industry is $12 billion.
India recognized the need to change their structure for trade. Manmohan Singh
today’s Indian Prime Minister was the driver of these changes when he was
Finance Minister in the early nineties (report by Nandan Nilekani President and
CEO of Infosys Technologies one of the largest BPO firms). Multinational
corporations (MNC) and venture capitalists are now providing and/or preparing to
serve this immense market.
The market for financial BPO services is growing faster than predicted. India
controls 80% of the world market, gaining share from Ireland, Canada and China.
The Philippines now follows India in this market. According to Deloitte & Touche
the market increased by 46 per cent in 2003 while the jobs in the sector grew by
500 per cent. It is estimated that, by 2010, 20% of the financial cost will
shift offshore. This demand for skilled financial workers increases the cost for
this skilled pool. It is estimated that in the next 10 years call center jobs
will grow to two to three million from the 300,000 in the US. This growth
implies an investment of $12-$15 billion to accommodate this work force and a
global opportunity for countries with vision to accept the global challenge.
Panama’s BPO Scenario
“The best we can do is size up the chances, calculate the
risks involved, estimate our ability to deal with them, and
then make our plan with confidence” Henry Ford.
Panama has the resources to participate in the vast BPO market. However, the
State must generate an Integrated Strategic Plan involving the private sector,
the educational sector, government and international agencies. The plan must
clearly identify objectives, limitations, time schedules, performances
indicators, responsibilities, change control methodology and measurement rules.
The objectives (maximum of four) identified must be achievable.
Dr. Michael E. Porter in “The Competitive Advantage of Nations” (HBR March-April
1990) article states that “a nation’s competitiveness depends on the capacity of
its industry to innovate and upgrade. The advantage are created and sustained
through a highly localized process.” Porter’s Diamond of National Advantage
identifies the four basic national technological parameters that, individually
or as a whole, affect the results of the objectives. In order to review where we
stand in relation to other countries we must understand the requirements and
reasons for outsourcing from a client or corporation point of view. We must
fully understand how Panama’s offer expects to satisfy those clients.
The four national parameter attributes for the Technological Cluster are:
1. Factor Conditions- Panama’s capacity for production, talent pool and
infrastructure in the technological areas targeted.
2. Demand Conditions- the local demand for goods and for services in the
insurance, banking, logistics and communication industries. Our developing
tourism industry sector will begin to create demand for innovative software
services to satisfy the local demand.
3. Related and Supporting Industries- A world class transport and logistic
industry MNC. A world class financial center that caters to any company. The
best medical service in Central America is provided by hospitals in the city.
These industries support and encourage a climate for Direct Foreign Investment (DFI).
4. Firm Strategy, Structure and Rivalry- the combination of industries and
infrastructures provided by the former Panama Canal Zone; the presence and
competition among the telecommunications companies; the widening of the canal;
large shipping ports at both end of the Canal and the new incoming government
situates Panama at a juncture where innovation and entrepreneurship can begin an
economic boom in the country.
These four parameters and the relationship between each are the driving forces
for a competitive Technological Panama.
Behind these four attributes stands the role of the State and their functions as
facilitators to make things happen.
The Role of the State
The State must fully comprehend that corporations, venture capitalists and
investors are all looking for profits in a safe environment. This includes a
business scenario that is as reliable, predictable and governable as their home
country. DFI in search of BPO opportunities will gravitate to those countries
offering the best package for those investments. If other countries are willing
to make meaningful changes to attract the BPO business, Panama should at least
be able to emulate the offers in those sectors of interests. It is obvious that
BPO presents many opportunities for Panama. At present, we have concentrated on,
and have had adequate success in attracting, call center business to Panama.
We must step back and look at our BPO scenario utilizing Dr. Porter’s
Competitive Diamond to appreciate the forces that impact our inclusion in this
lucrative market. As a country we offer:
• Two techno parks with vast facilities for expansion
• World class transportation network
• Seven fiber optic network passing through Panama
• Enviable location for business
• Vast resources in knowledge in banking, insurance, transportation and
logistics
• The best financial center in Latin America
• Management talent pool schooled and trained in US, European and Panamanian
universities
• A bilingual labor pool (western world English)
• The largest Free Zone area in Latin America
• Freedom to practice any religion
• Schools for English speaking students
• The best medical centers in Central America
• Earthquake, volcano and hurricane free location
• A new government with the will for change
There are not too many countries that can offer this package. We cannot compete
with countries like India and China which have a huge educated pool and a price
advantage, but we can offer at the call center level, spoken English with an
American accent. MNC already in other BPO countries could select Panama as a
secondary BPO site thus minimizing their risks.
Panama as a financial center has seen the effect of globalization, downsizing,
rightsizing and mergers in the banking sector. The following is a list of some
banking institutions that have for many reasons left our center:
• Bank of Tokyo
• Daichi Kangio Bank
• Chase Manhattan Bank
• Lloyds Bank
• Banco Real
• Banco Aleman Platina
• Banco de la Republica Argentina
• Bank of America
• Swiss Bank Overseas
• Credit Swiss Bank
• Pribanco
• Bipan
• And many others
The departure of these institutions has created in Panama a huge reservoir of
banking knowledge waiting to be tapped. This talent could be utilized for BPO in
the banking sectors (also for insurance, transport and logistics). India and the
Philippines as non- financial centers cannot match this talent pool! We need
entrepreneurs to package and market this advantage with the proper help of the
State.
This report is simply an eye opener of what BPO could represent for Panama. The
process of what, why and where to BPO is not the objective of this report. This
brief report attempts to show why Panama should be considered for BPO instead of
India or the Philippines. Do we have the will to execute? Let’s go after a tiny
piece of this huge market!
“The best way to create the future is to create it”. Peter Drucker
K. Lino Young is a Partner and Director of Franklin Covey Organization Services
Article Courtesy of Business Panama
The American
Chamber of Commerce (AMCHAM)
and Deal Inc.
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