More Stories About the Global Commute

Stephen DeAngelis

January 31, 2007

Immigration is already a hot issue and will certainly play a major role in the 2008 presidential elections. President Bush’s repeated efforts to find a compromise guest worker program have gone nowhere. Increased efforts both in the U.S. and Mexico to crack down on illegal immigration have failed to staunch the flow of people looking to enter the United States. The best way to stop the flow of people, of course, is to improve the economic conditions in the countries from which immigrants come. James C. McKinley, Jr., writing in the New York Times, indicates that the flow of non-Mexican immigrants into and through Mexico has continued to increase [“Migrants Stream Into South Mexico,” 28 January 2007], indicating that economic conditions in many Latin American countries remains grim.

“A month ago, Mexico’s new president, Felipe Calderon, announced measures to slow the flow of illegal immigrants across Mexico’s southern border and reduce crime in this lush but impoverished region. He stepped up the presence of soldiers and federal police here, told of plans for a guest worker program and promised joint state and federal operations to catch illegal immigrants. But much remains to be done to stop or deter the migrants, and for now the measures have had little effect. Social workers and volunteers who aid the migrants say they keep coming. Every three days, 300 to 500 Central Americans swarm the freight train in Arriaga, strapping themselves with ropes or belts to the tops of cars or riding between the wagons, they say. The migrants still wade across the Suchiate River between Guatemala and Mexico with little hindrance. Corruption is rampant. Soldiers and police officers on the Mexican side extort money from the migrants but seldom turn them around, aid workers and migrants said.”

With service jobs having just overtaken manufacturing jobs as the globe’s leading employment sector, improving economic conditions in third world countries will continue to be a double-edged sword for Americans. Although improved economic conditions in Latin American countries could improve the U.S. immigration situation, that improvement will likely come, to some measure, in the form of outsourced jobs. One country making strides in the outsourcing arena is Brazil [“Soccer, Samba and Outsourcing?” by Antonio Regalado, Wall Street Journal].

“Outsourcing seems to be working out well for South America’s most populous nation.  … With a spate of information-technology deals, Brazil appears poised to be Latin America’s big winner in the global outsourcing boom. Last year, Gap Inc. moved computer work to Brazil as part of a 10 year, $1.1 billion contract with International Business Machines Corp. Whirlpool Corp. manages corporate data here, and some smaller companies are using Brazil to try outsourcing for the first time. With time zones and a culture closer to those of the U.S. than Bangalore or Beijing, small operators such as Mr. Lazarski and multinationals including Accenture Ltd. and IBM are betting that Brazil could quickly become Latin America’s major hub for inexpensive corporate support work, and a top-five location world-wide. Brazilian-owned firms, which are tiny by global standards, are also trying to get business in the U.S. Two years ago, Politec Ltda. launched a ‘near-shore initiative’ to get work from U.S. corporations and says that so far it has several small contracts worth $1 million each but expects 2007 to be a banner year. Brazil’s chances in the outsourcing market are a spillover of India’s success. While Brazil isn’t as cheap as India, wages here are still substantially lower than in the U.S. Major Indian firms such as Tata Group made doing computer and office work for less abroad into a huge business. Now the $47 billion market is ballooning at more than 20% a year, too fast for India to keep pace, according to the Everest Group LP, a Dallas-based consultancy that advises companies on how to outsource. Brazil’s major selling point is that its big cities are just one to three hours ahead of New York, depending on the time of year. That compares with 11 or 12 hours for India. Another pitch heard frequently is ‘shared values,’ a reference to cultural mismatches that have sometimes gummed up projects in Asia.”

According to a 2005 A.T. Kearney survey, Brazil is now a top ten country for companies looking to outsource work and the Brazilian government asked that company to help it improve that position.

“To burnish Brazil’s profile, the government and a new trade organization, Brasscom, paid consulting firm A.T. Kearney Inc. to create a road map for Brazil’s industry and launched a series of presentations at conferences and for companies last year in the U.S. Now industry consultants are starting to talk up Brazil and predict 2007 will be the year it gains recognition as an outsourcing destination. … As a result [of a strong domestic IT sector], the country has more programming talent available than regional rivals. Skilled Mexican workers tend to drain northward to the U.S., and Chile’s citizenry, though well-educated, numbers only 16 million, compared with Brazil’s 190 million. That leaves Brazil as the top choice for staffing big ‘factories,’ industry lingo for the campus-like centers where workers monitor computer systems, write software or handle calls. Recently, Indian firms have started making moves in Brazil, as well. In June, Wipro Technologies, a division of Bangalore’s Wipro Ltd., paid $50 million for a Portuguese software company, taking on 70 staffers in Brazil. Sudip Banerjee, Wipro Technologies’ president for enterprise solutions, says plans call for the Brazilian foothold to rapidly grow to 200 people. Brazil brings its own national quirks to the globalization game. Brazilian executives kiss and hug one another in the office. In a video produced by IBM for visiting Americans, viewers are cautioned that Brazilians are likely to be late to meetings. Make a lot of eye contact and don’t try to make business points with ‘charts and data,’ the video advises.”

With its economy stabilizing, Brazil is ready to take its place among the so-called BRIC countries (Brazil, Russia, India & China) that will likely drive the global economy in the future. According to a Business Week article by Steve Hamm, India is starting to spread its outsourcing efforts beyond its IT hot spots [“Outsourcing Heads to the Outskirts,” 22 January 2007]. Hamm focuses his article on the village of Ethakota in India’s Andhra Pradesh state, a village consisting of simple brick homes and thatch-roofed huts, where 50 young people labor at their PCs.

“They’re working for GramIT, a 16-month-old nonprofit that’s seeking to transplant India’s tech services boom to some of the country’s 600,000 villages. Workers in Ethakota earn a fraction of what the outsourcing troops in Bangalore do, but they’re not complaining. Srinivas Ruddireddy makes twice as much money arranging car services online for people in Hyderabad as he does from the two-acre rice plot he tends in the early morning. … Taking outsourcing to the countryside makes sense. About 70% of India’s 1.1 billion citizens—most of them subsistence farmers who barely scrape by—live in villages. Moving service jobs to rural areas provides work for the unemployed and could slow migration to the crowded cities. Entry-level GramIT employees, all with at least three-year college degrees, earn $800 a year, compared with $2,000 to $5,000 annually for an employee at an urban outsourcing shop. And because there are few other good jobs in these communities, GramIT’s centers see just 5% annual turnover—dramatically better than the 60% rate in places such as Bangalore. “

One reason that outsourced service positions are being established in rural areas is that they are easier to create and sustain than manufacturing jobs. The face of the global workforce is changing and almost everyone agrees that keeping workers in their own countries, where they can enjoy their own culture and be near family support systems, is the best situation. That means that global outsourcing will likely continue to spread. Resilient developed countries will put in place a robust plan for dealing with displaced workers.