Ottawa Business Journal
Canadian and Chinese high tech companies signed an agreement last month, a bid to make it easier to sell products in each other's markets.
But while the Canadian Advanced Technology Alliance (CATA) said the agreement will create growth in Canada's IT sector, it also allowed that it may accelerate the pace of some research and development jobs leaving for China and other nations.
Experts seem to agree that the loss of some jobs is inevitable. However, they also agree that it's how the Canadian education system and the government react to the evolving state of the IT industry that will make the difference in the long term.
China's Shenyang Neusoft Company Ltd., employer of 10,000 workers, signed an exclusive agreement last month with CATA, which speaks for a majority of the Canadian technology sector.
The industry lobby group called the memorandum a "mutually beneficial partnership" that will expand Neusoft's business in North America and that of CATA members' in China.
Eighty per cent of CATA's membership are export-oriented firms. This deal will help them, said CATA president John Reid.
"We see ourselves as the driver of these exports. (The agreement) is a way of getting the Canadian market access (to China)," he said.
"We are acting directly for Canadian firms, not only giving them access to cost-effective software development, but opening the door to the Chinese market."
China, CATA said, is the sixth largest ICT market in the world, valued at US$118 billion. Small Canadian firms like Casero Inc., want to tap into that part of the world, and were part of a recent CATA delegation to China.
"We're constantly looking for additional markets," said Arif Hirani, sales director for Casero. "Obviously, China is one of the largest."
Mr. Hirani said agreements like this are positive. Casero recently developed a line of new broadband products, he said, and is constantly on the search for new places to sell.
"As a result of the conference, we have opportunities in the Asian marketplace, not just China specifically, but Singapore, Hong Kong, Philippines . . . the whole Asian marketplace."
Under the terms of the 10-year agreement, all North American companies that wish to take advantage of software outsourcing with Neusoft will do so through CATAAlliance.
But it's the potential loss of Canadian R&D positions, highly-skilled jobs that have been a point of pride in Canada for years, that worries some IT workers in Canada, some of whom contacted the OBJ privately to express concern.
Mr. Reid said the departure of a certain number of Canadian R&D jobs to China and elsewhere is "inevitable," but admitted that Canada must go about it correctly.
"As a business model, you have to continually look at what makes you most successful," he said. "...otherwise, your competitors will. If they can lower product prices by 10 per cent, then you price yourself out of the market.
"We don't want to lose our R&D excellence here. But at the same time, we want to make sure the companies commercialize and sell (their) products as much as possible. If you don't sell your products, R&D isn't going to do you any good."
Paul Swinwood, president and CEO of the Information and Communications Technology Council, agreed.
"This is not a new approach to things, this is just the continuation of the globalization economy, because the knowledge economy is everywhere where there is knowledge," he said.
Mr. Swinwood said he remembered IT R&D outsourcing occurring as far back as the 1960s. He said outsourcing can't be halted, and pointed to similar deals in place with India, with Russia likely the next one.
However, the council said last fall that Canada will need 89,000 more IT workers over the next three to five years. With only 3,000 IT graduates yearly, demand for R&D skills far exceeds the potential loss.
Canada needs to react, Mr. Swinwood said, by implementing what he termed a national recognition program in post-secondary education, for "consistency, from coast to coast . . . so that somebody with a degree at the 'University College of the North Atlantic' will have it recognized in Toronto."
"Canada is one of the only countries in the world without a national education focus," he said. "(Education) is separated by province, then it's delegated to individual universities. What we need to have is a national set of learning outcomes.
"And that's what my council is trying to put in place," he said, adding that it has already implement one in some high schools.
There will always be IT jobs that remain local, he continued.
"The number of R&D jobs is just exploding. While some of the jobs may go off to India and China, there will still be the business jobs, there will still be the local R&D jobs . . . Your help desk may go to China. But the people who run your network are local. The guy who comes to plug your modem back in will never be outsourced.
"You can't open the borders on one hand, and close them on the other," Mr. Reid added.
Mr. Hirani didn't see his company turning to Chinese R&D any time soon, but didn't discount the notion either.
"We're constantly researching and developing new products," he said. "My development team is always looking at new areas. But currently, we're doing the majority of our R&D in Toronto."
Will the agreement lead to the eventual loss of all R&D jobs in Canada? Mr. Reid said no.
"That would be taking it to the extreme," he said. "In many areas, we will continue to have expertise in R&D. There will be new R&D areas, like biometrics or medical technologies."
He said he expected to see the first Canadian company taking advantage of the agreement soon.
"We'll be rolling out the various (possibilities), I'd say, within the first three months."
1/08/2007
BPO goes to Hollywood
By:Knowledge@Wharton
Hollywood film stars Angelina Jolie and Brad Pitt have been shooting in the western India city of Pune for *A Mighty Heart,* the story of the Al Qaeda kidnapping of Wall Street Journal journalist Danny Pearl. A flotilla of Indian service providers, from film technicians to security guards, has been supporting them.
Jolie and Pitt represent just the visible tip of the iceberg. As Hollywood increasingly turns to India to provide some of its needs, business process outsourcing (BPO) is making its way to the top of the credit lines. "The scope is enormous in virtually every area," according to Pritish Nandy, founder-chairman of Pritish Nandy Communications, a content company in the news and entertainment business. "Currently, Hollywood appears to be looking at three areas: post production, animation and local production support. But these are nothing compared to the real opportunity areas."
Hollywood actor Will Smith talks on the sets of television show "Indian Idol" in Bombay. Smith is in India aiming to build a partnership with filmmakers in the world's most prolific movie industry. (AP Photo/Rajesh Nirgude)
Before getting into how BPO is transforming animation, consider the other two areas of activity: local production support and post production. The first lies in the gamut of "red carpet" services being rolled out for Jolie and Pitt. Even as the duo was keeping Pune on its toes - everyone wanted to see the action, and the international paparazzi had descended in full force - neighboring Mumbai was hosting an International Fair on Film Locales (IFFL). The fair saw other countries showcasing their attractions as locales for shooting films, but most of the participants were from India - state tourism boards, facility providers, film councils and other affiliated service providers.
Land of the Gods
Touting their scenic charms and rustic settings, some locations have begun tapping this opportunity in an organized fashion. "God's Own Country," the banner under which southern state of Kerala is marketed to tourists, is being sold to film producers as a place that delivers "more beauty per frame, more art per shot, more plots per story, more images per set, and more locales per schedule." The neighboring state of Andhra Pradesh has gone even further. Ramoji Film City in Hyderabad has been involved in several Hollywood productions and offers a whole range of facilities. "It is one of the largest, most comprehensive and advanced film production facilities in the world," says a spokesperson. Shooting is currently going on for one film (the company says it can't talk about it) and more than half-a-dozen have been completed.
Ramoji Film City offers all sorts of elaborate sets. If a director wants an airport or a medieval castle, she can have it. Also on tap are production crews, grid equipment, cameras and anything else a filmmaker might require. Post-production facilities include processing, printing, and digital and audio editing. "In terms of live-action feature film production, India is on its way to becoming a serious player in the economic 'runaway production' phenomenon," says Dileep Singh Rathore, producer and founder of the Mumbai-based On The Road Productions and the Los Angeles-based Kundalini Pictures. ("Runaway productions," as defined by the US Screen Actors Guild and the Directors Guild of America, "are developed and are intended for initial release/exhibition or television broadcast in the U.S. but are actually filmed in another country.")
Octopussy
Rathore, whose company handles the physical production and acts as co-producer for international projects shooting in South Asia, says the Indian film business has come a long way since gaining industry status in August 2000. "Many countries are competing to attract runaway productions," he says. "But India provides up to 60% cost savings on below-the-line expenses such as crew, materials and logistics. In addition, due to its robust domestic film industry - producing more than 1,000 films each year - the availability of highly skilled technicians, equipment and facilities has put India in an advantageous position."
Chaitanya Chinchlikar, marketing manager at Whistling Woods International, a new institute for film, television, animation and media arts that set up in Mumbai barely a year ago, echoes the same line. "Hollywood has long chased low-cost ways to produce content," he says. India will gain "in the coming years, as the economy becomes more and more global and competition forces media content producers to get even more aggressive in conserving costs." But, he adds a caveat: "The market for BPO services from Bollywood to Hollywood is relatively small at the moment."
Whistling Woods hopes to bring professionalism to the Indian film industry. "The institute will be a catalyst in bringing people to India as it offers an opportunity to interact and educate, which many Hollywood professionals are interested in," says Chinchlikar. "Once they are here, they can see the possibilities for themselves." Incidentally, the dean of Whistling Woods - Kurt Inderbitzin - is a filmmaker-producer and media business professional from Hollywood.
Among films wholly or partially shot in India are *The Bourne Supremacy* (2004), *In the Shadow of the Cobra* (2004), *Jungle Book* (1994), *City of Joy* (1992), *Octopussy* (1983), *Close Encounters of the Third Kind* (1977), *Tarzan Goes to India* (1962) and *The Drum* (1938). Says Rathore: "Approximately 80 productions from Hollywood have shot in India since the 1940s. In the past five years since the industry reforms, the number has grown exponentially. On an average, according to the union ministry of information and broadcasting, 15 feature productions are shot in India each year."
The Animation Army
India is becoming more prominent on the Hollywood locale list. But much of the current action is in animation. "India, with its wide base and intellectual property in the field of animation, offers key advantages to the global animation market," says a report produced by the Federation of Indian Chambers of Commerce & Industry (FICCI) and PricewaterhouseCoopers. "With technical expertise, highly-skilled manpower and international collaborations, the industry is going from strength to strength....
"Animation outsourcing is the primary work coming India's way and this trend is expected to continue over the next five years. During this period, a large chunk of the work will be of this nature, even though the industry has begun to move towards the next level in the animation outsourcing business as certain co-production assignments have started coming to India."
Animation companies are sprouting up all over India. These include UTV Toons in Mumbai, Moving Picture Company in Noida (near Delhi), Pentamedia Graphics in Chennai, Jadoo Works in Bangalore, Color Chips India in Hyderabad, and Toonz Animation India in Trivandrum (in Kerala).
The Mumbai-based Crest Animation Studios has several successes to its credit, though they are more in the TV arena. Its recent series *Jakers! The Adventures of Piggley Winks* has received an Annie nomination for the best animation television production for children. Crest's U.S. subsidiary - RichCrest Animation - has teamed up with independent producer and distributor Lions Gate to create three state-of-the-art animated feature films for Hollywood. This includes one based on William Steig's classic children's book, *Sylvester and the Magic Pebble.*
The Hyderabad-based DQ Entertainment bills itself as the largest animation outsourcing company. "We are now co-producing several TV series," says a spokesperson. The Mumbai-based Maya Entertainment has also been doing award-winning work in animation and special effects. From Chennai, Pentamedia Graphics has so far released four full-length animated movies, including *Sinbad: Beyond the Veil of Mists* and *Alibaba.*
"Companies in Bangalore, Hyderabad and Mumbai have all been part of VFX (visual effects) and animation shots for major Hollywood productions like *Spiderman 3, Cars,* and *Lord of the Rings,*" says Chinchlikar. For example, the Bangalore (Karnataka)-based Paprikaas Animation Studios is working on 3D-animated TV series, game cinematics and broadcast commercials. "In the pipeline are direct-to-video and full-length feature films with Tier I studios in Hollywood," says Paprikaas CEO Nandish Domlur. "Unfortunately, as these are unreleased titles, we are bound by non-disclosure agreements not to talk about them."
Toonz Animation is another rising star, with a client list that includes the biggest names in media and entertainment: Marvel, Hallmark, Paramount, Disney, and Cartoon Network. *Animation Magazine* has written up the company as one of the Top 10 multimedia studios in the world. Its pre-production services include script writing, storyboarding, character designing, color model creation, conceptual artwork, key layouts, key animation and key background. "We are working for television shows and direct-to-DVD feature films for Hollywood entertainment majors," says CEO P. Jayakumar. "Around 500 people work at our studios, including top professionals from the US, the UK, Canada, the Philippines and India."
In Hyderabad (Andhra Pradesh), Color Chips, an animation studio and integrated design solutions company, "is doing a lot of co-productions with Hollywood studios in the animation space," says chairman and managing director Sudhish S. Rambhotla. Incidentally, Color Chips also runs an animation training center.
Some firms have chosen even narrower niches. The Prasad Group in Chennai is into VFX (visual effects) and Digital Film Restoration projects. "We have already completed a number of such projects," says Mohan Krishnan, head of corporate communications. "We have a production-cum-sales facility in Hollywood and are discussing more projects with Hollywood studios and filmmakers." The Indian VFX market is expected to go up to $95 million by 2009 from $15 million today.
The large Indian IT firms also have a toe in this pond. Nipuna, the BPO subsidiary of Satyam Computers, has signed a deal with the German 4K Animation. The duo will work on animation projects for a Hollywood film - an international action, adventure and fantasy motion picture directed by Paul Nicholas. Infosys has partnered with Hollywood studios to develop customized content. TCS has set up a media and entertainment lab in Burbank, Calif.
But these companies seem more interested in back-office work such as writing the software to restrict unauthorized online video and music downloads, and making DVDs piracy proof. They are applying their core competencies to a new vertical and waiting to see whether it is worth extending their skill sets. This is, after all, a very different business.
The India Advantage
"At present, animation is the biggest player when it comes to outsourcing Hollywood to India," says Rathore. "India's cutting-edge IT skills, the large pool of highly-educated English speakers and lower manpower costs are the main reasons for outsourcing. A typical half-hour 3D animation TV episode costs between $70,000 and $100,000 to produce in India, compared to $170,000 to $250,000 in America. U.S. animators can cost $125 an hour; in India, they cost $25 an hour. India offers animation at 25% to 40% lower rates than other Asian studios and much lower than those of American studios. The total cost of making a full-length animated film in the U.S. is estimated to be $100 million to $175 million. In India, it can be made for $15 million to $25 million."
The latest National Association of Software & Service Companies (NASSCOM) report on the animation industry in India estimates that from the developers' perspective the global market will increase to $35 billion by 2009 from $25 billion in 2005. India's share will be $950 million; in 2005 it was $285 million. "Apart from the obvious cost arbitrage, the other advantages are high quality work, ability to scale, robust IT infrastructure, which is key to computer graphics content production, a large English-speaking base relative to other countries, and the advantage of a 12-hour time difference which helps to keep work going 24/7," says Domlur of Paprikaas. Jayakumar of Toonz notes, "Our familiarity with the Western style of storytelling is also a big advantage."
"It's hard to find a logical competitor to India, because India has a unique combination of three characteristics," says Chinchlikar of Whistling Woods. There is a huge English-speaking population, there is a vast labor market and the people are technologically up-to-date. "China fits the second and third points," adds Chinchlikar. "But language is a major barrier. And virtually all other developing countries fall short in at least one of the above areas. So, India is going to be the place to be in."
Back to the Future
"The potential for Indian companies is high, as the work outsourced is less than 1% as of today," says Rambhotla of Color Chips. Nandy of Pritish Nandy Communications has a more holistic vision. There is so much India can do, he says. "Pre-production, for instance," says Nandy. "Writing. We Indians write the English language far better and infinitely more creatively than most people in the world, including the English-speaking world. And the interesting thing is that our best filmmakers -- from Satyajit Ray and Raj Kapoor to Shekhar Kapoor and Ram Gopal Varma -- have always written their screenplays in English and then filled in the dialogue in the language they have used for the film. Hollywood and the English-speaking world are too arrogant to notice this talent. But the compulsions of cost and original treatment will drive them in this direction eventually."
Ravi Aron, a senior fellow at Wharton's Mack Center for Technological Innovation, has a different view. "It is not the quality or creativity of Indian writing that is in doubt. It is the cultural context in which such writing is set," he says. "Can Indian writers create characters and dialogue, and recreate the cultural experience of North America for American and European audiences? Writing is not a fungible skill that can be deployed independently of cultural context. Indian scriptwriters will not find it easy to write the script for a film set in New York about New Yorkers any more than Americans will find it easy to write about Mumbaikars (residents of Mumbai)."
While Nandy claims that India will outstrip Hollywood's theater revenues in six years, Aron says that's wishful thinking. He puts the numbers in perspective. "In 2005, Hollywood grossed about $35 billion from 300 films," he says. "The Indian film industry made about 1,000 films and grossed a little more than $1.5 billion. It is not the ticket revenues that count as much as the unit price of the ticket. Hollywood's higher revenue is because it sells in the U.S., Canada, the E.U. and Japan. It dominates all the big film-consuming markets in the world except for India. In 2005, the average revenue of a Hollywood film was about 75 times that of an Indian film. For the Indian film industry to challenge Hollywood it will have to sell tickets in volumes in these countries. The odd Indian film does reasonably well in these market segments. But that is just that -- the odd Indian film."
Understandably, it is not as though all the fruits of Hollywood are waiting to fall into India's lap. Domlur of Paprikaas points to a major problem. "There is a dearth of trained and production-ready artists," he says. "In-house training is mandatory for all production houses who hire students from mom-and-pop training shops." But he adds that some good training institutes are coming up. Jayakumar of Toonz says that radically improving output quality and productivity will be a major challenge in the coming years.
"We need to see further investment in facilities and equipment," says Rathore. "If a studio is going to pump $50-100 million into a project in a country, then you to want to ensure that the government is cooperating and inviting them with open arms. Otherwise they'll go elsewhere, where they are welcome."
The role of the government is a common grouse; everyone complains about lack of support. There are no tax breaks and incentives. In countries like South Korea, China, Canada and France, the industry has been fostered by the governments.
Aron points to a much broader issue. The Indian film industry can't be everything to everyone. "It is important to ask the question -what drives firms to offshore production centers?" says Aron. "Not just movie production houses but any business --why does a business start producing offshore?" He provides the answer: "In most industries - spanning heavy manufacturing through electronics, apparel and banking services - offshore production is rarely the first option. It is a firm's response to one or both of the following factors:
• Competition in its principal markets resulting in erosion of revenues;
• Rapid changes in the industry: in production, distribution and pricing of production and services.
"There is another reason why companies produce offshore. In fact, until the mid-1960s, this was the principal reason for U.S. multinationals to take this route. The corporation wants to extend its business imprint in a region. To do so, it locates some production in that region partly to produce content to local tastes and partly to anchor the corporation to its market. It can be seen that both sets of factors are operative in the case of the entertainment industry.
"For the year 2005, the average cost of production and marketing of films in the U.S. was between $92 million and $97 million. This means many large movie studios had returns of no more than 8% at best, while some hitherto successful studios had returns of 5% or less. Sales of DVDs declined, further eroding revenues. Online distribution of movies -- downloadable films -- is a serious concern for all production companies. Not only is technology (online distribution) changing the nature of the competition, but new players and new forms of content are rapidly competing for the same viewership dollars. Finally, other computer-mediated content forms - online games, video games and independently-produced video content on sites such as YouTube - are competing with films for audiences. So, like many other industries, Hollywood faces the double whammy of high costs and revenue pressures. And, like other industries, it is looking at alternatives. For instance, Canada is the destination for several productions, and now New Zealand and Eastern Europe are beginning to attract attention."
Aron argues that India needs to expand its business imprint in media and entertainment. The country has one of the largest cinema-watching populations and, with the rapid growth in size as well as the buying of power of the middle class, the Indian movie-watching market has become even more attractive. An additional feature is that growth of broadband in India will not penetrate the rural retail market in the near future. Even where it is available, it is small enough to leave a robust theater-going population intact. This, too, makes India an attractive destination.
All those who are scrambling to get onto the BPO bandwagon should realize the distinction between "Made in India" and "Made for India," Aron says. "In the traditional sense of offshoring - that is, using Indian skilled (and non-skilled labor) for global audiences - we will witness the following phases of growth. Production can be divided into artistic production (the output of writers, actors, musicians, cinematographers, directors, etc.) and non-artistic production (the set of activities that go into bringing a production to distribution-ready status). The first to be tapped will be the latter set of activities: production support to pre-production and post-production finishing.
"The artistic production activities will not easily migrate from the U.S. and other locations. There are various reasons for this. First, anything that needs to be shot on location will be shot at the intended location. Just because Kerala markets itself as 'God's Own Country,' you cannot shoot a film such as *You've Got Mail* there. Second, even studio pieces will largely be filmed in the U.S. (or Europe).
Recreating scenes from the U.S. in Indian studios is not easy. For one thing, technologically many of the studios in India are generations behind their western counterparts. And, for another, there is considerable artistic participation in studio production - set designers, costume designers, etc. So these, too, will not migrate in the near future in great volumes.
"'Made for India' is a different story altogether. Hollywood studios and independent financiers are now working with Indian counterparts to make films in India for an Indian audience but with some global reach, too. As this trend accelerates, we will see more films made for India through collaboration. Sony Pictures, Paramount, Hyde Park Entertainment and Disney are some examples. This, in turn, will have a second-order impact. It will see the diffusion of technologies and production techniques in India and will further enable India to bid for more segments of the production activity. So 'Made for India' will over time feed into the 'Made in India' trend.
"But this is not going to happen anytime soon. Recall that with IT and financial services, the presence of MNCs in India for more than a century created a robust Indian middle- and upper-middle-management layer that was fully acquainted with the West and was ready to offer services and production standards on par with the Western corporations. It will take some time for that to happen in India.
"Then there is another trend to keep in mind: the corporatization of Hollywood. As large corporations acquire movie studios (GE's acquisition of Universal is a case in point) and investment funds increase their funding of movies, there will be greater willingness to see it as 'a business' -- that is, decouple those parts of production that can be done offshore from those that need to be done onshore.
"Finally, don't underestimate the power of organized big labor in Hollywood. The entertainment industry is the bastion of unionized labor. Many actors and artists will not cross the union picket lines out of ideological sympathy. In the short run, unions will erect stiff barriers to offshoring. But over a period of time, it may well become counterproductive. Union intransigence and labor inflexibility were among the reasons that U.S. firms moved manufacturing to China. Now European firms are beginning to move to Asia for that reason.
"So, for some time, India will have to take a two-tack approach: welcome 'Made in India' projects and encourage Bollywood to collaborate with Hollywood in the 'Made for India' projects," says Aron.
For the optimists at home, it is only a question of whether it will happen tomorrow or the day after. Bringing India up to speed can be done. It will be done, says Nandy who is bursting with confidence. "We are good at virtually everything we do," he says. And India costs much less. "We are also ready to learn," he continues. "So anything that is BPO-ed out here will result in innovative options that could teach Hollywood a trick or two in terms of finding creative solutions to complex techie problems. That will be the ultimate benefit of offshoring in this space."
Back in Pune, Jolie and Pitt provoked a debate. Some residents argued that the movie should not have been allowed to disrupt life in the city, though the grumbling was directed less at the stars than at the army of foreign paparazzi surrounding them. At one point things got so tense that one of the guards -- who belonged to an outsourced security firm -- pulled out his gun to threaten a photographer. Though no bullets were fired, it was an apt metaphor: Whether it is a cameraman or a security guard, everybody in India wants to get in on the action.
Hollywood film stars Angelina Jolie and Brad Pitt have been shooting in the western India city of Pune for *A Mighty Heart,* the story of the Al Qaeda kidnapping of Wall Street Journal journalist Danny Pearl. A flotilla of Indian service providers, from film technicians to security guards, has been supporting them.
Jolie and Pitt represent just the visible tip of the iceberg. As Hollywood increasingly turns to India to provide some of its needs, business process outsourcing (BPO) is making its way to the top of the credit lines. "The scope is enormous in virtually every area," according to Pritish Nandy, founder-chairman of Pritish Nandy Communications, a content company in the news and entertainment business. "Currently, Hollywood appears to be looking at three areas: post production, animation and local production support. But these are nothing compared to the real opportunity areas."
Hollywood actor Will Smith talks on the sets of television show "Indian Idol" in Bombay. Smith is in India aiming to build a partnership with filmmakers in the world's most prolific movie industry. (AP Photo/Rajesh Nirgude)
Before getting into how BPO is transforming animation, consider the other two areas of activity: local production support and post production. The first lies in the gamut of "red carpet" services being rolled out for Jolie and Pitt. Even as the duo was keeping Pune on its toes - everyone wanted to see the action, and the international paparazzi had descended in full force - neighboring Mumbai was hosting an International Fair on Film Locales (IFFL). The fair saw other countries showcasing their attractions as locales for shooting films, but most of the participants were from India - state tourism boards, facility providers, film councils and other affiliated service providers.
Land of the Gods
Touting their scenic charms and rustic settings, some locations have begun tapping this opportunity in an organized fashion. "God's Own Country," the banner under which southern state of Kerala is marketed to tourists, is being sold to film producers as a place that delivers "more beauty per frame, more art per shot, more plots per story, more images per set, and more locales per schedule." The neighboring state of Andhra Pradesh has gone even further. Ramoji Film City in Hyderabad has been involved in several Hollywood productions and offers a whole range of facilities. "It is one of the largest, most comprehensive and advanced film production facilities in the world," says a spokesperson. Shooting is currently going on for one film (the company says it can't talk about it) and more than half-a-dozen have been completed.
Ramoji Film City offers all sorts of elaborate sets. If a director wants an airport or a medieval castle, she can have it. Also on tap are production crews, grid equipment, cameras and anything else a filmmaker might require. Post-production facilities include processing, printing, and digital and audio editing. "In terms of live-action feature film production, India is on its way to becoming a serious player in the economic 'runaway production' phenomenon," says Dileep Singh Rathore, producer and founder of the Mumbai-based On The Road Productions and the Los Angeles-based Kundalini Pictures. ("Runaway productions," as defined by the US Screen Actors Guild and the Directors Guild of America, "are developed and are intended for initial release/exhibition or television broadcast in the U.S. but are actually filmed in another country.")
Octopussy
Rathore, whose company handles the physical production and acts as co-producer for international projects shooting in South Asia, says the Indian film business has come a long way since gaining industry status in August 2000. "Many countries are competing to attract runaway productions," he says. "But India provides up to 60% cost savings on below-the-line expenses such as crew, materials and logistics. In addition, due to its robust domestic film industry - producing more than 1,000 films each year - the availability of highly skilled technicians, equipment and facilities has put India in an advantageous position."
Chaitanya Chinchlikar, marketing manager at Whistling Woods International, a new institute for film, television, animation and media arts that set up in Mumbai barely a year ago, echoes the same line. "Hollywood has long chased low-cost ways to produce content," he says. India will gain "in the coming years, as the economy becomes more and more global and competition forces media content producers to get even more aggressive in conserving costs." But, he adds a caveat: "The market for BPO services from Bollywood to Hollywood is relatively small at the moment."
Whistling Woods hopes to bring professionalism to the Indian film industry. "The institute will be a catalyst in bringing people to India as it offers an opportunity to interact and educate, which many Hollywood professionals are interested in," says Chinchlikar. "Once they are here, they can see the possibilities for themselves." Incidentally, the dean of Whistling Woods - Kurt Inderbitzin - is a filmmaker-producer and media business professional from Hollywood.
Among films wholly or partially shot in India are *The Bourne Supremacy* (2004), *In the Shadow of the Cobra* (2004), *Jungle Book* (1994), *City of Joy* (1992), *Octopussy* (1983), *Close Encounters of the Third Kind* (1977), *Tarzan Goes to India* (1962) and *The Drum* (1938). Says Rathore: "Approximately 80 productions from Hollywood have shot in India since the 1940s. In the past five years since the industry reforms, the number has grown exponentially. On an average, according to the union ministry of information and broadcasting, 15 feature productions are shot in India each year."
The Animation Army
India is becoming more prominent on the Hollywood locale list. But much of the current action is in animation. "India, with its wide base and intellectual property in the field of animation, offers key advantages to the global animation market," says a report produced by the Federation of Indian Chambers of Commerce & Industry (FICCI) and PricewaterhouseCoopers. "With technical expertise, highly-skilled manpower and international collaborations, the industry is going from strength to strength....
"Animation outsourcing is the primary work coming India's way and this trend is expected to continue over the next five years. During this period, a large chunk of the work will be of this nature, even though the industry has begun to move towards the next level in the animation outsourcing business as certain co-production assignments have started coming to India."
Animation companies are sprouting up all over India. These include UTV Toons in Mumbai, Moving Picture Company in Noida (near Delhi), Pentamedia Graphics in Chennai, Jadoo Works in Bangalore, Color Chips India in Hyderabad, and Toonz Animation India in Trivandrum (in Kerala).
The Mumbai-based Crest Animation Studios has several successes to its credit, though they are more in the TV arena. Its recent series *Jakers! The Adventures of Piggley Winks* has received an Annie nomination for the best animation television production for children. Crest's U.S. subsidiary - RichCrest Animation - has teamed up with independent producer and distributor Lions Gate to create three state-of-the-art animated feature films for Hollywood. This includes one based on William Steig's classic children's book, *Sylvester and the Magic Pebble.*
The Hyderabad-based DQ Entertainment bills itself as the largest animation outsourcing company. "We are now co-producing several TV series," says a spokesperson. The Mumbai-based Maya Entertainment has also been doing award-winning work in animation and special effects. From Chennai, Pentamedia Graphics has so far released four full-length animated movies, including *Sinbad: Beyond the Veil of Mists* and *Alibaba.*
"Companies in Bangalore, Hyderabad and Mumbai have all been part of VFX (visual effects) and animation shots for major Hollywood productions like *Spiderman 3, Cars,* and *Lord of the Rings,*" says Chinchlikar. For example, the Bangalore (Karnataka)-based Paprikaas Animation Studios is working on 3D-animated TV series, game cinematics and broadcast commercials. "In the pipeline are direct-to-video and full-length feature films with Tier I studios in Hollywood," says Paprikaas CEO Nandish Domlur. "Unfortunately, as these are unreleased titles, we are bound by non-disclosure agreements not to talk about them."
Toonz Animation is another rising star, with a client list that includes the biggest names in media and entertainment: Marvel, Hallmark, Paramount, Disney, and Cartoon Network. *Animation Magazine* has written up the company as one of the Top 10 multimedia studios in the world. Its pre-production services include script writing, storyboarding, character designing, color model creation, conceptual artwork, key layouts, key animation and key background. "We are working for television shows and direct-to-DVD feature films for Hollywood entertainment majors," says CEO P. Jayakumar. "Around 500 people work at our studios, including top professionals from the US, the UK, Canada, the Philippines and India."
In Hyderabad (Andhra Pradesh), Color Chips, an animation studio and integrated design solutions company, "is doing a lot of co-productions with Hollywood studios in the animation space," says chairman and managing director Sudhish S. Rambhotla. Incidentally, Color Chips also runs an animation training center.
Some firms have chosen even narrower niches. The Prasad Group in Chennai is into VFX (visual effects) and Digital Film Restoration projects. "We have already completed a number of such projects," says Mohan Krishnan, head of corporate communications. "We have a production-cum-sales facility in Hollywood and are discussing more projects with Hollywood studios and filmmakers." The Indian VFX market is expected to go up to $95 million by 2009 from $15 million today.
The large Indian IT firms also have a toe in this pond. Nipuna, the BPO subsidiary of Satyam Computers, has signed a deal with the German 4K Animation. The duo will work on animation projects for a Hollywood film - an international action, adventure and fantasy motion picture directed by Paul Nicholas. Infosys has partnered with Hollywood studios to develop customized content. TCS has set up a media and entertainment lab in Burbank, Calif.
But these companies seem more interested in back-office work such as writing the software to restrict unauthorized online video and music downloads, and making DVDs piracy proof. They are applying their core competencies to a new vertical and waiting to see whether it is worth extending their skill sets. This is, after all, a very different business.
The India Advantage
"At present, animation is the biggest player when it comes to outsourcing Hollywood to India," says Rathore. "India's cutting-edge IT skills, the large pool of highly-educated English speakers and lower manpower costs are the main reasons for outsourcing. A typical half-hour 3D animation TV episode costs between $70,000 and $100,000 to produce in India, compared to $170,000 to $250,000 in America. U.S. animators can cost $125 an hour; in India, they cost $25 an hour. India offers animation at 25% to 40% lower rates than other Asian studios and much lower than those of American studios. The total cost of making a full-length animated film in the U.S. is estimated to be $100 million to $175 million. In India, it can be made for $15 million to $25 million."
The latest National Association of Software & Service Companies (NASSCOM) report on the animation industry in India estimates that from the developers' perspective the global market will increase to $35 billion by 2009 from $25 billion in 2005. India's share will be $950 million; in 2005 it was $285 million. "Apart from the obvious cost arbitrage, the other advantages are high quality work, ability to scale, robust IT infrastructure, which is key to computer graphics content production, a large English-speaking base relative to other countries, and the advantage of a 12-hour time difference which helps to keep work going 24/7," says Domlur of Paprikaas. Jayakumar of Toonz notes, "Our familiarity with the Western style of storytelling is also a big advantage."
"It's hard to find a logical competitor to India, because India has a unique combination of three characteristics," says Chinchlikar of Whistling Woods. There is a huge English-speaking population, there is a vast labor market and the people are technologically up-to-date. "China fits the second and third points," adds Chinchlikar. "But language is a major barrier. And virtually all other developing countries fall short in at least one of the above areas. So, India is going to be the place to be in."
Back to the Future
"The potential for Indian companies is high, as the work outsourced is less than 1% as of today," says Rambhotla of Color Chips. Nandy of Pritish Nandy Communications has a more holistic vision. There is so much India can do, he says. "Pre-production, for instance," says Nandy. "Writing. We Indians write the English language far better and infinitely more creatively than most people in the world, including the English-speaking world. And the interesting thing is that our best filmmakers -- from Satyajit Ray and Raj Kapoor to Shekhar Kapoor and Ram Gopal Varma -- have always written their screenplays in English and then filled in the dialogue in the language they have used for the film. Hollywood and the English-speaking world are too arrogant to notice this talent. But the compulsions of cost and original treatment will drive them in this direction eventually."
Ravi Aron, a senior fellow at Wharton's Mack Center for Technological Innovation, has a different view. "It is not the quality or creativity of Indian writing that is in doubt. It is the cultural context in which such writing is set," he says. "Can Indian writers create characters and dialogue, and recreate the cultural experience of North America for American and European audiences? Writing is not a fungible skill that can be deployed independently of cultural context. Indian scriptwriters will not find it easy to write the script for a film set in New York about New Yorkers any more than Americans will find it easy to write about Mumbaikars (residents of Mumbai)."
While Nandy claims that India will outstrip Hollywood's theater revenues in six years, Aron says that's wishful thinking. He puts the numbers in perspective. "In 2005, Hollywood grossed about $35 billion from 300 films," he says. "The Indian film industry made about 1,000 films and grossed a little more than $1.5 billion. It is not the ticket revenues that count as much as the unit price of the ticket. Hollywood's higher revenue is because it sells in the U.S., Canada, the E.U. and Japan. It dominates all the big film-consuming markets in the world except for India. In 2005, the average revenue of a Hollywood film was about 75 times that of an Indian film. For the Indian film industry to challenge Hollywood it will have to sell tickets in volumes in these countries. The odd Indian film does reasonably well in these market segments. But that is just that -- the odd Indian film."
Understandably, it is not as though all the fruits of Hollywood are waiting to fall into India's lap. Domlur of Paprikaas points to a major problem. "There is a dearth of trained and production-ready artists," he says. "In-house training is mandatory for all production houses who hire students from mom-and-pop training shops." But he adds that some good training institutes are coming up. Jayakumar of Toonz says that radically improving output quality and productivity will be a major challenge in the coming years.
"We need to see further investment in facilities and equipment," says Rathore. "If a studio is going to pump $50-100 million into a project in a country, then you to want to ensure that the government is cooperating and inviting them with open arms. Otherwise they'll go elsewhere, where they are welcome."
The role of the government is a common grouse; everyone complains about lack of support. There are no tax breaks and incentives. In countries like South Korea, China, Canada and France, the industry has been fostered by the governments.
Aron points to a much broader issue. The Indian film industry can't be everything to everyone. "It is important to ask the question -what drives firms to offshore production centers?" says Aron. "Not just movie production houses but any business --why does a business start producing offshore?" He provides the answer: "In most industries - spanning heavy manufacturing through electronics, apparel and banking services - offshore production is rarely the first option. It is a firm's response to one or both of the following factors:
• Competition in its principal markets resulting in erosion of revenues;
• Rapid changes in the industry: in production, distribution and pricing of production and services.
"There is another reason why companies produce offshore. In fact, until the mid-1960s, this was the principal reason for U.S. multinationals to take this route. The corporation wants to extend its business imprint in a region. To do so, it locates some production in that region partly to produce content to local tastes and partly to anchor the corporation to its market. It can be seen that both sets of factors are operative in the case of the entertainment industry.
"For the year 2005, the average cost of production and marketing of films in the U.S. was between $92 million and $97 million. This means many large movie studios had returns of no more than 8% at best, while some hitherto successful studios had returns of 5% or less. Sales of DVDs declined, further eroding revenues. Online distribution of movies -- downloadable films -- is a serious concern for all production companies. Not only is technology (online distribution) changing the nature of the competition, but new players and new forms of content are rapidly competing for the same viewership dollars. Finally, other computer-mediated content forms - online games, video games and independently-produced video content on sites such as YouTube - are competing with films for audiences. So, like many other industries, Hollywood faces the double whammy of high costs and revenue pressures. And, like other industries, it is looking at alternatives. For instance, Canada is the destination for several productions, and now New Zealand and Eastern Europe are beginning to attract attention."
Aron argues that India needs to expand its business imprint in media and entertainment. The country has one of the largest cinema-watching populations and, with the rapid growth in size as well as the buying of power of the middle class, the Indian movie-watching market has become even more attractive. An additional feature is that growth of broadband in India will not penetrate the rural retail market in the near future. Even where it is available, it is small enough to leave a robust theater-going population intact. This, too, makes India an attractive destination.
All those who are scrambling to get onto the BPO bandwagon should realize the distinction between "Made in India" and "Made for India," Aron says. "In the traditional sense of offshoring - that is, using Indian skilled (and non-skilled labor) for global audiences - we will witness the following phases of growth. Production can be divided into artistic production (the output of writers, actors, musicians, cinematographers, directors, etc.) and non-artistic production (the set of activities that go into bringing a production to distribution-ready status). The first to be tapped will be the latter set of activities: production support to pre-production and post-production finishing.
"The artistic production activities will not easily migrate from the U.S. and other locations. There are various reasons for this. First, anything that needs to be shot on location will be shot at the intended location. Just because Kerala markets itself as 'God's Own Country,' you cannot shoot a film such as *You've Got Mail* there. Second, even studio pieces will largely be filmed in the U.S. (or Europe).
Recreating scenes from the U.S. in Indian studios is not easy. For one thing, technologically many of the studios in India are generations behind their western counterparts. And, for another, there is considerable artistic participation in studio production - set designers, costume designers, etc. So these, too, will not migrate in the near future in great volumes.
"'Made for India' is a different story altogether. Hollywood studios and independent financiers are now working with Indian counterparts to make films in India for an Indian audience but with some global reach, too. As this trend accelerates, we will see more films made for India through collaboration. Sony Pictures, Paramount, Hyde Park Entertainment and Disney are some examples. This, in turn, will have a second-order impact. It will see the diffusion of technologies and production techniques in India and will further enable India to bid for more segments of the production activity. So 'Made for India' will over time feed into the 'Made in India' trend.
"But this is not going to happen anytime soon. Recall that with IT and financial services, the presence of MNCs in India for more than a century created a robust Indian middle- and upper-middle-management layer that was fully acquainted with the West and was ready to offer services and production standards on par with the Western corporations. It will take some time for that to happen in India.
"Then there is another trend to keep in mind: the corporatization of Hollywood. As large corporations acquire movie studios (GE's acquisition of Universal is a case in point) and investment funds increase their funding of movies, there will be greater willingness to see it as 'a business' -- that is, decouple those parts of production that can be done offshore from those that need to be done onshore.
"Finally, don't underestimate the power of organized big labor in Hollywood. The entertainment industry is the bastion of unionized labor. Many actors and artists will not cross the union picket lines out of ideological sympathy. In the short run, unions will erect stiff barriers to offshoring. But over a period of time, it may well become counterproductive. Union intransigence and labor inflexibility were among the reasons that U.S. firms moved manufacturing to China. Now European firms are beginning to move to Asia for that reason.
"So, for some time, India will have to take a two-tack approach: welcome 'Made in India' projects and encourage Bollywood to collaborate with Hollywood in the 'Made for India' projects," says Aron.
For the optimists at home, it is only a question of whether it will happen tomorrow or the day after. Bringing India up to speed can be done. It will be done, says Nandy who is bursting with confidence. "We are good at virtually everything we do," he says. And India costs much less. "We are also ready to learn," he continues. "So anything that is BPO-ed out here will result in innovative options that could teach Hollywood a trick or two in terms of finding creative solutions to complex techie problems. That will be the ultimate benefit of offshoring in this space."
Back in Pune, Jolie and Pitt provoked a debate. Some residents argued that the movie should not have been allowed to disrupt life in the city, though the grumbling was directed less at the stars than at the army of foreign paparazzi surrounding them. At one point things got so tense that one of the guards -- who belonged to an outsourced security firm -- pulled out his gun to threaten a photographer. Though no bullets were fired, it was an apt metaphor: Whether it is a cameraman or a security guard, everybody in India wants to get in on the action.
MII Adds Six More Service Outsourcing Cities
China's Ministry of Information Industry, Ministry of Commerce and Ministry of Science and Technology have approved six more Chinese cities as the second batch of recognized China Service Outsourcing Zones.
The six cities are Beijing, Tianjin, Nanjing, Wuhan, Jinan and Hangzhou. They have each signed a five-year agreement with MII, MC and MST to each carry the title of China Service Outsourcing Zone.
At present, China's software and information service accounts for over 65% of the total domestic market sales and the export of software and information service is increasing by about 28% and is expected to reach US$12.5 billion by 2010.
With the addition of these six cities, China now has 11 cities serving as service outsourcing bases and they are expected to help better integrate the local resources and create a better image for the Chinese service outsourcing industry.
The first batch of cities listed as service outsourcing bases in 2006 were Shanghai, Xi'an, Dalian, Shenzhen and Chengdu.
The six cities are Beijing, Tianjin, Nanjing, Wuhan, Jinan and Hangzhou. They have each signed a five-year agreement with MII, MC and MST to each carry the title of China Service Outsourcing Zone.
At present, China's software and information service accounts for over 65% of the total domestic market sales and the export of software and information service is increasing by about 28% and is expected to reach US$12.5 billion by 2010.
With the addition of these six cities, China now has 11 cities serving as service outsourcing bases and they are expected to help better integrate the local resources and create a better image for the Chinese service outsourcing industry.
The first batch of cities listed as service outsourcing bases in 2006 were Shanghai, Xi'an, Dalian, Shenzhen and Chengdu.
1/06/2007
Outsourcing U.S. foreign policy: the ultimate rip-off
By PHK
John Dexter’s letter “Working for the Government, or Acting as It?” to the WaPo editors in reaction to a December 26 page A-19 article by Glenn Kessler struck a raw nerve. So I dug up Kessler’s “Old Iraq Strategy Lives On In Weekly Progress Reports.” In it, Kessler mentioned, but peculiarly did not question - as retired U.S. Foreign Service Officer Dexter pointed out - the outsourcing of the process of administering American foreign policy in Iraq to BearingPoint, Inc. by the State Department for a mere $2 million.
Kessler’s article, in fact, alludes - almost under the radar - to what may turn out to be the tip of yet another contractor cronyism iceberg – or perhaps more accurately given the terrain and changes in Congress, minefield. But this is more than just your ordinary Teapot Dome scandal – it’s a scandal that goes to the essence of government itself.
Reams have been written – and we’re told that the new Democratic Congress is preparing to hold hearings - on the waste, fraud, abuse, corruption, mismanagement and lack of oversight surrounding huge Pentagon-related Iraq and Afghanistan war contracts to such now household company names as Halliburton, SAIC and Lockheed-Martin. There are also indications that the House’s Government Reform Committee under new committee chair Henry Waxman (D-Calif) and Homeland Security Committee under Bennie Thompson (D-Miss) will also closely examine contractor abuse and political corruption in their respective spheres.
Waxman has proposed the establishment of five subcommittees, the first to focus on national security and international relations.
But what about the House Foreign Affairs or Senate Foreign Relations Committees?
Will they too focus on problems surrounding State Department and USAID contractors where substantial sums have also changed from public to private hands in the vain hope of turning Iraq and Afghanistan into models of western democratic nations in the heart of the Middle East? Or will these committees stand aside and let Waxman bear the brunt of the investigatory process? I certainly hope not. Beyond the financial waste and abuse that may well be lurking here lies the broader issue of outsourcing the integrity and accountability of our foreign policy.
It doesn’t take much googling to put at least a few of the pieces together with respect to the incredible magnitude of the privatization of American foreign policy during the W administration – and not just what has occurred under the auspices of the DOD.
As others have suggested, this vicious turning riches-into-more-riches cycle for giant corporations includes corporate PAC and other campaign contributions to W’s election and reelection campaigns as well as those to selected members of Congress.
Yet, at least some of the big-ticket projects which the Republicans in Congress and the White House have blithely tossed to their pals in the private sector over the past six years would have been handled by career federal employees in times past, at, I would venture to suggest, far less expense, far more loyalty to the common good and with greater expertise.
BearingPoint represents another of the many private centipede contractors tied by enormous strings to thousands of subcontractors which eat away at the traditional functions of the U.S. government. Given the nature and enormity of this single corporation’s operation – I’ve read that it has contracts from all 14 US government departments - I’ve undoubtedly only stumbled onto bits and pieces of its whole.
What is BearingPoint?
From 1997 - October 2002, BearingPoint was the consulting arm of the more than a century old auditing firm KPMG. In the wake of the Enron-Arthur Andersen debacle, KPMG’s less-than-five-year-old consulting arm was quickly spun off under its new name.
BearingPoint aka KPMG consulting, however, had already entered the lucrative foreign aid contracting business during the 1990s in the former Yugoslavia at a time when USAID had begun outsourcing ever more of the tasks assigned it, in part at least, because this was the only way the Agency could respond to increasing US governmental demands for its services despite its shrinking staff. But it wasn’t until after 2000 that enormous civilian foreign affairs contracts started to flow in BearingPoint’s direction.
By that time, career USAID, State and USIA staffs had been dramatically reduced, thanks in good part to an isolationist Republican Congress that thought the world was flat and ended at the ocean’s edge and a Democratic White House that wanted to demonstrate that it could dramatically reduce the size of the US government in line with the “peace-dividend” at the “end of history” after the end of the Cold War.
Yet even during the 1990s, overall coordination for US government spending on civilian democracy-building-type projects for the Soviet Union and the former Yugoslavia took place within specially created offices for each in the State Department. I remember having to comply with their decisions, whether I agreed or not. These offices were staffed largely by career foreign service and civil servants even though much of the money was contracted out and the heads of the offices had strong political connections.
Thus outsourcing had already become the name of the civilian foreign affairs projects and programs game well before W rode into town. But at least it was career government employees - tending to see things in terms of the common public good that policed the private contractors – not private contractors “policing themselves” with all eyes focused principally on their company’s balance sheet.
As it turns out, BearingPoint’s current $2 million contract with the State Department to administer the government’s Iraq policy process is, in fact, small potatoes compared to the billions of dollars in contracts BearingPoint, Inc. has thus far received from USAID for projects just in connection with the economies of Iraq and Afghanistan.
BearingPoint, unsurprisingly therefore, turns up on the Center for Corporate Policy's list of one of ten major corporations in 2004 to profit the most from the Iraq war as well as one of the top 100 federal contractors overall. What distinguishes BearingPoint from companies that have profited even more - for instance Halliburton and Lockheed Martin - is that BearingPoint’s largest contracts come from USAID, not the military.
BearingPoint has also profited from DOD contracts and even more mightily from Department of Homeland Security contracts (for things like improving airport security) but the biggest single grant I located was for a second round USAID economic contract for Iraq awarded to BearingPoint in 2005.
BearingPoint’s initial USAID contract for the project which had been increased from $79, 583,885 to $103,500,000 by the time it had ended was then topped by that new contract for $184,637,237 in 2005. All together, BearingPoint received from USAID, between 2003-2005, contracts worth $288,137,237 solely for its work in Iraq – a remarkable accomplishment in less than three years.
What’s wrong with this picture?
Not only has BearingPoint profited mightily from huge USAID projects, it turns out that it wrote the specifications for USAID’s contract for the original Iraq economic project. In contrast, the other nine contractors who also bid on the proposal had only a single week to read the specifications written by BearingPoint and submit their final bids. In essence, this turned the entire competitive bidding process into a sham.
Results? BearingPoint hardly received so much as a slap on the wrist. Instead, it was rewarded with that first nearly 80 million dollar contract and then, within less than two years, was allowed to “compete” for - no surprises here – and won an even larger contract for a follow-up project. This, despite the irregularities that surrounded the first contract and not to mention the fact that the USAID Inspector General’s office found the company out of compliance in its administration of a grant for similar work in Afghanistan.
Wait: there’s more . . .
Where does loyalty lie?
Kessler’s article tells us that not only do ten employees of BearingPoint, Inc. write State’s thirty page weekly “progress” report on Iraq but that staff, working out of offices in the State Department, “arrange the meetings, set the agendas, take notes, and provide summaries of the discussions” for the working groups across the US government that implement Iraq policy on a daily basis. In addition, according to Kessler, BearingPoint “maintains the website of the US Embassy in Baghdad.” Would someone please tell me how many other Embassy web pages are maintained by contractors - and why any are?
More to this post’s point, if BearingPoint writes the government’s weekly “Iraq report card” – whether the categories it uses to “classify” the data are still relevant or not – then it is highly likely that its employees sit in positions that no other contract staff does. Thus, BearingPoint employees have the unique ability to present information in the reports cited so as to make their own employer’s project results look good – or at least not as ineffectual as they might otherwise appear.
BearingPoint also has access to what was once considered privileged information by virtue of its staff’s strategic place - in Kessler’s words, “arranging interagency meetings, setting their agendas, taking notes and providing summaries of discussions.” They are, therefore, also in a unique position to learn what funding for what types of projects is coming down the line, to know how their competitors are faring and even which officials are likely to support what.
The usual rationale most frequently resorted to by the-privatize-the-government conservative crowd is that contracting out saves the government money because contract staffs are allegedly cheaper than permanent government workers. In reality, this assertion is highly questionable.
If contractors can be said to be cheaper, it would have to be because of retirement benefits. Excluding the pension question, however, I understand that a contract employee costs 20-50 percent more to the US government than does a full time government employee. And as Joseph Neff of the Raleigh, North Carolina News & Observer wrote on December 24, “US taxpayers pay the premiums to insurance companies for these contractors. When the contractors are killed or injured in war, taxpayers pay the benefits, too. . . . No agency regulates the premiums, and no one tracks the overall costs.”
It is undisputed that government short term contracts for commercial tasks and certain nongovernmental functions are beneficial. For example, no one expects the government to get into the paper towel/toilet paper manufacturing business. But selling out the policy-and-programs store to a private profit making enterprise is something else again. As Dexter pointed out in responding to Kessler’s article, the “normal functions of responsible government agencies [are] not technical or advisory services that can be ‘privatized’ without compromising the integrity and accountability” of government itself.
Tracing the entangled relationships between various kinds of campaign contributions and lobbying efforts is another ballgame. But it does concern me that BearingPoint contributed $2,000 to the 2006 reelection campaign of Bennie Thompson, who now chairs the House Homeland Security Committee, and $10,000 for the same campaign to Tom Davis, now the ranking member of the House Government Reform Committee. The good news: at least Henry Waxman, the latter committee’s new chair does not appear on any BearingPoint pay-off Congressional list that I have found and neither does Tom Lantos, the new chair of House Foreign Affairs Committee. This gives hope for genuine reform.
Only time will tell whether the 110th Congress will turn more than fleeting attention to BearingPoint and other corporations who have also reaped untold profits from the civilian side of the Iraq fiasco. But while they’re at it, I wish they’d also look at something else.
Once upon a time we had a career, professional civil and Foreign Service large enough to handle our government’s important tasks. This system supplanted the corrupt, inefficient spoils system that had gone before. The new Civil and Foreign Service systems were design to operate on merit principles, to avoid nepotism and to employ professionals with the consistent skills and expertise needed to operate an ever more complex government.
This system functioned well for years – but beginning in 1980 when the anti-government movement hit Washington, it began to falter. The politicization of the federal bureaucracy is now at fever pitch.
Yet, if US taxpayers want competent, uncorrupt government then they also need to bite the bullet and pay for it. This means a turn-around in the number and quality of full-time career government employees supported by strong ethics legislation with teeth in it.
Would this Congress please, at least, give both a try?
This post was prepared with assistance from Washington attorney Elizabeth D. Dyson who worked in the General Counsel’s office at the US Office of Personnel Management for 15 years.
John Dexter’s letter “Working for the Government, or Acting as It?” to the WaPo editors in reaction to a December 26 page A-19 article by Glenn Kessler struck a raw nerve. So I dug up Kessler’s “Old Iraq Strategy Lives On In Weekly Progress Reports.” In it, Kessler mentioned, but peculiarly did not question - as retired U.S. Foreign Service Officer Dexter pointed out - the outsourcing of the process of administering American foreign policy in Iraq to BearingPoint, Inc. by the State Department for a mere $2 million.
Kessler’s article, in fact, alludes - almost under the radar - to what may turn out to be the tip of yet another contractor cronyism iceberg – or perhaps more accurately given the terrain and changes in Congress, minefield. But this is more than just your ordinary Teapot Dome scandal – it’s a scandal that goes to the essence of government itself.
Reams have been written – and we’re told that the new Democratic Congress is preparing to hold hearings - on the waste, fraud, abuse, corruption, mismanagement and lack of oversight surrounding huge Pentagon-related Iraq and Afghanistan war contracts to such now household company names as Halliburton, SAIC and Lockheed-Martin. There are also indications that the House’s Government Reform Committee under new committee chair Henry Waxman (D-Calif) and Homeland Security Committee under Bennie Thompson (D-Miss) will also closely examine contractor abuse and political corruption in their respective spheres.
Waxman has proposed the establishment of five subcommittees, the first to focus on national security and international relations.
But what about the House Foreign Affairs or Senate Foreign Relations Committees?
Will they too focus on problems surrounding State Department and USAID contractors where substantial sums have also changed from public to private hands in the vain hope of turning Iraq and Afghanistan into models of western democratic nations in the heart of the Middle East? Or will these committees stand aside and let Waxman bear the brunt of the investigatory process? I certainly hope not. Beyond the financial waste and abuse that may well be lurking here lies the broader issue of outsourcing the integrity and accountability of our foreign policy.
It doesn’t take much googling to put at least a few of the pieces together with respect to the incredible magnitude of the privatization of American foreign policy during the W administration – and not just what has occurred under the auspices of the DOD.
As others have suggested, this vicious turning riches-into-more-riches cycle for giant corporations includes corporate PAC and other campaign contributions to W’s election and reelection campaigns as well as those to selected members of Congress.
Yet, at least some of the big-ticket projects which the Republicans in Congress and the White House have blithely tossed to their pals in the private sector over the past six years would have been handled by career federal employees in times past, at, I would venture to suggest, far less expense, far more loyalty to the common good and with greater expertise.
BearingPoint represents another of the many private centipede contractors tied by enormous strings to thousands of subcontractors which eat away at the traditional functions of the U.S. government. Given the nature and enormity of this single corporation’s operation – I’ve read that it has contracts from all 14 US government departments - I’ve undoubtedly only stumbled onto bits and pieces of its whole.
What is BearingPoint?
From 1997 - October 2002, BearingPoint was the consulting arm of the more than a century old auditing firm KPMG. In the wake of the Enron-Arthur Andersen debacle, KPMG’s less-than-five-year-old consulting arm was quickly spun off under its new name.
BearingPoint aka KPMG consulting, however, had already entered the lucrative foreign aid contracting business during the 1990s in the former Yugoslavia at a time when USAID had begun outsourcing ever more of the tasks assigned it, in part at least, because this was the only way the Agency could respond to increasing US governmental demands for its services despite its shrinking staff. But it wasn’t until after 2000 that enormous civilian foreign affairs contracts started to flow in BearingPoint’s direction.
By that time, career USAID, State and USIA staffs had been dramatically reduced, thanks in good part to an isolationist Republican Congress that thought the world was flat and ended at the ocean’s edge and a Democratic White House that wanted to demonstrate that it could dramatically reduce the size of the US government in line with the “peace-dividend” at the “end of history” after the end of the Cold War.
Yet even during the 1990s, overall coordination for US government spending on civilian democracy-building-type projects for the Soviet Union and the former Yugoslavia took place within specially created offices for each in the State Department. I remember having to comply with their decisions, whether I agreed or not. These offices were staffed largely by career foreign service and civil servants even though much of the money was contracted out and the heads of the offices had strong political connections.
Thus outsourcing had already become the name of the civilian foreign affairs projects and programs game well before W rode into town. But at least it was career government employees - tending to see things in terms of the common public good that policed the private contractors – not private contractors “policing themselves” with all eyes focused principally on their company’s balance sheet.
As it turns out, BearingPoint’s current $2 million contract with the State Department to administer the government’s Iraq policy process is, in fact, small potatoes compared to the billions of dollars in contracts BearingPoint, Inc. has thus far received from USAID for projects just in connection with the economies of Iraq and Afghanistan.
BearingPoint, unsurprisingly therefore, turns up on the Center for Corporate Policy's list of one of ten major corporations in 2004 to profit the most from the Iraq war as well as one of the top 100 federal contractors overall. What distinguishes BearingPoint from companies that have profited even more - for instance Halliburton and Lockheed Martin - is that BearingPoint’s largest contracts come from USAID, not the military.
BearingPoint has also profited from DOD contracts and even more mightily from Department of Homeland Security contracts (for things like improving airport security) but the biggest single grant I located was for a second round USAID economic contract for Iraq awarded to BearingPoint in 2005.
BearingPoint’s initial USAID contract for the project which had been increased from $79, 583,885 to $103,500,000 by the time it had ended was then topped by that new contract for $184,637,237 in 2005. All together, BearingPoint received from USAID, between 2003-2005, contracts worth $288,137,237 solely for its work in Iraq – a remarkable accomplishment in less than three years.
What’s wrong with this picture?
Not only has BearingPoint profited mightily from huge USAID projects, it turns out that it wrote the specifications for USAID’s contract for the original Iraq economic project. In contrast, the other nine contractors who also bid on the proposal had only a single week to read the specifications written by BearingPoint and submit their final bids. In essence, this turned the entire competitive bidding process into a sham.
Results? BearingPoint hardly received so much as a slap on the wrist. Instead, it was rewarded with that first nearly 80 million dollar contract and then, within less than two years, was allowed to “compete” for - no surprises here – and won an even larger contract for a follow-up project. This, despite the irregularities that surrounded the first contract and not to mention the fact that the USAID Inspector General’s office found the company out of compliance in its administration of a grant for similar work in Afghanistan.
Wait: there’s more . . .
Where does loyalty lie?
Kessler’s article tells us that not only do ten employees of BearingPoint, Inc. write State’s thirty page weekly “progress” report on Iraq but that staff, working out of offices in the State Department, “arrange the meetings, set the agendas, take notes, and provide summaries of the discussions” for the working groups across the US government that implement Iraq policy on a daily basis. In addition, according to Kessler, BearingPoint “maintains the website of the US Embassy in Baghdad.” Would someone please tell me how many other Embassy web pages are maintained by contractors - and why any are?
More to this post’s point, if BearingPoint writes the government’s weekly “Iraq report card” – whether the categories it uses to “classify” the data are still relevant or not – then it is highly likely that its employees sit in positions that no other contract staff does. Thus, BearingPoint employees have the unique ability to present information in the reports cited so as to make their own employer’s project results look good – or at least not as ineffectual as they might otherwise appear.
BearingPoint also has access to what was once considered privileged information by virtue of its staff’s strategic place - in Kessler’s words, “arranging interagency meetings, setting their agendas, taking notes and providing summaries of discussions.” They are, therefore, also in a unique position to learn what funding for what types of projects is coming down the line, to know how their competitors are faring and even which officials are likely to support what.
The usual rationale most frequently resorted to by the-privatize-the-government conservative crowd is that contracting out saves the government money because contract staffs are allegedly cheaper than permanent government workers. In reality, this assertion is highly questionable.
If contractors can be said to be cheaper, it would have to be because of retirement benefits. Excluding the pension question, however, I understand that a contract employee costs 20-50 percent more to the US government than does a full time government employee. And as Joseph Neff of the Raleigh, North Carolina News & Observer wrote on December 24, “US taxpayers pay the premiums to insurance companies for these contractors. When the contractors are killed or injured in war, taxpayers pay the benefits, too. . . . No agency regulates the premiums, and no one tracks the overall costs.”
It is undisputed that government short term contracts for commercial tasks and certain nongovernmental functions are beneficial. For example, no one expects the government to get into the paper towel/toilet paper manufacturing business. But selling out the policy-and-programs store to a private profit making enterprise is something else again. As Dexter pointed out in responding to Kessler’s article, the “normal functions of responsible government agencies [are] not technical or advisory services that can be ‘privatized’ without compromising the integrity and accountability” of government itself.
Tracing the entangled relationships between various kinds of campaign contributions and lobbying efforts is another ballgame. But it does concern me that BearingPoint contributed $2,000 to the 2006 reelection campaign of Bennie Thompson, who now chairs the House Homeland Security Committee, and $10,000 for the same campaign to Tom Davis, now the ranking member of the House Government Reform Committee. The good news: at least Henry Waxman, the latter committee’s new chair does not appear on any BearingPoint pay-off Congressional list that I have found and neither does Tom Lantos, the new chair of House Foreign Affairs Committee. This gives hope for genuine reform.
Only time will tell whether the 110th Congress will turn more than fleeting attention to BearingPoint and other corporations who have also reaped untold profits from the civilian side of the Iraq fiasco. But while they’re at it, I wish they’d also look at something else.
Once upon a time we had a career, professional civil and Foreign Service large enough to handle our government’s important tasks. This system supplanted the corrupt, inefficient spoils system that had gone before. The new Civil and Foreign Service systems were design to operate on merit principles, to avoid nepotism and to employ professionals with the consistent skills and expertise needed to operate an ever more complex government.
This system functioned well for years – but beginning in 1980 when the anti-government movement hit Washington, it began to falter. The politicization of the federal bureaucracy is now at fever pitch.
Yet, if US taxpayers want competent, uncorrupt government then they also need to bite the bullet and pay for it. This means a turn-around in the number and quality of full-time career government employees supported by strong ethics legislation with teeth in it.
Would this Congress please, at least, give both a try?
This post was prepared with assistance from Washington attorney Elizabeth D. Dyson who worked in the General Counsel’s office at the US Office of Personnel Management for 15 years.
Outsourcing Trends for 2007
India will remain on top, but other countries and cities will show up on the radar.
January 5, 2007
By Kalpana Shah
Business transformation will drive global companies to seek out a greater degree of technology outsourcing in the year ahead, according to two consulting firms.
neoIT, a San Mateo, California-based consulting firm specializing in services globalization, released a research note Friday predicting several trends that will dominate the outsourcing world in 2007.
Several of neoIT’s predictions echoed those of Tholons, a Washington, D.C.-based investment, advisory, and management firm, which released its forecasts last month.
Both firms predict that M&A activity will increase this year, with outsourcing services companies buying consulting firms or those firms that have local knowledge in the countries where their customers reside.
Similarly, companies from developed countries will buy firms in countries like India, the Philippines, and Russia to gain access to lower-cost talent.
Cities such as Prague, in the Czech Republic; Halifax, Canada; Budapest, Hungary; Warsaw, Poland; Pune, India; and Bucharest, Romania have already become centers for outsourcing, but they are becoming more expensive and less differentiated.
As a result, other cities such as Bratislava, Slovakia; Ho Chi Minh City, Vietnam; Kolkata, India; Xi’an, China; Buenos Aires, Argentina; Krakow, Poland; Colombo, Sri Lanka; Dubai, United Arab Emirates; and Sofia, Bulgaria are on their way to becoming centers of outsourcing in 2007, according to the study from Tholons.
neoIT, however, predicts that top cities such as Bangalore, New Delhi, and Chennai—all in India—will continue to attract new companies in 2007 despite rising costs.
Cities of Excellence
India will remain the top destination for IT services, but buyers will look for cities of excellence in other countries where they can leverage employee skills.
Tholons strongly feels that the year 2007 will be that of small and medium enterprises (SMEs), which will play a significant role in the services globalization arena.
Anticipating the next wave, private equity investors will invest up to $5 billion in the Indian market to fund the expansion plans of business process outsourcing (BPO) and knowledge process outsourcing firms, predicted CEO Avinash Vashistha.
While not mentioning SMEs, neoIT thinks existing BPO firms will scale up the value chain by providing a layer of analytics on top of the work they already do, such as managing payroll and other human resources functions.
Both firms’ reports refer to the coming wave of outsourcing contract renewals. Tholons predicts that many large contracts will be carved into several pieces, with buyers opting for the best-of-breed approach in selecting service providers.
Countries such as the Philippines will see increased BPO activity while the high-tech Russian outsourcing industry will grow 40 percent next year. A country like Sri Lanka, offering cost-effective financial services, will see huge traction from buyers, according to the Tholons study.
The neoIT research brief also predicts that billing rates by top suppliers such as Accenture, IBM, Wipro, and Infosys will increase by 2 to 3 percent due to the growing demand for skilled resources, a rise in wages, and increased overhead incurred in maintaining quality or ensuring tight security.
January 5, 2007
By Kalpana Shah
Business transformation will drive global companies to seek out a greater degree of technology outsourcing in the year ahead, according to two consulting firms.
neoIT, a San Mateo, California-based consulting firm specializing in services globalization, released a research note Friday predicting several trends that will dominate the outsourcing world in 2007.
Several of neoIT’s predictions echoed those of Tholons, a Washington, D.C.-based investment, advisory, and management firm, which released its forecasts last month.
Both firms predict that M&A activity will increase this year, with outsourcing services companies buying consulting firms or those firms that have local knowledge in the countries where their customers reside.
Similarly, companies from developed countries will buy firms in countries like India, the Philippines, and Russia to gain access to lower-cost talent.
Cities such as Prague, in the Czech Republic; Halifax, Canada; Budapest, Hungary; Warsaw, Poland; Pune, India; and Bucharest, Romania have already become centers for outsourcing, but they are becoming more expensive and less differentiated.
As a result, other cities such as Bratislava, Slovakia; Ho Chi Minh City, Vietnam; Kolkata, India; Xi’an, China; Buenos Aires, Argentina; Krakow, Poland; Colombo, Sri Lanka; Dubai, United Arab Emirates; and Sofia, Bulgaria are on their way to becoming centers of outsourcing in 2007, according to the study from Tholons.
neoIT, however, predicts that top cities such as Bangalore, New Delhi, and Chennai—all in India—will continue to attract new companies in 2007 despite rising costs.
Cities of Excellence
India will remain the top destination for IT services, but buyers will look for cities of excellence in other countries where they can leverage employee skills.
Tholons strongly feels that the year 2007 will be that of small and medium enterprises (SMEs), which will play a significant role in the services globalization arena.
Anticipating the next wave, private equity investors will invest up to $5 billion in the Indian market to fund the expansion plans of business process outsourcing (BPO) and knowledge process outsourcing firms, predicted CEO Avinash Vashistha.
While not mentioning SMEs, neoIT thinks existing BPO firms will scale up the value chain by providing a layer of analytics on top of the work they already do, such as managing payroll and other human resources functions.
Both firms’ reports refer to the coming wave of outsourcing contract renewals. Tholons predicts that many large contracts will be carved into several pieces, with buyers opting for the best-of-breed approach in selecting service providers.
Countries such as the Philippines will see increased BPO activity while the high-tech Russian outsourcing industry will grow 40 percent next year. A country like Sri Lanka, offering cost-effective financial services, will see huge traction from buyers, according to the Tholons study.
The neoIT research brief also predicts that billing rates by top suppliers such as Accenture, IBM, Wipro, and Infosys will increase by 2 to 3 percent due to the growing demand for skilled resources, a rise in wages, and increased overhead incurred in maintaining quality or ensuring tight security.
订阅：
博文 (Atom)
