Across the boardrooms around the world, the hunt is on for the low-cost locations – whether it’s to produce widgets or perform various Order-to-Cash back-office functions. The last 20 years have seen a large number of companies setting up or expanding global in-house centers (GICs) or outsourcing to lower-cost destinations. While India is a leading geography, companies have also moved operations to China, the Philippines, Central and Eastern Europe, and Latin America in order to reap cost reductions.
But, with cost inflation, labor market uncertainties, and exchange rate fluctuation, just how sustainable are these traditional destinations?
Recently Everest Group and NASSCOM conducted joint research of leading global in-house centers (GICs) in terms of their cost competitiveness. They rated some of the popular global destinations for sustainability by function, including IT, Contact Centers, Business Processes (BP), Knowledge Processes (KP)/Analytics, and Engineering Services (ES)/ R&D.
Source: Everest Group
A radically changing global economy has propelled organizations to leverage the skill sets distributed globally, expanded their sourcing footprint (both through GICs and outsourcing partners) throughout the world. Yet, events like the political unrest and subsequent violence in Ukraine – a growing outsourcing/GIC location – have forced companies to re-evaluate the sustainability of global operations.
Recently, other locations, like Bulgaria and the Caribbean have emerged as interesting and viable locations.
Source: Everest Group
Labor Arbitrage Alone is Yesterday’s Game
The days of shipping transactional, rules-based back office work to be done by low-cost labor geographies (what Cathy Tornbohm of Gartner so brilliantly describes as “cheaper fingers“) are over. Global sourcing as merely a race to the bottom for cheaper and cheaper labor is an approach that worked 20 years ago, but not today. So why are we still talking about it? Because it’s still viewed as the easy solution, an apples-for-apples FTE trade, where the offshore FTE costs significantly less than the US-based employee.
To extract the most value from centralizing operations, companies must go beyond “cheaper fingers” and consider how to use automation and better practices to eliminate unnecessary FTEs and drive greater efficiencies. Outsourcing is less about labor arbitrage, and more about accessing scalable global specialized quality talent.
When evaluating outsourcing locations, companies should consider:
• The country’s infrastructure and satellite connectivity
• Political stability
• The size and abilities of the country’s talent pool
• The country’s outsourcing track record
• Cultural fit and language requirements
• Safety and security (natural disasters, etc)
A BPO provider can help guide you in selecting the right mix –onshore, nearshore or offshore– that aligns business objectives with people, process and technology. As well, an outsourcing provider with a strong vertical understanding can help you take on market challenges, be more agile and get the insights to make faster, smarter business decisions.
If you would like to learn more about how Sutherland can help drive automation, innovation and transformation, I invite you to schedule a free assessment of your current practices. Comments? Questions? We’d be happy to answer.