The Offshoring Location Guide

Courtesy of Prashanth Rai came across this global outsourcing guide. The report starts by highlighting that India remains the leading offshoring destination by a wide margin and with every passing year, the risks of moving work to India are coming down. Usual noise – china’s role can get bigger, Eastern Europe may be found attractive by western European nations and Latin American nations will increase their share and African nations can follow suit so says the report. Not to ignore the fact that the Russia services source is growing fast. It’s a nice report, the facts presented in a structured way, looked good. What intrigued me was a naughty statement(if I may call so) attributed to Davidon of Nautilaus that India’s market share may go down from 80% to 10% in the next 4 years!! - clearly the statement can’t even be considered for inclusion in this guide which says is built on research findings from the likes of Gartner, Everest, A.T.Kearney, NeoIT etc.

My take : Factors that influence the choice includes talent pool, cultural affinities, geographical proximities, cost structure and ability to scale etc. In general, what I find is that most of the commentators are a little soft on the emerging locations for offshoring – as I see it many of them do not attach the same importance when they write about key issues like attrition and scaling up. For example, people in the business know the alarming attrition and higher costs base when it comes to looking at China for offshoring, while I do certainly expect most of the emerging locations to increase the volumes, in reality I am not sure if any one country(other than china) can be the miniature equivalent to India – even on a scale of 1:XX in a sustained way. A recent assessment on china’s potential makes an interesting reading.

All these relate to IT Services outsourcing and when it comes to process outsourcing, practically every developing country starting from Tunisia to Brazil want to be a part of that It appears every consulting company in the world today is engaged in advising various government and government bodies on how to position & promote respective nations as an attractive destinations( one can therefore expect more location study results coming out - making a movement out of it!!). While government initiatives may not matter a lot in the long run, clearly the BPeS sector may see a better spread across nations. Over a period of time, the location preferences may matter only to service providers or useful for those planning /maintaining captive centers and customers may prefer to manage things through commercial negotations and service levels.

But there are larger issues at interplay : The focus now needs to shift to improving productivity & yield coonverting into better business value as can be seen by executing faster and providing better business solutions. As I wrote recently, sourcing relationships actually encompass a wide array of choices given the dynamic nature of business and the intersections of various levels of capabilities that lay within enterprises and service providers. The increasing expectations associated with outsourcing are becoming difficult to meet. With a wide range of functions getting outsourced, the ability of the outsourcer to bind and manage all these functions meets with a varying degree of disruption. On the other hand, the service providers are coming under huge pressure to improve operational efficiencies and to maintain and enhance margins. So in essence, seen from a customer perspective, offshoring strategies need to be dynamically re-evaluated as the business needs, strategies, models and execution methods keep changing. Clearly for the foreseeable future, despite the higher salaries experienced in India and other offshore markets, customers can continue to work with their chosen offshore service provider out of the existing locations to maintain the cost advantage besides reaping a set of other known higher-order benefits in offshore outsourcing opportunities.