“In 1492 Christopher Columbus set sail for India, going west. He had the Niña, the Pinta and the Santa Maria. He never did find India, but he called the people he met ''Indians'' and came home and reported to his king and queen: ''The world is round.'' I set off for India 512 years later. I knew just which direction I was going. I went east. I had Lufthansa business class, and I came home and reported only to my wife and only in a whisper: ''The world is flat.''
Extracted from “The world is flat”, by Thomas L. Friedman (2005)
From the beginning of the offshoring & outsourcing boom all players within the industry - mostly from western organisations - have been enthusiastically looking at India in a similar way Columbus did hundreds of years ago. For a number of years India has been projected as the ideal location for establishing delivery centres (both captive and outsourced). Indian vendors emerged, on their own accord, as important players and competitors for the western outsourcers. However, alternative offshoring locations are intruding on the location advantage incognita and more organisations are considering sending operations offsite to closer locations, both culturally and geographically, to the source nation.
The rightshore approach concept could mean utilizing a call centres in rural Texas or Guatemala instead of pushing all the work to distributed delivery centers in Bangalore (India) or Guangzhou (China). However, Indian suppliers are acutely aware of their own standing, including emerging location disadvantages, and therefore, are the ones who are looking for new locations across the planet to expand their operations and more importantly, adapting their internal structures in line with market trends and clients needs. As a consequence many well known Indian suppliers are setting up operations in alternative locations to India by literally offshoring the offshored.
The future of outsourcing, said by an Infosys senior vice president, is "to take the work from any part of the world and do it in any part of the world". This is exactly what large Indian suppliers are doing by creating an “archipelago of back offices” in order to gain new business, though not forgetting efficiencies and cost savings.
Eastern Europe, Latin America, Africa or even low cost or less developed states in United States are now being considered by the leading suppliers as developing outsourcing locations to avoid or at least to deaden the well known drawback (e.g. language constraints, staff attrition, and quality of services) of usual offshoring locations such as India, China, or Philippines.
Let’s review some of the emerging alternative areas in the new outsourcing:
Eastern Europe
Recently McKinsey published a report which predicts the business process outsourcing (BPO) industry will support 130,000 jobs in Eastern Europe by 2008. Major Indian service providers are already well established in Eastern European countries mainly to support non-English dependant functions and scope. These markets differentiate themselves due to their political stability, government commitment to the industry, highly skilled labour force and minimal socio-cultural differences as well as an attractive regulatory environment.
Besides the usual locations such as Romania or Hungary, Russia is quickly becoming an alternative centre for delivering high-end, technically complex projects and Belarus is seen as an emerging central European technology centre.
Latin America
Latin America presents a growing domestic outsourcing opportunity and therefore Indian companies are rapidly strengthening their presence in the region with investing over US$3 billion in 2006 and an estimated US$17 billion for this year, while trade between the regions is at an all time high, led by automobile, steel, refinery and pharmaceutical companies.
Latin American countries such as Mexico and Brazil are benefiting from expansion of the nearshoring trend and based on US time zone. Indian vendors are taking advantage by establishing operational hubs and delivery centers across the region. Most of these filial centers coordinate their operational working swifts with their counterparts in India. As a result, paradoxically on occasion a company in the United States deals with an Indian supplier based in the other side of the planet to supply it with Mexican workers situated 150 miles south of the U.S. border. Moreover some Indian suppliers are adjusting their business lines and on occasion their internal organizational structures to properly manage this emerging region.
Due to the fact Indians companies are certainly not familiarized with the Latin American region and culture, further expansion strategies will be likely based on ad-hoc alliances and/or acquisitions as they bring local knowledge and expertise.
North Africa
Africa is known as a promising economic area in all business fields, including outsourcing due to the reduced labour costs and the benefit of having an European time zone. As a countermeasure to known outsourcing sites such as Mauritius and South Africa, where the English dependant functions are provided, some Indian vendors are developing or have plans to develop offices in North African countries such as Morocco and Egypt as new locations to support Southern Europe, North Africa and French speaking operations. As an additional benefit, the African locations are frequently used by the outsourcers to back-up European facilities as part of the needed Disaster Recovery Plans.
North America
The fierce competition for the rightshore approach is taking place even at the home of US-based giants and big Indian competitors such as IBM, Accenture, ACS or EDS. In a daring strategic movement to compete abroad some “brave” Indian vendors - especially those fighting for the ITO space- are establishing CRMs and operational centers in relatively cheap states such as Arizona, Idaho, Virginia, and Georgia. The goals are to give proximity to the North American clients, multi-lingual capabilities and access to a global talent pool. This “impudence” step is the essence of the New Outsourcing and reflects how well Indian suppliers adjust their ambitious expansion strategies for the benefit of their clients. From these locations Indian vendors can offer pure nearshore services for a range of US based clients.
Conclusion
We have hitherto mentioned a range of factors to offshore the outsourcing. In addition to the habitual factors that influence the location choice (eg. wage cost, economic, infrastructure, political stability, tax benefits and government subsidies) in Alsbridge plc. we consider the following additional drivers for the new outsourcing trend:
The perfect & permanent outsourcing location doesn’t exist. The world is under continuous change, the market trends vary and the business environment is fairly unpredictable but certainly has a cycling behaviour. The outsourcing industry is obliged to reinvent itself every time the cycle is closed by continuously looking for alternative locations considering even the “offshoring the offshored” solution with the objective of offering profitable deals for their clients in a variable, globalized and flat world.
Nowadays, as Friedman predicted, the world is becoming flat…
Hugo Cruz is a consultant, and Pedro Cantero a Senior Consultant at Alsbridge plc. They can be contacted at hugo.cruz@alsbridge.eu and
pedro.cantero@alsbridge.eu
Alsbridge plc. advises a range of organisations on the opportunities and challenges presented by the new outsourcing industry. For further information, please contact Helen Ricardo on +44 (0)20 7242 0666.
