ASHIMA ASHISH

HARINDER HARSHIT

RAVIRIPUDAMAN

Factor Mobility Theory in Information Technology

Industry

Contents

What is “Factor Mobility” ?Advantages and Disadvantages of Factor MobilityTypes of Factor Mobility Two forms of international factor mobility (IFM)Brief about Latin America : An outsourcing destinationReasons for popularity of Latin America among IT/BPO

sectors Some other reasons for shift to Latin AmericaNegative points of Latin AmericaLatin America’s advantages over IndiaChallenges faced by India

What is “Factor Mobility” ?

Factor mobility refers to the ability to move factors of production - labor, capital or land - out of one production process into another.

Advantages of Factor Mobility

Free factor mobility equalizes commodity prices even if no trade is allowed.

More labour intensive firms.

Immigrants bring human capital, thus adding to the base of a country’s skills and enabling competition in new areas. Likewise, inflows of capital to those same countries can be used to develop infrastructure and natural and other acquired advantages, thus enabling increased participation in the international trade arena.

Disadvantages of Factor Mobility

Countries lose potentially productive resources when educated people leave, a situation known as brain drain, but they may in turn gain from the remittances that citizens who are working abroad send home.

Instability and great income inequality.

Liable to lead to allocative and productive inefficiency due to lack of competition.

No incentive for firms or individuals to be innovative; lack of profit motive; goods of poor quality and limited choice.

Types of Factor Mobility

Factor Mobility : between firms within an industry

Example: When one steel plant closes but sells its production equipment to another steel firm.

Factor Mobility : across industries within a country

Example: When a worker leaves employment at a textile firm and begins work at a automobile factory.

Factor Mobility : between countries either within industries or across industries

Example: When a farm worker migrates to another country or when a factory is moved abroad.

Two forms of international factor mobility (IFM)

LABOR: worker migration (from low wage countries (developing countries) to high wage countries (developed countries)),

CAPITAL: capital investment tend to flow from low to high return-to-capital countries:~ FDI (foreign direct investment) – long term investment into firms with the aim of permanently benefiting the advantages of being present in the foreign markets (mergers & acquisitions),~ PI (portfolio investment) – short term capital investment with the aim of maximizing the return-to-capital (financial investments))

Latin America : An outsourcing destination

Many leading IT/BPOs venders such as TCS, Infosys, Wipro and Satyam are consolidating their operations in Latin America.

Latin America has a large, established domestic consumer market.

Offers good supply of skilled resources

A sophisticated BPO sector has already been serving variety of industries as financial services, retail and manufacturing.

Latin America : An outsourcing destination

GDP exceeding expectation

High opportunities

Language Capabilities.

Any company opting to chose outsourcing as an option to decide for an associate who is both competent and competitive, while choosing an outsourcing agency, option before any outsourcer in USA is to chose from some company or associate from among Latin America .(source : Business week)

Reasons for popularity of Latin America among IT/BPO sectors :

Proximity

Cultural Affinity

Talent and Resources

Cost Attractiveness

Reasons for popularity of Latin America among IT/BPO sectors :

1)

2) Cultural Affinity

3) Talent and Resources

4) Cost Attractiveness

Proximity

Proximity

Less travel time from U.S.- can reduce valuable business time spend in travelling.

Similar time zone- allows customers to interact on same time schedule.

BENEFITS :- Implementation time is faster- Control over operation becomes faster

Reasons for popularity of Latin America among IT/BPO sectors :

1) Proximity

2)

3) Talent and Resources

4) Cost Attractiveness

Cultural Affinity

Cultural Affinity

Cultural similarities.

Similarities in entertainment, dining and social customs.

Relevant Language skills.

Amenities in Latin American cities are comparable to those of NY, Los Angels and Chicago.

BENEFITS :- Easy to adopt the social environment of Latin America- Familiar with the consumer behavior so can add value to satisfy their needs

Reasons for popularity of Latin America among IT/BPO sectors :

1) Proximity

2) Cultural Affinity

3)

4) Cost Attractiveness

Talent and Resources

Talent and Resources

Availability of labor- significant no. of people between ages of 15 and 39

- 11 major cities with minimum 1.5 million populationMajor talent Hub.Established BPO marketQuality of labor

- numerous universities in major cities- sizeable pool of managerial and technical staff

BENEFITS :- No need to pay higher salaries to outsiders- No need to give training and easy recruitments

Reasons for popularity of Latin America among IT/BPO sectors :

1) Proximity

2) Cultural Affinity

3) Talent and Resources

4) Cost Attractiveness

Cost Attractiveness

Argentina has lowest costs for outsourcing.

Travel cost.

Wages.

BENEFITS :- Company cost is reduced- Company can increase profits and invest in other projects also

Some other reasons for shift to Latin America

Similar time zones

Attrition

Regional stability

Some other reasons for shift to Latin America

Similar time zones : Helps in easy and any time communication due to the same time schedule.

Attrition: Higher unemployment and lower attrition. Annual

attrition rate in Latin America ranges from 15%-35% which is comparatively lower than in India.

Regional stability : Political and Economic stability in countries like

Argentina, Colombia, Chile.

Negative points of Latin America(still they score over their competitors in Asia)

Maturity of Companies : Latin America companies do not have the

same maturity as Indian companies to export IT/BPO services.

English Language : English language has not been widely

accepted among the working classes of Latin America as in some of the Asian countries.

Latin America’s Advantages over India (Asia)

Labor pool (quality and quantitative labor) : knowledge full expertise.

Cost attractiveness

Government policies (stability factor)

IT Infrastructure

Challenges faced by India

Retaining the night shift BPO workforce in India is a challenge.

India - Annual rate of attrition ranges from 15% to 95% . Latin America – Annual rate of attrition ranges from 15% to

35%.

Lower attrition(L.A) is explained by the unique attractiveness of some of these new jobs, higher unemployment rates and less competition.

Unable to provide services in real time – resolving issues slowly and in non-economical manner.

(cont.) Challenges faced by India

Business continuity is affected due to different schedule timings of work. It leads to:

o Slow worko Loss of man hours strengths

Pay unnecessary high salary for night shifts.

Political and Economic instability unlike in Latin America. In India there exists ethnic tensions and cross border conflicts.