Know-How Exchange : Advertising/PR

Dear Dave

There are a few strands I’d like to comment on here.

I’m not sure that the exchange rate argument stacks up at all – in fact due to the nature of middlemen marking up their services by a percentage rather than by adding a $ amount, it might even work against you. If you intend to purchase from India where the Rupee is strong against the Dollar and middling against the Euro (£ Sterling roughly tracks the Euro) then your client will be paying expensively in $ for Indian services which are tending to increase in price anyhow. Then they need to add a margin to cover their management services which usually involves some nominal multiplier on the Indian cost to ensure that this part of the transaction does not dilute their margins.

They will then add their service fee which will be in $$. Once a European customer has purchased this package of services and management, the advantage of the weak $ to the Euro is cancelled out by the strength of the Rupee against the $. In other words, if they’d gone direct to India in the first place, all other things being equal, the weak $ hasn’t benefited your prices, apart from the fact that they are buying the management aspect in the USA at a low $ to Euro exchange rate. In fact, unless you can spot a discrepancy in the three exchange rates, there is no advantage in going from Rupees to Euros via the Dollar and if you do spot one, leverage the purchase of a few billion of the appropriate currency before anyone else spots it and then sell it instantly. Isn’t that what currency arbitrage consists of?

The language issues of dealing with India may be to your advantage. Few Indian sub-contractors speak any European languages apart from English and that does make detailed technical and commercial dealings with India easier from America. If this part of the service is to add value to your proposition, then the weak $ will work to your advantage, but you will need to find that rare commodity – an American business person who can speak French, German, Italian and Spanish. I doubt that the languages of the new Euro-zone entrants (The old eastern Block Countries) will figure in your plans as they are more likely to be found as competitors in the supply of low priced, technologically skilled labour. In addition, they are also likely to be multi-lingual within the EC language area.

Politically, I’m not sure that European Businesses share the antipathy shown to America by our Political Euro-Masters. In the UK we will probably not join the Euro and it is entirely conceivable that tensions within the Eurozone will eventually make it fall apart – most Statist or Stalinist things do! In the meanwhile, there are advantages you can offer which are rarely traded on. The dollar, for example has been falling for about 3 years now, making the USA good for European Tourists and a bad place to export to. Conversely, American exports have never been more attractively priced and contrary to what a lot of European’s would like to think, American rates of productivity are still amongst the worlds highest. A recent survey by McInsey has rated the USA to be the number one place for software development, with the UK behind them, Japan and South Korea. The rest of Europe trails badly. Likewise the US came tops for Management expertise, this time outstripping the whole of Euro-land including the UK. If you can sell US expertise, then you have a market winner.
In addition to this, relations between America and China are better than between Europe and China – mainly due to human rights issues and the so-called “Bra-Wars” over protectionism in the EEC. In fact, China is now the destination of choice for most outsourced manufacturing and only legislation over here keeps a raft of European Industries afloat. Meanwhile, our nanny-laws happily kill off other viable industries on specious health and safety or CE marking grounds. Your ability to deal with China may be more to your advantage than to deal with India.

Then there are the problems associated with the time zones. Whilst we gradually move to a 24/7 business culture, most people still have body clocks and the Pharmaceutical Industry hasn’t yet found a way of turning off the circadian cycle, so we will continue to inhabit different optimum trading times. You can let that work for you or against you, because with smart web technology and communications, you can have highly interactive technical and sales teams working in different time-zones working fairly seamlessly together. Find the best billing centre by looking at the tax regimes, rather than the exchange rates and you probably have a model which would work.

As far as the off-shore service industry is concerned in the UK, there has been a sizeable swing back to housing things in low-cost areas of the UK. Many banks, insurance companies, telecommunications companies (Is that what a Telco is?) and utilities, farmed out these services offshore, only to discover that the customers were more revolting than usual. They objected to being told that they couldn’t have their money back or their line reconnected by someone from Glasgow, so to be told the same thing by a bloke with an Old-Etonian manner and an Oxford accent from Bangalore was just a step too far, so back they all came to good old Newcastle and Middlesbrough – truly the Calcutta of England!

Purely technical services are still outsourced, such as the support for a number of ISP’s and PC manufacturers, but this is achieved through the use of good English and GoToAssist and the like to take control of a computer or network. Code writing is outsourced as are large aspects of project sub-contracting, but if you take any major European IT or Telecoms project, the majority of the work is carried out within the borders of the country paying the bills or by American companies. In the end, it’s political at the billion dollar level.

I’m sorry that this is probably not what you wanted to hear, but I do feel that if you shift your emphasis onto exporting the very best of American High Tech and Management into European customers, you will have the best chances of success. Loads of places have cheap labour and much of that cheap labour has a decent science or engineering degree, so the most valuable things the Yanks can bring to the party are original technology, business acumen and those astonishing rates of productivity.

Good luck with this idea and I sincerely hope that I’m being unnecessarily pessimistic about your Indian proposal.

Best wishes

Steve Alker
SalesVision and Unimax Solutions

Europe's headline companies (which I think the mostly nationalized Telcos would count as) generally are a lot more protected than US companies, particularly in the area of employment, so off-shoring may not go over well there.

Plus there is local near-shoring inside the EU now, as mentioned by others.

So answering the subject line of "Is Europe a Better Target Than Us For Outsourcing", I would probably say no.

But is there a potential market, of course. Just perhaps some more, or at least different, challenges.