The Outsourcing Upstarts

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Besides costs, considerations include the education and language skills of workers, the availability of labor, and attrition risk. A country's economic and political environment and the quality of its infrastructure also factor into outsourcing decisions. Some emerging countries may not appeal to U.S. companies as outsourcing destinations but may find markets in other parts of the world. For instance, the appeal of Pakistan's IT workforce of 90,000 people has been overshadowed by post-September 11 security concerns. "It's fallen off the radar screen of U.S. buyers," says Frances Karamouzis, vice-president for research at Gartner. Other analysts say there is still a market for Pakistan's services in the Middle East. And countries such as Senegal and Morocco are becoming attractive places for French-language call-center outsourcing for Francophone Europe.

Infrastructure Is Key

HireRight found it easy to do business in Estonia in part because of its political and economic environment, as well as its infrastructure and cultural affinity. Estonia has invested significant resources in improving its technology infrastructure since it gained independence from the Soviet Union in 1991. During the late '90s, the country began modernizing its telecommunications infrastructure and providing Internet access and computer labs for schools.

Estonia's Baltic neighbors, Latvia and Lithuania, also former members of the USSR, have undertaken similar initiatives. Since the late '90s, there's been a conscious effort on the part of all three governments to use technology to transform economies, according to research from VTT Technical Research Centre of Finland. "Most countries were trying to attract tourism and build a manufacturing economy, but locations like India have shown them that you can have a vibrant services economy that is more vibrant than a manufacturing economy," says Atul Vashistha, chief executive of management consultancy NeoIT.com and co-author of the book The Offshore Nation.

Building a vibrant services economy, though, often takes buy-in from the government. India, for instance, knew it needed to overcome cumbersome government policies and procedures and poor communications infrastructure to become a successful outsourcing destination (see BusinessWeek.com, 3/19/07, "The Trouble with India"). In 1991, it created an autonomous agency known as the Software Technology Parks of India under the Ministry of Communication & Information Technology. The agency helps provide the technology infrastructure for companies that want to do business in India and serves as a liaison between government and industry. It also helps provide tax breaks and other incentives for doing business in India.

Kenya's TEAMS

Government support is crucial, given the significant investment in communications systems and liberalization of the telecom sector. Kenya, for instance, is trying to become a destination for business process and IT outsourcing. The Kenyan government has worked in recent years to liberalize its telecom sector, which has lured more operators and helped drive telecom services prices down by 70% in a short time, according to the World Bank. Yet the country relies on satellite connections to link to the rest of the world. That makes it costly for outsourcers to do business. "Lack of high-capacity bandwidth connectivity has limited Kenya from exploiting its full potential," Mutahi Kagwe, Kenya's Minister for Information & Communications, said in a July speech at the Kenya College of Communications Technology. So Kenya's government has collaborated with the United Arab Emirates to install The East African Marine Systems (TEAMS), a submarine cable from Mombasa to Fujairah in the UAE that will give Kenya affordable high-capacity bandwidth.

Kenya will need to address not only telecom issues but also the readiness of its labor force. "If I wanted to have 150 people there tomorrow, it would take six or seven months to hire that amount of skilled people with business acumen," says Gartner's Karamouzis.

In many of these emerging outsourcing countries, the lack of available labor could eventually hinder growth. In fact, that's one of the challenges facing HireRight in Estonia. "The talent pool is not very big," says HireRight's Malnati, who says that HireRight now sees more competitors for talent. Yet, instead of pulling up stakes and moving to another destination, HireRight is trying to maintain its low attrition rates by giving Estonian employees incentives such as inviting them to spend time at its headquarters in Irvine. A winter trip from frigid Tallinn to sunny Southern California, Malnati says, can do wonders for employee retention. And the interest from more companies like HireRight may even boost Estonia a few rungs in the outsourcing rankings.

Check out a slide show of outsourcing upstarts.

Rachael King is a writer for BusinessWeek.com in San Francisco.