How can a business, especially a smaller one, retain the advantages of operational control over its processes but still reap benefits that outsourcing typically produces such as lowering costs and keeping its focus on core responsibilities? It out-tasks selected duties, often to a foreign country, under the aegis of a shelter services provider. “Out-tasking specific processes to a provider that takes care of establishing the foreign business, and supplying, paying, and managing the workers can be an appealing option for some companies,” says Katrina Menzigian, VP Research with the Everest Group.
This opportunity has been available for many years to U.S. manufacturers. Mexico, especially since the birth of NAFTA in 1994, is a popular and logistically appealing destination. For over 20 years, The Offshore Group (TOG) based in Tucson has been a partner to many of these American firms in establishing their Maquiladora presence south of the border, then developing the facility and supplying qualified workers.
But until 2008 this was not a prominent option for the service industry until TOG decided to penetrate that market by establishing its subsidiary Vangtel. It was a natural progression according to the firm’s Vice President of Business Development, Arturo Rodriguez. “We have delivered back-office workers such as IT, software development, and help desk professionals to many of our manufacturing clients for many years. So this wasn’t a big stretch to offer these services to U.S. firms that wish to benefit from a “nearshore and time-zone friendly” option in the service sector.
The Chicago-based Professional Diversity Network (ProDivNet) is a case in point. The association operates one of the nation’s largest professional and job networking sites for Hispanic and black communities. It affiliates with virtually every Web-based employment presence in the United States, giving ProDivNet a cumulative reach of over 65 percent of the nation’s 40 million online blacks and Hispanics.
Its primary portals, the Web sites iHispano.com and AMightyRiver.com, serve as a gateway to a variety of blogs, message boards, and other portals that sustain this large professional network. “The cumulative presence is sort of like Facebook, but from a professional perspective,” says Jim Kirsch, Chief Strategic Officer at ProDivNet. “We combine the professionalism of Linkedin and the networking power of Facebook for these audiences.”
In late 2008, the association experienced a growth spurt, due to the greater needs for its Web community. But it was having difficulty finding the right people in Chicago. “We saw the advantages of outsourcing,” notes Kirsch. “But we wanted to do it carefully.”
“Back-office processes are not as segregated or defined in a small to mid-sized business (SMB) as you’ll find in a large organization,” notes Menzigian. “You usually don’t have a large headcount involved in any individual back-office process. So outsourcing for an SMB is often more holistic.”
ProDivNet weighed the advantages of outsourcing against the control it would give up to the provider. “We decided to increase headcount by employing qualified technical workers in Mexico to meet these needs,” says Kirsch. “It came down to whether we wanted to establish this new operation ourselves or find a partner.”
Go it alone in a foreign land or find a partner to enable growth
ProDivNet quickly discovered it didn’t have a lot of time or available management infrastructure to set up Mexican operations. “We needed a partner who knew how to establish the presence, manage staff, and maintain a service-based operation, because we didn’t want to deal with the tactics,” says Kirsch. “It’s an extension of our company in another country. For a small business like us, that’s a big step.”
ProDivNet needed a shelter service provider that knew the ins and outs of Maquiladora from negotiating the development of its new service facility to hiring and managing its Mexican workforce.
This led ProDivNet to Vangtel after Mexican government contacts mentioned it. “We help establish the client’s legal business entity, serve as procurer from Mexico’s highly-technical talent pool, and develop and manage the buyer’s facility,” says Rodriguez. Vangtel’s destination for ProDivNet was its service campus in Hermosillo, Sonora, where it manages about 1,200 workers for several U.S. firms.
“In this case, the service provider is offering more than outsourced talent or staff. It is also assuming responsibility for the day-to-day management of staff as they perform the work the company hired them to deliver. The client designs the process, but Vangtel’s people deliver on it,” notes Menzigian.
Rodriguez notes that Hermosillo is a prominent technology center in Mexico. The community of over 700,000, seen by many as Mexico’s “Silicon Valley,” benefits from several prominent university and professional-level technology institutions that produce a large number of highly-skilled IT and service workers on par with those found north of the border.
According to Kirsch, not utilizing Vangtel to perform these services would have been cheaper. “But it would take longer. This took us 90 days to get up and running. We pay a bit more this way, but not much.”
He says the prominent feature is that it relieved him and his associates of going through all the legal doors required to establish a tech center. It also relieves ProDivNet of day-to-day management while retaining the ownership benefits. “Our Mexican support center takes care of the tech details that make our Web and IT go. We also do much of our marketing from Mexico as well, since both our IT manager and director of marketing are down there. So it’s the perfect extension we were looking for.”
Provider does the heavy lifting so the buyer can concentrate on strategy
This Maquiladora facility and the new operational structure closely parallel the development of the facility itself according to Kirsch. “Now, we develop Web strategy in Chicago, storyboard what we want, send it to Hermosillo, and they make it happen. We followed the same blueprint when we established the facility itself. We developed our strategy for Mexican out-tasking, found the shelter service provider to execute the plan, and this is what we got. We’re pleased with the results.”
Rodriguez notes Vangtel’s prospective buyers want the benefits of outsourcing and offshoring without having to travel across many time zones. “Some American buyers want strategic control of their offshore operations and are willing to cede to us tactical control of the enterprise. This involves facility and worker procurement and management. We’re ‘southshore’ and not far.” He also points out that Mexico and the United States share many more cultural similarities than American buyers do with farshore providers. “That too was an important point for us,” says Kirsch. “Our hours of operation are basically the same up here and down there.”
Prior to his tenure at ProDivNet, Kirsch was involved in a Maqiladora enterprise in Honduras that employed a thousand people. “I spent a lot of time down there. This is a different animal. No one at the director level, including me, has found it necessary to be down there due to the management capabilities of Vangtel.”
Kirsch continues. “What’s our time and energy worth? Vangtel manages the day-to-day headaches so we don’t have to. And it works well for us. That’s what we wanted, and the provider has delivered.”
Lessons from the Outsourcing Journal:
- Shelter service providers now bring the same advantages of Maquiladora to the American service sector.
- SMB buyers tend to be more holistic as they often will outsource a broader group of functions as opposed to enterprise outsourcing buyers that typically outsource a specific task.
- By out-tasking back-office duties through a Maquiladora shelter services provider, buyers reap the dual benefits of lower facility and worker costs and also avoid the scheduling constraints often found in farshoring.