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climate change extreme weather

Climate Disasters, a Prime Argument for Site Diversification

India’s tech capital is drowning. After being hit by flooding rainfall, the city of Bangalore –which houses local offices of tech giants such as Google, Wipro, Cisco, SAP and Infosys– turned into a watery disaster zone, underlining the rising risk of extreme climate. Flooding has maimed the the city’s infrastructure, including transportation routes and power lines, disrupting business operations of what has come to be known as India’s Silicon Valley.  

Though disastrous, the sights of flooded streets in Bangalore might surprise only a few. Data from the US and European governments shows that extreme climate events have grown in frequency and intensity, at a global scale, over the past couple decades. In other words, expect more flooding, more cyclones, more droughts, more damage.

For outsourcers in zones of high risk, this means operating in a perpetual state of readiness. Extreme weather damages not only facilities and much needed infrastructure, but also impacts one of their most valuable –and increasingly scarce– resources: talent.

“You might have too much reliance on one city. If that city goes down, how are you going to keep the lights on?”— Parul Jain, VP at Everest Group

“It’s not just a flood in my basement parking. It’s also a serious impact on the resources, the human personnel, their ability to work; an impact on their families. And it takes a toll on their mental health as well,” explained Parul Jain, VP at Everest Group and leader of the firm’s workforce and locations strategy practice.

“There’s productivity impacts, there’s absenteeism, there may be personnel deaths in case of extreme situations. All of which breaks the flow, essentially. Whenever there’s disruption, there’s a lot of uncertainty,” she added.

A Stronger Case for Site Diversification

When scouting for locations offshore or Nearshore, outsourcers know that some of their most favored options might be exposed to climate disasters. Said another way: they’re no strangers to risk assessment and planning for contingencies.

That being said, companies have other options beyond prepping and bracing for impact. For one, they can diversify their location strategies. 

Parul Jain, VP at Everest Group

“You might have too much reliance on one city. If that city goes down, how are you going to keep the lights on?,” pointed out Jain in an interview with NSAM. “You need to have an effective contingency plan, not only on paper, but in actuality, so that the work is distributed in that manner.”

Some outsourcers tend to put their eggs in a single basket when selecting a site, leaning too heavily on climate resistant infrastructure, the location’s own capabilities to deal with disaster and pertinent prep work to keep the lights on. 

Nevertheless, even the best-shielded operations will be exposed to the worst effects of a climate disaster. In the face of such a possibility, their best bet is to move away from a highly-centralized model and spread out.

Diversification strategies are not as clear cut as they might seem, though. It’s not as easy as slicing the company and spreading it into several interconnecting offices. It requires a finer breakdown, with business functions in mind, explained Jain.

“It’s not all about an enterprise level. You need to break it down. Think about it as concentration at a function level, at a site level,” she said. “One city cannot have, say, more than 20% of the workforce for a particular function. It’s like looking at it on multiple levels to ensure you don’t need a Plan B.”

Leveraging Remote Work

Industry experts have underscored that, in today’s outsourcing market, talent is the main driver behind site selection. Companies are chasing the workforce, with other relevant aspects, such as facilities and even insurance premiums, falling a couple steps down the ladder. 

With that in mind, it’s not surprising that companies focus operations in a single city where qualified talent is widely available. Nevertheless, that approach makes little sense in the age of remote work. 

“Can you essentially reduce your real estate footprint in locations that are at high risk? Maybe create hubs in other locations that are not at high risk from a climate change standpoint but can still give you access to the talent pool. So, diversify beyond the obvious options,” said Jain.

“Maybe create hubs in other locations that are not at high risk from a climate change standpoint but can still give you access to the talent pool”— Parul Jain, VP at Everest Group

Though they have been prevalent for about two years, companies have yet to fully adapt to remote and hybrid work models. HR teams and decision makers are still making sense of what non-traditional delivery models mean beyond real estate shopping and office interior design. 

The impact of such models will be felt most in their sourcing strategies, either enlarging or shrinking the net they cast in their search for talent. For that reason, analysts recommend synching workforce and location strategies.

Planning for the Long-Long Term

Companies will have to incorporate more macro factors into their analysis for building location and workforce strategies, complicating the matter of site selection even further, pointed out Parul Jain. 

Aside from climate risks, outsourcers will have to keep an eye on issues such as demographic shifts if they are willing to commit to one or several locations for the long term. Very few countries now have a population that can be charted out in the form of a pyramid. In western countries, particularly, the bottom is thinning out, with the middle and upper side of the figure growing wider. Only African countries and certain regions in India have kept their demographic pyramid upright.

“If you’re thinking of your workforce strategy from a 20 or 30-year view, you need to think about demographic change, about climate change.There are multiple forces,” said Jain.

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In other words, decision makers will have to begin thinking beyond the long term, taking into consideration factors such as weather, population growth and even urbanization trends, especially in tier-1 cities they’re interested in.

Cesar Cantu

Cesar is the Managing Editor of Nearshore Americas. He's a journalist based in Mexico City, with experience covering foreign trade policy, agribusiness and the food industry in Mexico and Latin America.

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