Costa Rica Call Center Blog

A study by McKinsey in October of 2008 assessed the impact of carbon mitigation on benchmark companies in the aluminum, automotive, beer, construction, consumer electronics, and oil and gas industries.

They modeled their sensitivity to regulatory moves, technological shocks, and shifts in consumer demand and analyzed the potential impact on the cash flows and 2008 net present value. The events in these companies and sectors were examined in the context of their carbon intensity, geographic footprint, and ability to pass through costs and to redeploy capital.

In some industries, shifts in demand would have a broadly negative impact on company cash flows and therefore valuations. Oil and gas consumption, for example, would experience falling demand over the long term as the economy shifts toward cleaner sources of energy (including solar, wind, and carbon capture and storage), and as oil-consuming sectors (such as automotive and power generation) increase their emphasis on energy efficiency. They concluded that valuations would fall by around 5 to 15 percent depending upon the scenario.

By contrast, other industries could enjoy considerable gains. Companies in the building-materials sector—particularly those that do business in places where building efficiency is not yet a major issue—will probably benefit from rising demand for improved energy efficiency and insulation products, which will increase their cash flows. As compared with the business-as-usual scenario, the valuation of a representative building-materials company in the developed world increases by 35 to 80 percent depending upon the scenario. If more stringent regulatory measures do not materialize, valuations could fall by 10 to 20 percent as a result of possible short-term cost pressures.

Efforts to offset climate change will structurally transform certain sectors—including automotive and aluminum—which will experience more volatile returns and increased rates of entry and exit as new technologies or regulatory restrictions emerge and the competitive landscape changes.

As common sense would command, on given industries there will be winners and losers, depending upon the ability of the different companies to approach the challenge. Companies that address the challenges in a creative and innovative way would develop strengths that could help on their margins and thus their cash flows and valuations.

Some sectors will experience minimal long-term stress from carbon-abatement efforts: they will be able to pass along any short-term cost pressures to customers and will not face substitution by other products or significant shifts in demand. In such cases, profit margins would revert to average levels over the medium to long term. The consumer electronics industry, for example, will probably have the technology to deal with regulation in a way that will not harm the bottom line.

As nations and companies start acting more aggressively to reduce carbon emissions, major shifts in the valuations of sectors and companies will start to become clearer and more predictable. Over the next 18 to 24 months, a number of regulatory and policy events, such as the December 2009 Copenhagen conference to replace the Kyoto treaty, will probably reduce the uncertainty and spark a rethinking of how carbon reduction efforts will affect valuations across a wide range of industries.

Several steps can help companies and their executives as they start to position themselves to thrive in a low-carbon economy:

• Review the company’s exposure to regulatory measures (such as carbon pricing, new standards, taxes, and subsidies), new technology, and changes in consumer behavior
• Develop a consistent strategy, informed by analysis and to engage with policy makers to help shape/understand the policies and regulations
• Generating more sophisticated forecasts and deeper insights into climate change–related developments.
• Decisions about new corporate investments should be geared toward carbon- and energy-efficient technologies that will remain competitive over investment life cycles
• Network around knowledge centers (venture capital firms, universities, scientists) that can help companies understand and manage the impact of climate change and develop technology
• Companies will need to focus on how and when to signal the value of their climate change bets so that investors can assess them. Each company will have to explain its overall level of preparedness for the future, the way climate change–related events could affect its specific cash flows, and what differentiates it from its competitors in these respects.

So far very few public companies have succeeded in explaining the more deeply hidden effects of climate change on their cash flows and competitive strategies.

An easy first step that Corporations can take is to engage with companies that have already started their efforts to mitigate Climate Change in their chain of supply.

Permalink: http://www.mckinseyquarterly.com/Corporate_Finance/Valuation/How_climate_change_could_affect_corporate_valuations_2223

Global executives increasingly identify the environment, including climate change, as a top concern. When it comes to purchasing, however, it appears that companies aren’t necessarily translating the importance they place on climate change into action. A McKinsey survey of more than 2,000 global executives1 finds that while nearly half of respondents say that climate change is a somewhat or very important issue to consider in purchasing and supply chain management, fewer than one-quarter report their companies always or frequently take climate change into consideration in these areas. Among high-tech and other manufacturing executives, 54 percent and 56 percent of respondents, respectively, say climate change is important in purchasing, yet these executives were no more likely than average to say it was considered in practice.

They may be missing an opportunity. Our analysis suggests that for consumer goods makers, high-tech players, and other manufacturers, between 40 and 60 percent of a company’s carbon footprint resides upstream in its supply chain—from raw materials, transport, and packaging to the energy consumed in manufacturing processes. For retailers, the figure can be 80 percent. Therefore, any significant carbon-abatement activities will require collaboration with supply chain partners, first to comprehensively understand the emissions associated with products, and then to analyze abatement opportunities systematically. Surprisingly perhaps, we find that many of the opportunities to reduce emissions carry no net life-cycle costs—the upfront investment more than pays for itself through lower energy or material usage. Others, however, will require tradeoffs between emissions and profitability, in areas such as logistics and product design (including product specification and functionality). Forward-looking companies are using such discussions as opportunities for supplier development, for example by transferring best practices in manufacturing, purchasing, and R&D—as well as energy efficiency—to key suppliers. This opens the possibility of still lower costs and improved operational performance, in addition to helping suppliers remove more carbon from their supply chains.

About the Authors:
Chris Brickman and Drew Ungerman are principals in McKinsey’s Dallas office.
The authors would like to thank Bernhard Klement for his contribution to this article.

Permalink: http://www.mckinseyquarterly.com/Operations/Supply_Chain_Logistics/Climate_change_and_supply-chain_management_2175

3rd July 2008
By CBR Staff Writer

The use of global delivery models is now common practice within the business process outsourcing market, and, according to a new Datamonitor report, Latin America is becoming an increasingly popular destination for IT services and business process outsourcing vendors that are looking to provide low-cost services to clients.

The report looks at the factors driving this trend, discusses the main players currently active in the market and analyzes possible strategies for including Latin America in a coherent global sourcing model. It also investigates the key business process outsourcing (BPO) delivery locations within this region and the main business factors that will help companies to choose the destination that best suits their needs.

The last two years have seen a marked increase in the number of outsourcing vendors utilizing Latin America as a low-cost delivery location. Key examples include major players such as IBM, EDS, Tata Consultancy Services and ACS, all of which have significantly increased their presence in the region since 2006, while providers such as Infosys and Cognizant have opened centers in Latin America for the first time.

Due to its geographical proximity, Latin America can be used as a nearshore location to serve customers in the US. This enables both client and vendor to maintain a close relationship, including more face-to-face meetings, and also means that problems can be solved in real-time, without the delays that inevitably occur when work from the US is offshored to more distant locations such as India or China.

Operating in Latin America also gives clients access to a major pool of native Spanish and Portuguese speakers. Particularly in the case of customer-facing BPO functions, this offers the potential to provide better and more efficient services to the Hispanic community in the US, as well as opening up the Spanish and Portuguese markets in southern Europe. Providing local language services also improves the quality of services offered to end users, thus increasing customer retention.

While in the past IT services vendors tended to pick one offshore location, usually India, and deliver a range of services from this location, an increasing number of companies are adopting a multi-shoring strategy, whereby they set up centers in a number of countries in different geographic regions. This not only allows them to provide services from closer to the customer, but also reduces the risks associated with housing all of their operations in one location.

Furthermore, when questioned by Datamonitor, many vendors expressed a fear of ‘putting all their eggs in one basket’, mindful of the chaos that could be caused should India’s economy crash, or wage inflation in the country hit new peaks. In this context, Latin America is an attractive alternative location for vendors with an existing presence in India.

One of the main drivers behind the elevation of India to its position as the pre-eminent global sourcing location was its vast reserve of skilled labor. Similarly, up-and-coming locations such as China and Russia offer large untapped labor pools, enabling vendors to scale-up a delivery center quickly.

In comparison, customers may find that Latin American countries are unable to deliver the kind of scale available in these other, more populous regions. This is partly due to simple population size, but it is also the case that regions like India and Russia churn out more technical graduates than their counterparts in Latin America.

Latin American countries can circumvent this potential problem by offering highly skilled services in niche areas. Also, the region’s positioning as a primarily nearshore location necessitates a different operating model from the one utilized in India, for example, in which scale is of lesser importance.

Latin America also still has some perception challenges to overcome in its development as a sourcing location, as concerns about stability (both economic and political) and security continue to hang over many Latin American countries, including Brazil, Mexico and Colombia. As a result, vendors may think twice before setting up in these locations.

All of the vendors that Datamonitor spoke to indicated that they expected the recent expansion of Latin America’s IT services and BPO sector to continue for the foreseeable future, with more vendors moving into the market.

The investment by international IT services and BPO providers has tended to focus around certain countries (most notably Mexico, Brazil and Argentina) and certain locations within those countries (including Mexico City, Monterrey and Guadalajara in Mexico; Sao Paulo and Rio de Janeiro in Brazil, and Buenos Aires in Argentina). There are many other cities within these Tier 1 countries which could be tapped, and also many other countries within Latin America which are still to be used to their full potential.

The Tier 2 Latin American countries identified in the report (including Chile, Colombia, Costa Rica, Panama and Uruguay) still, in some cases, represent relatively unknown quantities for many within the IT services and BPO industry. These locations each have their own unique set of strengths and weaknesses, but are all viable sourcing locations, many of which have yet to be fully exploited.

Permalink: http://www.cbronline.com/article_feature.asp?guid=EA29B320-3A5F-4D9A-9862-FED8F313E7BC

By Zach Church, News Writer
01 Jul 2008 SearchCIO-Midmarket.com

With the U.S. economy in a rut, the value of the rupee rising and wages increasing, midmarket CIOs have good reason to look beyond India and instead evaluate opportunities in places such as Canada and South America as offshoring alternatives, analysts say.

Anyone has doubts that Hispanics (generaly speaking) have not been targeted by many companies with products, services and communication that best fit their needs?

Some interesting highligths from a news article that was published in May 08 at Internet Retailer (http://www.internetretailer.com/article.asp?id=26591)

• Hispanics represent the fastest-growing group in the U.S. population and among Internet users, and about half of online Hispanics prefer Spanish-language web sites. Yet most major online retailers neither provide web content in Spanish nor respond to customer inquiries in that language
• But at least two of the 50 largest e-retailers, consumer electronics chain Best Buy Co. and online florist 1-800-Flowers.com Inc., have in the last nine months launched Spanish-language sites duplicating nearly all the content of their English-language sites
• A Forrester survey last year showed that, while only 23% of Hispanic consumers require Spanish, a total of 51% prefer using Spanish web sites. And 28% said they were more likely to trust a company with a web site in Spanish. “A Spanish-language site is not just about reach but is also about brand trust and customer goodwill.
• The U.S. Census Bureau reported last month that the U.S. Hispanic population reached 45.5 million as of July 1, 2007, when it represented 15.1% of the U.S. population and was the largest and fastest-growing of U.S. minority groups
• Best Buy research shows the preference for shopping in Spanish is stronger when customers shop for complex products like home theater systems or computers. Customers are printing out product detail pages from the Spanish site and bringing them into stores, and call center agents are using the Spanish web content to help Spanish speakers on the phone

With shrinking sales and budgets, how can we tap on this opportunity?