Service Providers

• Multishoring. As Japanese automobile manufacturers learned in the 1980s, tariffs and trade regulation can be circumvented by establishing a local presence that employs local U.S. workers.  This lesson has not been lost on some of the larger Indian Business Process Outsourcing (BPO) service providers that have hired American local project managers and customer account managers, as well as U.S. service providers in niche fields. As the dollar slides, the wage arbitrage advantage declines as well, to a declining dollar actually helps in acquisitions of U.S. operations, which will shift the model from offshoring to multishoring
• Knowledge-process outsourcing. “Offshore” back-office service centers have done much more than take customer orders. They have become beehives of trained and regulated advisors providing sophisticated services requiring advanced education in accounting, finance, marketing, law, medicine, engineering and, of course, IT. Increasingly, “offshore” providers are developing strategies to shift the paraprofessional and professional services to service centers that adopt the factory automation methodologies embodied in International Standards Organization (ISO) 9001/20000 and the Carnegie Mellon Customer Maturity Models and business-process management. Routine functions provided by paralegals, for example, are being automated and outsourced, regardless of location
• Human resource outsourcing. Anticipating a Democratic president, providers should study how demographic shifts in an aging workplace and pending WARN Act, Civil Rights and other legislation will alter the needs of U.S. employers. If policies and procedures, both for permanent and temporary employees in the U.S., will become the target of civil rights lawsuits, new compliance software, administrative services, and legal and consulting services will find nascent markets. Before offering new service suites, service providers should consider the levels of risk they will be asked to assume and focus on risk-based value pricing
• Staff Augmentation and Professional Employer Organizations (PEOs).  If the Democratic agenda prevails, global staff augmentation providers will see greater opportunities, provided that they can identify ways to remain independent contractors and avoid co-employment risks. PEOs will face new constraints as co-employment rules will impose greater risks of civil rights and WARN Act violations. Accordingly, PEOs will need to engage in self-policing to avoid “disparate effect” of employment policies by them and their enterprise customers and truly adopt a model of spreading costs of administration across multiple employers
• Transition assistance. Sourcing agreements normally require the service provider to provide transitional assistance both in the initial startup and upon termination of the relationship. The scope of transition assistance will likely be expanded to include further commitments by the service provider to cover business process mapping, emergency staffing, coverage of retention premiums and other additional regulatory, and financial burdens associated with HR transitions  
• Privacy considerations. Service providers will increasingly absorb the pain of new privacy law requirements. This will invite a whole new dialogue with the enterprise customer on the scope of the customer’s responsibilities and roles to ensure compliance. For Europeans operating under the European Union Data Protection Directive, the roles of data controller and data processor are well defined, and model agreements exist to allocate liability and minimize shared responsibility to third parties for torts. For American companies, there will be whole new awakening.  Forward-looking service providers will develop strategies for effective education of enterprise customers and implementation of risk-mitigation practices using technology, human education, process redesign and alternatives to custody of unencrypted protected personal data. Data in electronic form will need to be encrypted, redacted, made unusable or accessible except through technology that is not commercially available or otherwise rendered unusable by others
• Collaboration for Innovation. One of the great disappointments of outsourcing has been the lack of innovation, partially due to the lack of pricing flexibility. To adapt, service providers should begin dialogues on the possibility of collaborative innovation, separately from the straight outsourcing relationship
• Localization in the U.S. As the Japanese auto manufacturers learned in the 1980s, hiring locally escapes trade barriers and promotes acceptance of the foreign goods and services. The current expansion of foreign service providers into the U.S. should accelerate.

Timing for any actions in anticipation of changes in the U.S. political climate should begin well in advance of the Nov. ’08 elections.