In first week of July 2005, IBM announced a big BPO center in Brisbane that will cater to the Asia Pacific market, more specifically to the Japanese market. Located initially in an existing facility that employs close to 300 people and provides technical support, IBM hopes to ramp it up to 1000 people in the next 10 years. The center will deliver customer services, HR, and F&A processes.

Isn’t the big plan of the Big Blue for Australia surprising at a time when Australian companies such as Optus and Qantas are moving to lower cost destinations like India?

Many believe it is not. Australia could fast be emerging as the middle of the way offshoring location for costly locations. It has a West-like infrastructure but much cheaper operating cost. It is somewhere between the US and say India.

Of late, it is being acknowledged. A recent KPMG Competitive Study has ranked Australia as the best place in the developed world to base software development operations. This should gladden the hearts of many snobs in the West, who are against outsourcing jobs to the developing countries like India.

The study says that in the category of software design, Australia’s total annual operating costs came out the lowest at AU$10.7 million, (compared to 10 other countries including the US and the UK). In the Web and multimedia category, Australia again featured the lowest total annual operating costs with AU$8.8 million. No mean achievement this.

The report further states that as a location for setting up research and development operations, Australia came in second after Canada. Two of the key reasons for Australia’s high ranking are low taxes, and a low-cost and flexible IT workforce, a definite competition for India. For software development operations, the report cites Australia’s highly skilled, multilingual workers, R&D tax concessions, and an advanced IT infrastructure as reasons for the country’s emergence as a low-risk business environment.

Two of the reasons for Australia’s high ranking are low taxes, and a low cost flexible IT workforce

Incontestable world-class qualities in provision of IT and financial services, and increasingly competitive value for money are not the only factors favoring Australia as one of the world’s newest outsourcing hubs. Australia’s political and economic stability within the Asian region and its access to a wide range of foreign language speakers and translation services also play an important role for the country as a global player.

The report clearly indicates that not all IT jobs are going to India. According to IDC analyst Phil Hassey, “the opportunity for offshore servicing is very large and segmented. It is a matter of finding the best locations, and they may not necessarily be in India.” Clear signs then, that Australia is geared up for competition. “Australia’s solid IT infrastructure, and a good domestic market that provides innovation and skills, are a great advantage to the country,” Hassey adds.

However, experts believe that in the long term, Australia will be under pressure to keep this rank. Outsourcing will be very critical and countries like India would be working hard to attract investors in software design, Web and multimedia.Importantly, it would also be imperative for Australia to highlight its potential as an outsourcing hub in the IT and financial services sectors. There is a great need to enhance Australia’s status worldwide as an offshore, outsourcing destination by fully utilizing its superior skills and intellectual capital, in order to tap the outsourcing markets like the US and the UK. The message that Australia is the place to develop great software at a great price needs to be more effectively conveyed to the rest of the world, particularly in time for an impending second wave of global outsourcing.

Talking about the desire to catch the global BPO pie, Kathy Benson, Research Manager, Outsourcing and BPO, IDC Australia, said, “Currently, in the outsourcing market in Australia, a focus on costs and optimization of infrastructure performance dominates customer mindset. But underlying strategic objectives indicates a strong emphasis on investment in customer and partner value-chain, to enhance business competitiveness. Creating business return, and strategic relationships is key in this changing market.”

Interestingly, the mass move to outsourcing few years ago has been reversed by some companies bringing IT back in-house, but what is also happening are fundamental changes in the outsourcing model. In a now famous outburst of several years ago, the CEO of one of Australia’s major banks queried whether his organization was getting value for money in its spending on IT. The bank had signed a huge outsourcing contract with a major specialist in the field. Now, several years into the contract, the bank was very publicly querying the move. It almost was the turning point for the outsourcing cycle to start swinging back the other way. Very large organizations began publicly moving IT back in-house.

Typical was Suncorp Metway. The major Brisbane-based financial services giant had taken over the GIO general insurance business from AMP. As part of the deal, Suncorp Metway announced it was bringing the IT operations of GIO back in-house. Recently, Coca-Cola Amatil (C-CA) also announced it was moving its IT operations back in-house. The move is expected to save the soft drinks company money as well as give it more control over its IT operations. The move will see C-CA divert its entire AU$40 million annual IT budget away from the outsources.

Indeed, while the moves by Coca-Cola Amatil and Suncorp Metway grab headlines for reversing a trend, IDC is sure that outsourcing will continue to expand. The research company says growth in outsourcing continues to drive the services market. Phillip Allen, a senior analyst with IDC’s services group, estimates outsourcing will represent about half the total Australian market for IT services for this year. IDC sees that market valued at AU$11.3 billion but growing at almost 7 per cent annually. This will see the Australian market grow to reach AU$14.6 billion in 2008.

Its only barrier could be cost, which has to be kept in check. And the local governments are waking up to that. In the IBM center, for example, the Queensland government has offered a 60 percent rebate on payroll tax, tied specifically to the employment of staff at the new center.

Clearly, if Australia gets its strategy right and projects itself effectively, it could become one of the great BPO destinations that the developed West is comfortable with.