Rightshoring IT: Why Geo-Diversification Is Essential To Enterprise Outsourcing
October | 2019
Introduction
The value stream for outsourced business and IT services has grown dramatically over the past 20 years. Evolving communications technology has made it possible for enterprises to tap into talent pools across the world, allowing for labor arbitrage and more distributed production risk.
Although traditional outsourcing models still make for great quarterly ROI reports, the advancing pace of technology has thrown up increasingly complex IT challenges - including that of talent availability.
A lack of suitable IT talent is particularly evident in the US, where Gartner predicts about 1 million computer specialist job openings will remain unfilled by 2020. More than ever, enterprises need to leverage global delivery capabilities to keep pace with an accelerating market and local talent shortages.
Traditionally, only enterprises that operated on a global scale could afford or even benefit from a global delivery model (GDM)-based approach, but this is not the case anymore. With the proliferation of low-cost communication networks and tools, smaller organizations now have access to the full spectrum of outsourcing benefits. Business service vendors are not altogether unaware of this trend, with many launching IT, HR, and Finance service bundles aimed at SMEs.
And while most executives will point to Asia as the prime destination for IT outsourcing, truly effective risk management and development efficiency is achieved with multiple teams working a 'global' 24x7 shift.
Why Go Global With Delivery?
Major outsourcing players have long perfected the GDM as a means of delivering more value to their clients.
In the context of IT, the model not only offers value in terms of a 24x7 operation cycle but also other significant advantages.
Bleeding-edge talent availability
With the pace of technology development and adoption accelerating, enterprises often find that they lack the skill sets to efficiently leverage emerging technologies. Cloud security and information architecture design, for example, are rapidly evolving fields where skill obsolescence is a real concern. A globally distributed workforce addresses this issue, by accessing talent pools from multiple geographies, balancing cost and skill proficiency to give you the best value.
Operational flexibility
Dynamically evolving markets can often challenge development projects, forcing them to pivot and develop new features or integrate with emerging platforms in order to stay competitive. By taking a modular approach to workflow distribution, a global delivery model allows development teams to scale, expand, add, or eliminate teams in a cost-effective manner. This is especially useful if you suddenly need to hire platform and/or technology-specific expertise.
Minimized investment
By aligning production environments with low-cost talent pools in different geographies, enterprises can capture tasks from different work sources and assign them to the most competent and cost-effective resource. In this way, GDM enables high-quality product development, while improving overall margins.
Faster time-to-market
A 24-hour development cycle means significant reduction of your turnaround time, which helps you stay ahead of the competition. You can also have more time to analyze and understand new markets.
Reduced risk
By splitting your workforce across the globe, enterprises can reduce the risk of operational disruption from political, natural, social, and economic volatility within a single region. Working from multiple geographies also offers the opportunity to seamlessly create multiple master back-ups, mitigating the fallout from any kind of catastrophic data failure.
Transparency and visibility
Successfully building a global workflow requires a high degree of coordination and multi-level project visibility. A beneficial side-effect of this transparency is that project delays, bugs and resource availability are clearly visible to multiple stakeholders, making planning and quality assurance a more dynamic and efficient process.
Multi-cultural exposure
Working with teams across the world gives your workforce the opportunity to network on a global scale while exposing them to a wide variety of cultures. In an era of increasing globalization and shrinking geographic barriers, this exposure enriches the professional and personal lives of employees at all levels.
The Best Places To Outsource?
The modern enterprise is spoiled for choice when it comes to outsourcing. Apart from the traditional offshore locales like India and China, nearshore destinations have expanded their service offerings in Eastern Europe and Latin America. However, with choice comes the greater complexity of creating an optimal operational footprint.
Depending on project requirements, different regions may offer greater cost-savings or skill competencies.
India, Philippines & APAC
More and more organizations are looking to rebalance themselves and rightsize toward more efficient operational frameworks. Given the breadth of cost-effective, cutting-edge talent in Asia, makes it a natural choice for outsourcing over the next 5 years.
In India, major IT firms are floating new offerings in high-end research & development and product engineering, while optimizing service bundles. At the same time, these firms are leveraging their extensive domain expertise to target sector-specific projects in BFSI, healthcare, manufacturing and telecommunications.
Further east, Malaysia and the Philippines remain leading players in customer support outsourcing and voice processes due to the continued availability of low-cost talent and widespread English proficiency. The Philippines is also a rising star in the customer analytics market and offers increased scalability as previously untapped talent pools become more accessible.
Latin America
Rising protectionism in the US has pushed many firms to reconsider their outsourced portfolios and bring them closer to home.
Mexico has been engaging these new opportunities with highly developed infrastructure and strong talent pools within thriving cosmopolitan centers like Guadalajara and Monterrey. Reasonable costs coupled with easier coordination and cultural proximity to the United States, continue to make Mexico the prime nearshoring destination for most of North America.
Mexico is closely followed by Brazil, which boasts of a strong educational system and a burgeoning, young workforce. Other potential outsourcing destinations in Latin America include Chile, Costa Rica, and Colombia, all of which are backed by improving infrastructure, talent availability, and alignment with American time zones.
Eastern Europe
Offering IT services at a fraction of what they cost in more established economies, Poland, Ukraine, Romania, and Bulgaria are rapidly becoming the preferred options for European nearshoring. Poland and Ukraine in particular, have heavily developed IT infrastructure spread across key cities and offer a low-risk, high-output environment for IT development and customer support.
While data security in Europe is robustly governed by the General Data Protection Regulation (GDPR), it’s important to note that some Eastern European countries have immature data regulatory frameworks, making them unsuitable for functions that deal with sensitive business information.
The image below offers a big-picture perspective on the world’s top outsourcing destinations, comparing cost savings vis-a-vis talent and business environment.
How Are IT Vendors Helping Enterprises Right-Shore?
The role of the IT vendor is no longer that of a service provider, but more of a business partner that is deeply invested in IT-driven outcomes instead of simply meeting SLA requirements. Understanding how IT vendors are facilitating this shift is key to finding a partner that helps your enterprise build a strategically sound global delivery model.
From Cost Savers To Strategic Partners
Despite a perceived negative association with outsourcing in the public eye, most organizations recognize that outsourcing is the only way to achieve sustained, competitive growth with few other business channels offering comparable benefits.
According to a report from IDC, 71% of IT leaders spend a quarter to half their total budget on outsourced services. With such a massive capital outlay, it’s logical that enterprises would like to see their IT vendors invested deeper into ongoing and future projects.
That brings us to the current scenario, where we are seeing an evolution in outsourcing decision drivers - vendors are increasingly being regarded as strategic partners rather than simply a means to cut costs. Markers of this shift can be seen in the increased prevalence of outcome-based pricing, joint ventures, and greater budget allocations for outsourced IT.
The trend is also being fueled by IT vendors themselves. As a part of an increasing focus on core competencies, the market is seeing an increase in specialist vendors that focus on a narrow area of operations. This fits in well with the shift towards multi-vendor outsourcing on the enterprise level - according to Deloitte, a mere 15% of G2000 companies outsourced to a single vendor in 2018 (down from 42% in 2008).
Multiple Delivery Centers
Given the right timing and audience assessment, getting your product to market first is almost a guarantee of greater ROI. Enterprises that are second-to-market often face an opportunity cost that is hard to recoup, even with a stellar marketing and sales performance. As a consequence, best-in-class IT vendors rely on a mix of offshore, nearshore and onshore delivery centers coupled with robust operational hand-off models to ensure seamless product delivery.
A competent IT partner will usually analyze the complexity of a given requirement and create an operational framework to deliver optimized quality and efficiency gains, while minimizing cost.
Talent Pool Development
In order to achieve greater competitive leverage, IT vendors are investing in infrastructure and talent development initiatives across the world. This enables enterprises to build a more efficient distributed workforce - a critical component of any global delivery model - and access skills on-demand and at scale. This also has the benefit of distributing high-demand skill sets across geographies, creating greater potential for talent arbitrage and building a diverse array of technical and creative perspectives. For example, investments in infrastructure and upskilling in both Eastern Europe and LATAM have enabled these regions to create attractive nearshoring destinations in under a decade.
Chasing The Sun - Building A Workflow Value Chain That Spans The Globe
Ideally, a global delivery model should feature overlapping shifts, allowing teams to successfully handoff project development from one time zone to another. That brings us to the essential components of successful global delivery:
Location
Enterprises looking to chase the sun without leaving teams behind need to choose locations that have the right expertise available at cost-effective prices. To achieve this, business leaders need to ask the right questions while taking major decisions. They need to debate which projects can be successfully offshored, which locations can provide the maximum cost advantage and which functions need to be automated.
Communication and Culture
While excellent long-distance networking tools exist, there is nothing quite like face-to-face communication when you want to get a complex job done right. Consider moving highly communication-dependent development phases to a nearshore location that is culturally similar, so that core personnel can quickly answer queries, execute course corrections and monitor overall development. On the other hand, enterprises can break down cultural barriers by offshoring process-based tasks and early development initiatives to capitalize on cost savings.
People
With multiple delivery centers, it’s important that you train a flexible and decisive set of teams. Why? Because the nature of a global delivery model demands that teams can make autonomous decisions based on the information they receive from the organization. Great global delivery is not possible in an environment where teams are change-resistant and shy away from complex decision-making - the end result is that workflows will face bottlenecks, and projects will stall.
Technology
Automation is a huge enabler of the global delivery model, allowing teams do away with mundane tasks and focus on optimum delivery. Adding layers of automation where possible, will not only make your global delivery model more cost-effective but will further improve time-to-market and reduce the complexity of your operations.
Conclusion
For many, the Global Delivery Model that optimizes operations might seem to be out of reach, given the initial complexity and cost of setup, but experience has shown that enterprises that successfully ‘chase the sun’ are among the most successful organizations in the market.
Plug: Sometimes, all it takes is a trusted outsourcing partner to handle the details, while your headquarters simply strategizes, monitors and streamlines workflows. Wipro has been helping organizations outsource to Asia, Europe and Latin America over the past 20 years, keeping costs low, while ensuring best-in-class service delivery. If you’d like to know more about how you can outsource business functions and hone your competitive edge, get in touch with our experts at +1 469 388-3980 or email anindya.roychoudhury@wipro.com
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