Oxford University Conference Confronting the Challenge of Technology for Development: Experiences from the BRICS Conference Track:

Impact of the rising technological power in BRICS on the world economy

Information Technology Outsourcing Industries in the BRICS Countries A Comparative Assessment

Authors: Dr. Charles Newman Professor and Program Director for Strategy Graduate School of Management and Technology University of Maryland University College Adelphi, Maryland, USA e-mail: cnewman@umuc.edu Tel. 561-483-1664 Dr. Jane Ross Professor and Program Director for Global Business Graduate School of Management and Technology University of Maryland University College Adelphi, Maryland, USA e-mail: jross@umuc.edu Tel. 780-672-9315

Introduction
Various studies conducted over the past 10 years have shown that information technology outsourcing allows firms to reduce high overhead costs and improve productivity, contribute flexibility, and thus improve overall performance of the firm. The BRICS countries of Brazil, Russia, India, China and South Africa are all experiencing the growth of Information Technology Outsourcing as a new industry impacting significantly on the countries themselves and the world economy. However, offshore IT outsourcing brings new challenges and risks (Knapp 2007). To address these challenges and risks, this paper examines the IT Outsourcing industry in the BRICS countries of Brazil, Russia, India, China and South Africa. Information Technology Outsourcing, which, for the BRICS in total, generated over $31 billion in revenue in 2007 is expected to generate over $107 billion in revenue by 2011 (EIU). In addition to providing considerable export earnings for these countries, the investment in and experience gained in this business is supporting the overall introduction of Information Technology into the domestic markets of these countries and having a profound impact on their economic development. The goal of this working paper is to review selected historical and forecasted data about the IT Outsourcing industry in the BRICS countries on a comparative basis, applying important conceptual frameworks to understand the industry structure (Five Forces Analysis), industry global competitiveness (Five Diamond Model) and cultural environment (Cultural Dimensions Model and Other) to reach tentative observational conclusions especially about the potential impact of IT on economic growth and social development, and establish critical areas for further research. Particular emphasis is paid to the relevance of IT Outsourcing in relation to the 8th Millennium Development Goal: Creating a global partnership for development that will foster more favourable international trade and financial conditions (UNDP 2008).

Definitional Foundation
To clarify the terminology used in this paper the following definitions will apply: Information Technology is "the study, design, development, implementation, support or management of computer-based information systems, particularly software applications and computer hardware." Encompassing the computer and information systems industries, information technology is the capability to electronically input, process, store, output, transmit, and receive data and information, including text, graphics, sound, and video, as well as the ability to control machines of all kinds electronically (Information Technology Association of America 2006). Outsourcing is an arrangement in which one company provides services for another company that could also be or usually have been provided in-house. Outsourcing is a trend that is becoming more common in information technology and other industries for services that have usually been regarded as intrinsic to managing a business. In some cases, the entire information management of a company is outsourced, including planning and business analysis as well as the installation, management, and servicing of the network and workstations. Outsourcing can range from the large contract in which a company like IBM manages IT services for a company like Xerox to the practice of hiring contractors and temporary office workers on an individual basis (cio.com definitions 2007). Offshore outsourcing. Offshore simply means "any country other than your own. A type of business process outsourcing (BPO), is the exporting of IT-related work from the United States and other developed countries to areas of the world where there is both relative political stability and lower labor costs or tax savings. Outsourcing is an arrangement in which one company provides services for another company that could also be or usually have been provided in-house." The Internet and high-speed Internet connections make it possible for outsourcing to be carried out anywhere in the world, a business trend economists call globalization. In general, domestic companies interested in offshore outsourcing are not only trying to save money in order to be more price-competitive against each other, but also to enable them to compete with businesses in other countries (cio.com definitions 2007).

Nearshore Outsourcing. Nearshore outsourcing is the practice of getting work done or services performed by people in neighboring countries rather than in your own country. Geographic proximity means that travel and communications are generally easier and less expensive, and that there are likely to be at least some commonalities between the cultures, and people are more likely to speak the same language (cio.com definitions 2007.

Software Exports
While the worldwide sale and development of software has mushroomed over the last two decades, its national importance and unique nature has spawned new concerns and policy issues, especially in the trade arena (Lall 2003). There are various ways to transmit and distribute software. It can be shipped as a tangible product (on optical and magnetic disks or tape), increasingly as an intangible product (transmitted electronically via the Internet). It can be exported pre-loaded on a computer or embedded in electronic devices, such as medical equipment and automotive controls. It also can be conveyed abroad by software programmers and engineers as part of an information technology (IT) service, or disseminated via licensing mechanisms that authorize foreign buyers to use a particular program, or to increase the number of users, who can access a program that is already installed (Woods 2006).

The Millennium Goals

The Millennium Development Goals (MDGs) are eight goals to be achieved by 2015 that respond to the world's main development challenges. The MDGs are drawn from the actions and targets contained in the Millennium Declaration that was adopted by 189 nations-and signed by 147 heads of state and governments during the UN Millennium Summit in September 2000 (UNDP 2008).

Goal 8 of the Millennium Development Goals

What are the Targets? Sets out by the year 2015 to:
Develop further an open trading and financial system that is rule-based, predictable and non-discriminatory. Includes a commitment to good governance, development and poverty reductionnationally and internationally. Address the least developed countries special needs. This includes tariff- and quota-free access for their exports; enhanced debt relief for heavily indebted poor countries; cancellation of official bilateral debt; and more generous official development assistance for countries committed to poverty reduction. Address the special needs of landlocked and small island developing States. Deal comprehensively with developing countries debt problems through national and international measures to make debt sustainable in the long term. In cooperation with the developing countries, develop decent and productive work for youth. In cooperation with pharmaceutical companies, provide access to affordable essential drugs in developing countries. In cooperation with the private sector, make available the benefits of new technologiesespecially information and communications technologies.

(Millennium Campaign 2008)

Overall Information Technology Landscape

In the context of economic development, the IT Outsourcing Industry and its size as expressed by IT Software Exports, should be seen in the context of the overall Global Information Technology Industry, its IT Software Component, the demand for IT in major world IT marketplaces as well as the local demand for the same IT software services in the local country environment. This building block approach is illustrated below. Figure 1: Sizing the Supply and Demand for IT Offshore Outsourcing

Sizing the Supply and Demand for IT Offshore Outsourcing

Software Exports

Local Demand: IT Services Spending

World Demand IT Offshore Services Spending

Total IT Spending

World Total IT Spending

In 2007, over $1.2 trillion was spent on Information Technology globally, and this is expected to grow at just under 6% per year to $1.5 trillion in 2011.The United States is the largest market for IT spending, representing approximately 38% of the world total. It, thus, remains the largest single market for those companies and countries that wish to offer IT Offshoring services. Chart 1: World Total IT Spending (EIU 2007)
WORLD TOTAL IT SPENDING ($MM)
1,600,000.00

1,400,000.00

1,200,000.00

1,000,000.00 ($MM)

800,000.00

WORLD

600,000.00

400,000.00

200,000.00

0.00 2001 2002 2003 2004 2005 2006 Year 2007 2008 2009 2010 2011

The BRICS countries had $108 billion of IT spending in 2007 and this will grow at over 12% per year to reach $172 billion in 2011. The establishment of a domestic overall IT industry is an important factor in providing global competitiveness for IT Offshoring capabilities in these countries.

Chart 2: BRICS IT Spending (EIU 2007).

BRICS Total IT Spending ($MM)
80,000.0

70,000.0

60,000.0

50,000.0 BRAZIL RUSSIA INDIA CHINA SOUTH AFRICA ( M) $ M

40,000.0

30,000.0

20,000.0

10,000.0

0.0 2001 2002 2003 2004 2005 2006 Year 2007 2008 2009 2010 2011

Information Technology Services Spending (Market Potential)

After taking out the cost of hardware and of pre-packaged software, the remaining software and operational IT spending is considered to be IT Services Spending. That is the component of IT spending that includes IT Outsourcing, so it may be seen as a more refined market potential for IT Offshore Outsourcing. In 2007 IT Services Spending totaled $489 billion globally and is expected to grow 5.9% per year, reaching $616 billion in 2011. Chart 3: World Total IT Services Spending (EIU 2007)
WORLD TOTAL IT SERVICES SPENDING ($MM)
700000

600000

500000

400000 ($ M M ) WORLD 300000

200000

100000

0 2001 2002 2003 2004 2005 2006 Year 2007 2008 2009 2010 2011

BRICS Countries IT Services Spending

Within the BRICS countries, IT Services Spending totaled $27 billion in 2007 and is forecasted to grow 16.5% per year to reach $51 billion in 2011. This demonstration of local demand for IT Services represents an important element in the development of IT Software Service capabilities which can lead to sustainable competitive capabilities for also providing these services to markets offshore. China and Brazil are and will remain during the forecast period the largest domestic spenders on IT Services which correlates with the size and technological sophistication of their domestic business environments.

Chart 4: BRICS IT Services Spending

BRICS COUNTRIES IT SERVICES SPENDING
16,000.0

14,000.0

12,000.0

10,000.0 BRAZIL RUSSIA INDIA CHINA SOUTH AFRICA

$MM

8,000.0

6,000.0

4,000.0

2,000.0

0.0 2001 2002 2003 2004 2005 2006 Year 2007 2008 2009 2010 2011

Worldwide IT Offshore IT Services Spending (Demand) The demand for IT Offshore Outsourcing reached $18 billion in 2007 and is conservatively expected to grow at 17.6% per year to $29 billion in 2010 (IDC 2007).

Table 1. Worldwide offshore IT services spending (IDC: 2007). Worldwide Offshore IT Services Spending ($MM)
Country/Region

United States Canada EMEA Asia-Pacific TOTAL

10,394 146 2,275 250 13,066

2005

2006

12,214 155 2,726 338 15,433

2007

14,482 165 3,212 438 18,297

2008

17,210 175 3,758 564 21,707

2009

20,298 185 4,200 699 25,382

2010

23,659 195 4,659 862 29,404

CAGR%

17.9 6.0 15.6 28.0 17.6

These figures demand that forecasts take into consideration, not only the inherent demand due to the size and growth of the developed worlds IT sectors, but also the constraining factors of regulation, foreign exchange rates, and political pressures.

BRICS countries IT Outsourcing Experience and Forecast

A major component of IT Offshore Outsourcing from the BRICS countries is expressed as their level of IT Software Exports which reached $31 billion in 2007 and is forecasted to grow at 36% per year to $107 billion in 2011. This constitutes a significant level of export and spending that can be interpreted in a broader sense as business leaders worldwide, and the corporations they represent, negotiate contracts and attempt to improve business processes and applications. Figure 2. BRICS IT Outsourcing
BRICS IT Outsourcing 2011 ($B)
45

40 Brazil $5B Russia $24B

35

30 2003-2007 CAGR % India $50B Brazil Russia India China South Africa

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20 South Africa $9B China $19B

15

10

0 0 10 20 30 40 50 2007-2011 CAGR % 60 70 80 90 100

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India will continue to dominate the IT Offshoring business, however, very rapid growth by Russia will bring it to the number two position by 2011. Brazil, while remaining relatively small, will be experiencing the second highest growth during the 2007-2011 period. China, will become more important as time goes on and South Africa will be an emerging player (BRASSCOM 2007, NASSCOM 2007, RUSSOFT 2007, China Software Industry Association 2005, EIU 2007, South Africa Information Technology Association 2008). The magnitude of the amount of IT Offshoring activity and its exceptional growth rates make it one of the most important contributors to the economic development and global competitiveness of the BRICS countries.

Porters Five Diamond Model of Country Competitiveness in IT Outsourcing To see the BRICS countries comparative strategic competitiveness in the IT Outsourcing Industry, it is useful to apply Porters Five Diamond Model (Porter 1990). . This will illustrate the comparative factor conditions, demand conditions, relating and supporting industries, and the strategy and structure of the IT Outsourcing industry, which in turn will allow for preliminary conclusions about the relative viability of a nation competing n a particular international market. Figure 3. Porters National Diamond Framework (Porter (1990)

Porters National Diamond Framework

FACTOR CONDITIONS

DEMAND CONDITIONS

RELATING AND SUPPORTING INDUSTRIES

STRATEGY, STRUCTURE, AND RIVALRY

1. 2. 3.

FACTOR CONDITIONSHome grown resources/capabilities more important 11 than natural endowments. RELATED AND SUPPORTING INDUSTRIESKey role of industry clusters DEMAND CONDITIONSDiscerning domestic customers drive quality &

Each of the BRICS counties can be examined from the perspective of its ability to compete in the global market for IT Outsourcing Services. The determinants of national competitive advantage identified by Porter (1990) provide a framework for doing this. The results below are based upon the authors assessments. FACTOR CONDITIONS: The nations position in factors of production, such as skilled labor or infrastructure, necessary to compete in a given industry. Brazil - Large, well established domestic IT industry, moderate but growing IT workforce, with low English skills. Russia - Large, well established domestic IT industry, large highly educated IT workforce, with low English skills. India - Large, well established domestic IT industry, large highly educated IT workforce with good English skills. China - Large, but fairly new domestic IT industry, with a large highly educated IT workforce, and low English skills. South Africa - Moderately sized and new domestic IT industry, with a shortage of highly educated IT workforce having good English skills. RELATED AND SUPPORTING INDUSTRIES: The presence or absence in the nation of supplier industries and other related industries that are internationally competitive. Brazil - Strong telecom industry with some IT hardware industry developing. Russia - Moderate telecom industry with some IT hardware industry India - Moderate telecom industry with very little IT hardware industry China - Strong telecom industry with moderately strong IT hardware industry South Africa - Moderate telecom industry and no IT hardware industry DEMAND CONDITIONS: The nature of home-market demand for the industrys product or service. Brazil Relatively large and sophisticated industrial and retail industry environment which require IT support.

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Russia Relatively large and sophisticated government, industrial and retail industry environment which require IT support. India Moderately large and sophisticated government, industrial and retail industry environment which require IT support. China Very large and sophisticated government, industrial and retail industry environment which require IT support. South Africa Moderate government, industrial and retail industry environment needing IT support. STRATEGY, STRUCTURE, RIVALRY: The conditions in the nation governing how companies are created, organized, and managed, as well as the nature of domestic rivalry. Brazil Mostly modest sized domestic IT Outsourcing firms and a few large multinational IT Outsourcing firms. Level of competition is moderate. Russia Mostly small sized domestic IT Outsourcing firms, with few large multinational IT Outsourcing firms. Level of competition is moderate. India IT Outsourcing dominated by large domestic IT Outsourcing firms and many major large multinational IT Outsourcing firms. Level of competition is high. China Many small domestic Outsourcing firms and a growing number of large multinational IT Outsourcing firms. Level of competition is high South Africa Mostly small sized domestic IT Outsourcing firms, with very few large multinational IT Outsourcing firms. Level of competition is low. (BRASSCOM 2007, NASSCOM 2007, RUSSOFT 2007, China Software Industry Association 2005, EIU 2007).

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Porters 5-Forces Model for IT Outsourcing Industry in BRICS

Porters Five Forces Model (Porter 1979) provides a framework for understanding the structural characteristics of an industry in terms five fundamental forces which define the competitive environment within which individual companies must operate. This model applies well to IT Outsourcing in the BRICS countries.

Figure 4. Porters Five Forces

New Entrants How easy or difficult is it for new entrants to start competing Industry Competitors

Suppliers How strong is their bargaining position

How intense is the rivalry Substitutes How easy can a product be substituted

Buyers How strong is their bargaining position

It is important in our discussion of BRICS countries to drill down more deeply than the National Diamond Model to understand the structural characteristics of the IT Outsourcing industry in each country, by assessing the five competitive forces below as defined by Porter. The Threat of New Entrants: depends on economies of scale, capital investment requirements, customer switching costs, access to industry distribution channels, access to technology, brand loyalty, the likelihood of retaliation from existing industry players and government regulations. 14

Brazil -High degree of bureaucratic impediments for start-ups, little brand loyalty and low customer switching costs. Moderate threat of new entrants. Russia - High degree of bureaucratic impediments for start-ups, little brand loyalty and low customer switching costs. Moderate threat of new entrants. India Moderate degree of bureaucratic impediments for start-ups; brand equity high among the top three firms in the industry: Tata Consultancy Services (TCS), Infosys and Wipro that account for over 89% of the business. Low threat of new entrants. China - Very few impediments for start-ups and no dominance by any major players. Little brand equity and low customer switching costs. High threat of new entrants. South Africa - Some impediments for start-ups or foreign entrants. Fragmented industry with no dominant players. Low customer switching costs. Moderate threat of new entrants. The Bargaining Power of Buyers: depends on the concentration of buyers, structure of industry costs, the degree of product differentiation, the role of quality and service, the threat of backward and forward integration into the industry and switching costs. Brazil Local buyers have few IT alternatives, except to in-source their IT. Multinational buyers have other countries from which they can source. Bargaining power is moderately high. Russia Local buyers have few alternatives. Multinational buyers have other countries from which they can source. Bargaining power is low. India Multiple domestic and multinational IT Outsourcing firms to select from to gain best possible results and billing rates, though top firms account for 80% of the business. Bargaining power is moderate. China Many small and medium size local IT Outsourcing firms from which to select. Bargaining power is high. South Africa Local buyers have a few local IT Outsourcing firms to select from. Bargaining power is low.

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Intensity of Rivalry: depends on the structure of the competition, the structure of industry costs, switching costs, strategic objectives, and exit barriers. Brazil Russia Large number of highly qualified IT professionals Few with English language skills Bargaining power is low Fairly small number of IT professionals, growing demand for them Bargaining power is high

India Large pool of highly skilled, educated software engineers Shortage of suitable software developers in India Bargaining power low China Large pool of highly skilled, educated software engineers. Few with English language skills Bargaining power is low South Africa Relative small number of highly skilled, educated software engineers Bargaining power high The Threat of Substitutes: depends on quality, buyers willingness to substitute, the relative price and performance of substitutes, and thcost of switching to another product. Brazil Relatively few IT domestic substitutes; low threat Russia Relatively few IT domestic substitutes; low threat India Many IT sourcing alternatives exist; high threat China Many IT sourcing alternatives exist; high threat South Africa Few IT sourcing alternatives exist; low threat

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Rivalry Among Existing Competitors: Does a strong competition amongst the exiting players exist? Is one player dominant or are all players equal in strength and size? Brazil Industry is highly fragmented; level of rivalry is moderate Russia Industry is highly fragmented; level of rivalry is moderate India Industry is consolidated in the top tier, fragmented in the lower tier Facing competition from other low wage countries; intensity of rivalry high China Industry is highly fragmented; intensity of rivalry is moderately high South Africa Industry is nascent and fragmented; intensity of rivalry is moderate. (BRASSCOM 2007, NASSCOM 2007, RUSSOFT 2007, China Software Industry Association 2005, EIU 2007. South African Information Technology Association 2008).

Political, economic, social and technological environment (PEST)

In addition to understanding the global competitiveness and industry structure of the IT Outsourcing industry in the BRICS countries, it is important to recognize and understand the political, economic, social and technological environment (PEST) in each country within which the industries operate. The global consulting firm, A.T. Kearney, conducts an annual assessment of the IT Outsourcing Services environment and attractiveness of 50 countries on behalf of its client, who are major purchasers of such services. They assess, from the perspective of IT Outsourcing, the financial attractiveness, people and skills availability and business environment of each country, and establish scores (1-5, with 5 being the most favorable) and rankings.

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Table 2. A.T. Kearney Global Sources Location Index (Kearney 2007)

Rank Country Financial Attractiveness People and Skills Availability Business Environment Total Score

1 2 5 31 37

India China Brazil South Africa Russia

3.22 2.93 2064 2.52 2.61

2.34 2.25 1.78 1.18 1.38

1.44 1.38 1.47 1.6 1.16

7.00 6.56 5.89 5.30 5.14

Index Metrics:
In order to derive an overall score for the comparative favorability of the country environment for IT Offshore Outsourcing, the Financial Attractiveness, People and Skills Availability and the overall Business Environment need to be assessed and weighted. The specific factors and weightings for each of these three dimensions are provided below. Financial Attractiveness (40%) includes Compensation Costs (average wages, median compensation costs for relevant positions), Infrastructure Costs (rental costs, commercial electricity rates, international telecom costs, travel to major customer destinations), tax and regulatory costs (relative tax burden, corruption perception, currency appreciation or depreciation). People and Skills Availability (30%) includes remote services sector experience and quality ratings (size of existing IT and BPO sectors, contact center and IT center quality certifications, quality ratings of management schools and IT training, labor force availability (total work force, university-educated work force, work force flexibility), education and language (scores on standardized education and language tests), attrition risk (relative IT and BPO sector growth and unemployment rates). Business Environment includes Country Environment (30%) includes investor and analyst ratings of overall business and political environment (A.T. Kearney Foreign Direct Investment Confidence Index), security risk, regulatory burden and employment rigidity, government support for the information and communications technology (ICT) sector), infrastructure (overall infrastructure quality, quality of 18

telecom, Internet, and electricity infrastructure), cultural exposure (Personal interaction score from A.T. Kearney Globalization Index), and Security of Intellectual Property (Investor ratings of IP protection and ICT laws, Software piracy rates, Information security certifications). It would seem that Brazil, South Africa and Russia have PEST environments that can constrain their attraction for providing IT Outsourcing to clients from developed countries. With respect to South Africa and Africa as a whole, Wood (2002) suggests that Africa could surpass the current income level of South America and identifies opportunities underpinning prosperity in the region, stressing that improvements in governance are needed to reduce the risks of investment, accompanied by scientific research, education and communications. The cultural dimensions of IT Outsourcing will be examined in greater detail later in the paper.

The Internet as a facilitator of IT Outsourcing

It is widely accepted that the rapid growth of IT Offshore Outsourcing has been facilitated by the availability of the Internet as a mechanism for efficient synchronous and non-synchronous interchange of information between offshore IT Outsourcing providers and their clients. It is thus, important to review the e-business environment within the BRICS countries and also the general growth of the Internet within each country. The Economist Intelligence Unit conducts an annual systematic assessment of the ereadiness of 60 countries, including the BRICS countries. The chart below presents the assessment ratings for Brazil, Russia, India, China and South Africa. (EIU 2008). These ratings are based upon IT connectivity and technology infrastructure (20%), Business Environment (15%), Social and Cultural Environment (15%), Legal Environment (10%). Government Policy and Vision (15%), and Consumer and Business Adoption (25%). The resulting scores, based on a scale of 0-10 provide an overall comparative assessment of the environment for the conducting of business over the Internet. This environmental factor is critical to the operation of IT Outsourcing, most of which is conducted over the Internet.

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Chart 5. E-business readiness (EIU 2008).

e-BUSINESS READINESS INDEX
7.0

6.0

5.0 BRAZIL RUSSIA INDIA CHINA SOUTH AFRICA BRICS AVERAGE 2.0

Index Value (0-10)

4.0

3.0

1.0

0.0 2001 2002 2003 2004 Year 2005 2006 2007

Major IT Outsourcer Companies multi-country presence in BRICS Countries The top 20 Global IT Outsourcing companies have a significant multi-BRICS-country presence and operational capability. This is to maximize their overall cost/risk competitive profile and to mitigate cultural, physical or time zone differentials that could inhibit their service to clients. In the context of this paper and conference, their widespread presence may be seen as an indication of the growing sophistication of the major IT Outsourcing companies and a recognition on their part of the importance of a truly global capability. An itemized list of some of the major players can be followed below.

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Table 3. (BusinessWeek 2006)

Major Players in IT Outsourcing BRICS Presence

Company Accenture CSC EDS HP IBM Capgemini Infosys Tata Consultancy Wipro Cognizant Patni Computer Systems HCL Technologies ClientLogic Sapient Softtek Syntel Mphasis Office Tiger ExlService Holdings WNS Global Services HQ Country U.S. U.S. U.S. U.S. U.S. France India India India U.S. India India U.S. U.S. Mexico U.S. India U.S. India India Offshore Revenue Range >5 B >5 B >5 B >5 B >5 B $1-5 B $1-5 B $1-5 B $1-5 B $500999MM $500999MM $500-999 MM $100-500 MM $100-500 MM $100-500 MM $100-500 MM <$100 MM <$100 MM <$100 MM <$100 MM X Brazil X X X X Russia India X X X X X X X X X X X X X X X X X X X X X X China X South Africa X X X

X X X X

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Risks, rewards, challenges and opportunities for BRICS countries

Today, less than 10% of American companies outsource to more than one country, but most are evaluating multiple locations. This is likely true for companies from other developed countries as well. Although labor costs will continue to be the driving factor behind offshoring, CIOs in developed economies like must consider the cost-versus-risk equation (CIO Offshoring Guide, 2006). The primary differentiator between the BRICS countries would seem to be the English Proficiency of the IT workforce. From the working papers of Stewart (2000) and colleagues, we find that social norms in developing countries have changed from hierarchical and based on power relationships in the colonial era, to a more cooperative stance in the post-world war two era, to markets and monetary incentives as a way of organising behaviour in the 80s, to the most recent era that can be characterized by excessive reliance on monetary incentives, a situation in which trust and cooperation can be undermined endanger market efficiency outcomes. Table 4. IT Offshoring Ratings (CIO.com 2007) Country Overall Ranking Emerging Challenging Leading Challenging Challenging English Proficiency Poor Low Very Good Low Very Good Average Entry Level Programmer Salary $5-10K $10-15K $5-10K $5-10K $10-15K Geopolitical Risk High Moderate Moderate Moderate Moderate

Brazil Russia India China South Africa

Thus far we have laid down the elements for international trade and IT Outsourcing in the BRICS countries. Were we to assess no further, it is likely to appear that many of the key elements for the industry within the parameters of these countries have been addressed. However, from the table immediately above, it becomes apparent that a number of other key issues those involving the human factors, remain relatively unexamined to this point.

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Global language skills, also referred to commonly as the language of global commerce, salaries and geo-political risk are at the core of how well individuals can function in a transnational work environment where they are connected in globally dispersed work communities. As Cisco CEO, John Chambers (2008) puts it, the technology exists for conducting global business 24/7 in a stellar way but the cultural challenge of different kinds of people working in different places gets in the way: How do you achieve that seamless business when the folks in North America and Europe are thinking mostly about time and speed, and how to get things done faster and faster; and the South Americans, Southern Europeans and Arabs want to focus on relationships and dinner, while the Asians are saying hold it, its all about hierarchy and role?

It is a context where the convergence or divergence of work values have become central to debate as international companies struggle to understand the various value systems of the people in their multi-country operations.
Now, however, many of these international companies are considering trying to become global organizations in the sense of having a seamless or borderless approach to organization. In essence, being a global organization implies having a universal corporate culture. Since corporate culture grows out of the values held by organizational members, especially the influential members of the organization, a universal corporate culture is one where all members of the organization regardless of where in the world these individuals grew up or now work have similar views and beliefs that guide their behaviours when transacting business with members from other societies, as well a with members form their own society (Ralston, Holt, Terpstra & Kai-Cheng 2008).

Cultural dimensions impacting on IT Outsourcing

Culture in the virtual communities and workplaces of global business Following on from people and skills availability and the business environment, including country environments of IT Outsourcing discussed in the previous section, we turn our attention to information technology as a facilitator of knowledge sharing, a context in which culture can significantly hinder or facilitate knowledge exchange in the culturally diverse virtual teams of global business today. For further insight we can turn to a variety of fields: Socio-cultural Anthropology, Cross Cultural Management, Philosophy and Psychology, to name a few.

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Socio-Cultural Anthropology
In-depth country-specific cultural information for all the BRICS countries is available in the research and publications of anthropology. Unfortunately, in the haste to get on with globalization and global business developments, it is rare indeed to find individuals and companies that take this rich historic material into consideration in project planning and management. Take the socio-cultural anthropology of Russia for example. Prior to the Revolution of 1917 Russia participated to some extent in the nationalist discourses of Central and Eastern Europe. After the Revolution, however, anthropology in the USSR and later the Soviet Bloc countries became highly shaped by the need to conform to Marxist theory (Gellner 1980). Either way, the information available provides rich resources of cultural knowledge waiting to be tapped in the service of change in our current global era. Although much of the material and even religious culture has changed, values underpinning social organization persist. As one Russian leader explained: We train our children to have one set of values in the home and take on another set of values when they go out the door (Ross 1990). Thankfully, a new cadre of Russian anthropologists is emerging in a number of university centres who can provide bi-cultural perspective about the current era and its historical roots.

Cross Culture Management

CCM arose in recent years when multi-cultural practices and diverse values about work and how it is done became conspicuous in corporate business, especially as a response to situations arising with cultures and managerial values becoming conterminous when organisations crossed country, language and value boundaries. Business expansion revealed that synergy between corporate culture, managerial values and the leverage of cross-cultural understanding could contribute to more effective strategies for project and task performance. Although much has been learned about ways to improve global business practices in this discipline, practitioners agree that efforts to understand and apply cross-cultural practices are challenged by many contradictions, paradoxes and conflicts (Kanungo 2005). Many outsiders looking in tend to find aspects of the CCM approach lacking in historical and research depth. Cross cultural management is easier to talk about than to do.

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Global IT Culture
Moving specifically to the IT Outsourcing domain, the subject of this paper and a culture of its own - we find new fields of inquiry emerging based on multiple ITcountry sources, diverse audiences and different languages as people (having values, social organization, networks, work values and more that differ significantly) negotiate contracts, develop projects and attempt to work together. Cross-language information access systems provide opportunities for workers to access and use source materials from platforms and vendors in different languages. Accordingly, design and communication issues not present in monolingual settings arise from cross- language information access systems. Research (e.g., at the University of Maryland and elsewhere) to identify possible solutions to these problems along with potential applications for digital libraries is on the increase (Shreve, Chan, Zeng, Daquing He 2004).

Philosophy
Even philosophy has considerable to say about culture in IT communities and the work carried out in them. Nickle (2007), for example draws attention to a formal framework for the social acquisition of ontologies constructed from the symbolic interaction of autonomous information sources. This provides a semantics of information publishing acts involving a technical-based but social approach to knowledge acquisition and representation that is applicable in the design of semantic web and social software. The practical application here is that virtual collaborators need to understand the impact of the communication barrier existing between them and their unknown partners spread across the globe. If agents are not relying on any agreement about the meaning they ascribe to the symbols used in the conversation, semantic misalignments will arise on the discourse domain as well, thus making the communication impossible. In wide and heterogeneous scenarios offered by the Web (and its newborn semantic incarnation), traditional and meaning-safe methodologies for communication need to keep abreast of new dynamic communicative interaction modalities. The uncertainties arising from communication between actors which base their behavior on different and heterogeneous knowledge models have to be taken into account, wisely balancing the extent of reachable knowledge with the trustworthiness of its information. (Pazienza et al. 2007)

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Psychology and Business

In the business domain, psychologist Geert Hofstedes study of culture and its relation to the workplace has enjoyed prominence since his first publications began to appear in the 80s. Soon thereafter - business which had largely ignored the importance of culture in its practices turned quickly to finding ways by which culture and its dimensions could play a part in exploiting and improving business processes worldwide. While widespread and well-used, Hofstedes material comparing workplace cultural dimensions needs to be viewed in context. It emerged from his work with a specific company, IBM, from 1967 1973, where he collected data from more that 100,000 employees in some 40 countries. Before turning to specific dimensions for BRICS countries, we will overview some basic comparisons and brief definitions for Hofstedes value and attitude dimensions, well aware that the model was unique to IBM workforce culture in the 70s and that a number of new approaches to culture dimension have emerged.

Comparisons: Hofstede' Dimensions and Cultural Scores for BRICS s

Region County BRAZIL Individual vs Power Uncertainty/ Collectivism Distance Avoidance Collectivism 38 Collectivism 50 48 Collectivism 20 High 69 Low 95 77 High 76 Medium 90 40 Low 60 MasculinityFemininity Masculine 49 Masculine 40 56 Masculine feminine 50 63 10 61 Emphasis on tradition, Marxism, Leninism and Mao thought 118 Not ranked. Long-Term Orientation and other Dimensions Extroverted; prefer orderly customs and procedures 65

RUSSIA

INDIA

CHINA

Low 80

S. AFRICA

49

65

49

Chart 6. Comparative Culture Scores for BRICS Countries. (Nath & Sathu 1988).

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Hofstedes value and attitude dimensions

Power Distance Index (PDI)
extent to which less powerful members of organizations/institutions accept/expect that power is distributed unequally inequality: is defined from below, not from above; endorsed by both followers and leaders 'all societies are unequal, but some are more unequal than others'.

Individualism (IDV) individualism/collectivism and degree of group integration

individualist society: ties between individuals are loose everyone expected to look after him/herself and his/her immediate family. collectivist societies: people integrated into strong, cohesive in-groups extended families important; protect in exchange for unquestioning loyalty.

Masculinity (MAS) versus femininity

distribution of roles between genders; range of solutions are found. IBM studies revealed that (a) women's values differ less among societies than men's values; (b) men's values from one country to another range from very assertive and competitive, and maximally different from women's values on the one side; to modest and caring and similar to women's values on the other: assertive pole = 'masculine'; modest, caring pole 'feminine'.

Uncertainty Avoidance Index (UAI)

deals with a society's tolerance for uncertainty and ambiguity ultimately refers to human search for Truth unstructured situations are novel, unknown, surprising, different from usual. Uncertainty avoiding cultures: - minimize unstructured situations by laws/rules, safety/security measures - on philosophical and religious level belief in absolute Truth - emotional, and motivated by inner nervous energy. Uncertainty accepting cultures: - tolerant of differing opinions; try to have as few rules as possible - philosophically and religiously relativist; allow for diverse practices phlegmatic and contemplative, not expected to express emotions.

Long-Term Orientation (LTO) versus short-term orientation

study of students in 23 countries; questionnaire designed by Chinese scholars Long-term orientation: value thrift and perseverance Short-term orientation: respect tradition, meeting social obligations, saving 'face' positive and negative rated values found in teachings of Confucius (500 B.C.) dimension also applies to countries without a Confucian heritage.

(Hofstede 1983)

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Culture dimensions in Brazil

World averages

Chart 7. Culture dimensions: Brazil and World Averages (Hofstede 2008).

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Power distance Power distance for Brazil, overall, is high, ranking a score of 75 in comparison to the world average of 52. Individualism vs. collectivism Brazil has an Individualism rank of 38 compared to the average Latin population score of 21. However, virtually all the Latin countries are considered to be Collectivist societies as compared to Individualist cultures. This is manifest in a close long-term commitment to the member 'group', be that a family, extended family, or extended relationships. Loyalty in a collectivist culture is paramount, and over-rides most other societal rules. (Hofstede Brazil 2008) Masculinity Femininity With respect to Masculinity-Femininity scores, Brazil is closer to the world average of 48 with its own country score at 45. Uncertainty avoidance. Brazil's highest Hofstede Dimension is Uncertainty Avoidance at 76, indicating the societys low level of tolerance for uncertainty. To minimize or reduce this level of uncertainty, strict rules, laws, policies, and regulations are adopted and implemented with the ultimate goal being to control as much as possible in order to eliminate or avoid the unexpected. Due to this high Uncertainty Avoidance characteristic, the society, in Hofstedes view, is risk adverse and does not readily accept change (Hofstede Brazil 2008).

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Culture dimensions in India

World averages

Chart 8. Culture Dimensions for Indian and World Averages (Hofstede 2008). Power Distance. Power Distance (PDI) is the highest Hofstede Dimension for the culture, with a ranking of 77 compared to a world average of 56.5. This Power Distance score for India indicates a high level of inequality of power and wealth

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within the society. This condition is not necessarily subverted upon the population, but rather accepted by the population as a cultural norm. India's Long Term Orientation (LTO) Dimension rank is 61, with the world average at 48. A higher LTO score can be indicative of a culture that is perseverant and parsimonious (Hofstede 2008). Individualism vs. Collectivism India scores 42 in this dimension with the world average at 40. To interpret, it is likely that varied social customs at work in diverse parts of the country where people are organized in a number of different ways were not factored in, thus yielding a score which appears similar to crude world averages. Masculinity/Femininty. India has Masculinity as the third highest ranking Hofstede Dimension at 56, with the world average just slightly lower at 51. The higher the country ranks in this Dimension, the greater the gap between values of men and women. It may also generate a more competitive and assertive female population, although still less than the male population (Hofstede 2008). As frequently happens, however, there are other ways of viewing the score: Shauna Singh Baldwin reveals in her audio essay that Indian men have the power to be feminine (CBC 2007). Uncertainty Avoidance India's lowest ranking Dimension is Uncertainty Avoidance (UAI) at 40, compared to the world average of 65. On the lower end of this ranking, the culture may be more open to unstructured ideas and situations. The population may have fewer rules and regulations with which to attempt control of every unknown and unexpected event or situation, as is the case in high Uncertainty Avoidance countries. Long-term Orientation On this dimension, the Hofstede scores rank India at 58 with the world average at 42. Once again, it is not clear how factors relating to religious values and beliefs about the after life were factored in by Hofstede. This is an area where anthropology and other

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approaches have a great deal to offer in understanding. Harriss-White (2005), for example, shows how non-market and non-state institutions such as land, labour and commodities reveal the vitality of caste and religious pluralism in their functioning. While it may be tempting to view these elements as vestiges from an earlier era, she demonstrates how they are being refashioned in the interests of business and globalisation.

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Culture dimensions in China

World averages

Chart 9. Culture Dimensions for China and World Averages (Hofstede 2008). Hofstedes analysis for China has Long-term Orientation (LTO) as the highestranking factor (118), which he claims applies for all Asian cultures. This Dimension

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indicates a society's time perspective and an attitude of persevering; that is, overcoming obstacles with time, if not with will and strength (Hofstede 2008). A Chinese childrens opera viewed by the author in Shanghai (Ross 1978) illustrates the point well. In the story, Ling-ling, a girl of five years old is dreaming about what the world will be like in the Year 2000. She is propelled fast-forward ahead and above to a place amongst the stars in the sky from which to view a world in which China is world leader. Chinese guides at that time were keen to inform their western management visitors that China plans well for the future in long-term plans reaching 500 year ahead. Individualism vs. Collectivism. The Chinese rank lower than any other Asian country in the Individualism (IDV) ranking, at 20 compared to an average of 24. This may be attributed, in part, to the high level of emphasis on a Collectivist society by the Communist rule, as compared to one of Individualism. The low Individualism ranking is manifest in a close and committed member 'group', be that a family, extended family, or extended relationships. Loyalty in a collectivist culture is paramount. The society fosters strong relationships where everyone takes responsibility for fellow members of their group.

Chart 10. Culture Dimension Uncertainty Avoidance, China. (Hofstede 2008).

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From this chart it appears that atheism is high, yet we are not provided with interpretation of what this term means to the Chinese. Given that the studies were conducted in the 70s and not long after the cultural revolution, it is likely that the depth of Confucian and Buddhist believes underpinning the official atheism are not factored in. As one Chinese academic put it (Ross 1978), atheism is the very thin and visible layer atop centuries of beliefs and values. Taking these figures at face value, and outside the regional contexts and social configurations existing within the country, business people might well make misleading interpretations that could be costly in a number of ways. There are many more inferences that could be drawn from Hofstedes work for the cultural dimensions of the countries addressed above, and likely also for Russia and South Africa. We feel, however, that this representative sample provides insights into how the Hofstede work may be applied, as well as its limitations. We believe it is more fruitful to consider for a moment at least some of the ways by which the concept of cultural dimensions can be pushed further in the IT Outsourcing industry. We realize we are making only a brief step in what follows.

Pushing the concept of cultural dimensions further in IT Outsourcing

Conventionally, business seeks to build and distribute technology according to business and IT capacity. What about the potential of reversing this approach to one in which technology systems were built around local knowledge, resources and economies and even need, thereby enhancing the skills of the poor and linking them to established sources of science and technology (Abroi 2005)? As well, the problem can be viewed in terms of how low levels of economic and development sustainability thwart the efforts of emerging and developing countries can thwart efforts towards global integration and inter-country and regional support (Bhalla 2002). Applied specifically to IT Outsourcing, Feng (2004) argues that effectiveness in communicating optimally with a target audience online requires that companies adapt their Web sites for customers in the target countries, and know how to make these adaptations based on variations such as those proposed by Hofstede.

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As the people of the world press for a greater portion of the worlds economic and resource pie, IT Outsourcing holds potential for the new partnerships envisioned in the 8th Millennium Development goals. For example when members of more than 100 non-government groups met in Brazil recently at the GCAP (Global Call to Action Against Poverty) meeting, they were joined by organized groups in more than 80 countries worldwide. Their message was strong: Instead of focusing on reducing the number of people living in extreme poverty, the world's leaders should be working towards combating the root causes of poverty, since this is the only real way of eradicating it (Osava 2008). Since BRICS countries appear to be gaining some ground in this respect, their role is unique and their knowledge needs to be tapped. But more on that later.

Culture-Code Framework
Much cross cultural training and sensitization consists of language training, lists of dos and donts, descriptive cultural practices and as we have seen in the previous section - scores. The problem is, how to apply these details in the rough and tumble of daily business where the pace increases continuously. Clotaire Rapaille, in The Culture Code, An Ingenious Way to Understand Why the People Around the World Live and Buy as They Do, takes us well beyond scores and lists to provide a new method for understanding culture; one that probes through the layers and prescriptions to determine what triggers understanding at the emotional levels on a range of key issues that affect everything around us is perceived: The Culture Code is the unconscious meaning we apply to any given thing a car, a type of food, a relationship, even a country via the culture in which we are raised It is obvious to everyone that cultures are different from one another. What most people dont realize, however, is that these differences actually lead to our processing the same information in different waysThe combination of experience and its accompanying emotion creates something known widely as an imprint Once an imprint occurs, it strongly conditions our thought process and shapes our future actions. Each imprint helps make us more of who we are. The combination of imprints defines us. Early imprinting has a tremendous impact on why people do what they doAn imprint and its Code are like a lock and its combination. If you have all of the right numbers in the right sequence, you can open the lock. Doing so over a vast array of imprints has profound implications. It brings us to the answer to one of our most fundamental questions: why do we act the way we do? (Rapaille 2006). Why do people act the way they do?

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Understanding the Culture Code is a systematic way to understand any culture. It has potential for including IT and corporate culture and the complexities involved in IT outsourcing and other areas. It provides possibilities for new approaches for unlocking the global IT domains and for better understanding of development economics and needs, bringing with it ways to unlock the potential of emerging economies to join developed nations find keys to ending poverty (World Economic Forum 2008; Sachs 2005; Roche 1968). Ultimately, what is needed most is an approach that enables understanding any culture or sub-culture, including ones own and how culture of origin shapes how other cultures are interpreted and understood. For business success and global economic development - the goal is to be effective in all situation where operations and management decisions need to be made amongst international counterparts or employees from any cultural background working any time and anywhere.

Integrated thinking bridging the market and governance gap

Just as we have looked at Rapailles culture code and other ways to get beyond the narrow parameters of Hofstedes cultural dimensions that are largely set in a specific time and industry, so too we need approaches that will take us beyond the categories of the past in other areas impacting on technology transfer, social and business and adaptation. How can business approaches be addressed in relevant cultural ways? History shows there are no panaceas, and to beware of bullets which seem to come with a promise of magic. With these cautions in mind, we welcome what Roger Martin (2007) has to tell us in The Opposable Mind where he demonstrates the power of integrative thinking; i.e., the ability to hold opposing views at the same time in order to achieve synthesis containing elements of both but improving on each (Martin (2007). Likewise, Jane Jacobs (1992) division of human activity and social organization into the two domains of commercial (market) and guardian (governance) can also help. Business statistics and models and charts belong on the commercial side. How do we this data translated into a form that is useful on the governance side, and in ways that will enable IT and market activity to use cultural values, motivations and learning 37

effectively in the service of change? And how does this attempt to bridge commercial and governance gaps with emerging economies relate to economic development in the world at large, especially the BRICS countries? By bringing Martin and Jacobs into this discussion at the same time, it is clear that solutions about economic development cannot come from the business side alone. For any hope of success, emerging markets must their governance problems in hand, and is an area where the concerns of the developed nations is well understood. Based on their experience, they can and should insist that countries with developing markets adapt the values and practices of the market: e.g., legal and regulatory mechanisms. If not do so, the potential crises can be predicted. We could look at it this way. What if it were possible to move the developed economies (not without their own problems) to any of the BRICS countries? Bearing in mind that it took the G-8 countries about 80 years to get proper mechanisms for market control in place (roughly 1870 1950, and inclusive of two world wars and a great depression), it is likely that the worst excesses of capitalism could occur in the absence of legal and regulatory mechanisms that have been developed to prevent these mistakes from being repeated. With the controls things could get rough in the digitally connected and often volatile global era. A key issue facing the BRICS countries on the cusp of economic take-off, is how they will confront the same things that Britain, France, Canada, Germany, USA and others had to face when their markets went out of control. History reveals what can happen when there are sudden market changes without regulation. Things become can quickly become chaotic and irrational when the hand of the state is removed. Corruption commonly results. Ultimately it is the cultural resources of nations and people the traditions, customs and social organization that can be brought to bear in market development and control. Martins opposable mind thinking is relevant for problems that are faced every day in the area between the market and governance. Integrated thinking is not easy, but it is necessary at all levels involving the complex affairs of a finite and shared world of:

38

individuals, leaders, countries and regions. Jacobs (1992) insists that understanding and managing the dichotomy of commerce and governance is essential for human economic and human survival.

Implications and critical areas for further research

This paper has covered a lot of territory: IT, IT Outsourcing, installation, management and servicing of network systems; software exports and trade; culture and selected cultural dimensions of BRICS countries. Back to Sanjaya Lall (2004) and his view of globalization, and to the themes of this conference: Globalization is a pervasive influence on industrialization in the developing world. As the embodiment of technological progress and more open markets, it offers huge productive benefits to developing countries. However, its effects are very uneven. It is driving a growing wedge between the (relatively few) successful countries and the (large mass of) others. The wedge is not a temporary one, a Jcruve that will reverse itself if countries persist with liberalization. It reflects underlying structural factors that are very difficult to alter in the short to medium term. Because of cumulativeness in these structural factors, divergences are likely to carry on growing unless measures are taken to reverse them. Development policy has to address these growing structural gaps and to reverse or relax the stringent rules of the game that constrain the use of (previously successful) industrial policy. In honour of Dr. Lall, let us not be caught up in the heady potential and cultural complexities of IT Outsourcing and its potential or of cultural dimension scores and their numerical representations of how the worlds people live and think and act without turning our attention to another side of the issues that concerned him and are familiar to those who feel the impending threat of global income disparity and all the other disparities the Millennium Goals have been put in place to address. While the affluent west's luxurious lifestyle continues to consume the resources of this planet, millions of people starve and half of the world's population exist in poverty. In the midst of it all we yet remain with outdated systems of foreign aid operating at the level of charity - doling out left-overs - rather than justice (Roche 1976).

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A Model for Global Development Based on Mentorship

In the current, crisis-laden global environment, how can the progress of BRICS countries be leveraged to confront the challenges of global development? Here we draw on our colleagues, Dr. Wilf Backhaus and Maurice Hladik, Executive in Residence, at the Graduate School of Management and Technology, University of Maryland University College, who challenge us and global leaders to address how BRICS countries can use their muscle to help other markets that are not there yet. Mr. Hladik (2008) emphasizes the important role of governance assistance by developed nations to emerging nations. He believes governance assistance can one day be provided by the BRICS to developing countries which are finding their way. Dr. Backhaus envisions a BRICS mentorship arrangement where the emerging economies would share their knowledge and skills in new ways. Rather than relying primarily on the G-8 countries to shoulder the major weight of development assistance, emerging market countries (G-20 including BRICS) could have a significantly expanded role to play in rectifying the situation. Brazil, for example, which tends to lead the BRICS countries in terms of resources and relatively stable governance, could mentor countries having a common language with them such as Angola and Mozambique. Russia, hopefully, can assume more nurturing relationships with the former Soviet states; they can also leverage the good sides of other forms of knowledge transfer they were involved with in the postcolonial era of the 60s (e.g., agricultural expertise and medical initiatives in African states). India, along with South Africa, having a shared language and commonwealth institutional heritage with countries such as Burma and many of the African states, can help out there. Given the strength of BRICS countries IT industries, neighbourliness in the form of a helping hand could work wonders on the world scale and free G-8 countries for other development assistance responsibilities. This view of how things could be is holistic and familial, calling on human beings to practice the fine art of being human. Our times need creative solutions. The world has witnessed the formation of new organizational entities to address crises and

40

opportunites many times in the past. We believe the Backhaus Vision* is one worth considering and working towards.

Acknowledgements
We would like to thank a host of colleagues who have been an inspiration in the development of this perspective, in particular international development and business friends in countries around the globe. We also acknowledge our colleagues and students in the MBA program, University of Maryland University College, in particular those in the capstone global business and strategy courses. Further development of the Backhaus Country Mentorship model is in progress, for information contact Dr. Wilf Backhaus backhaus@shaw.ca .

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Appendix
Cultural Dimension Scores for Ten Countries/Regions Power Distance 40L 35L 54M 68H 38L 68H 78H 77H 95H 80H Individualism 91H 67H 46M 71H 80H 25L 14L 20L 50M 20L Masculinity 62H 66H 95H 43M 14L 57H 46M 46M 40L 50M Uncertainty Avoidance 46L 65M 92H 86H 53M 29L 48L 54M 90H 60M Long-term Orientation 29L 31M 80H 30L 44M 96H 25L 16L 10L 118H

USA Germany Japan France Netherlands Hong Kong Indonesia West Africa Russia China

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