As Competition for Outsourcing Investment Heats Up, Focus Turns to the “Little Things”

The offshoring location investment decision used to be easy – India, with the possibility of the Philippines or Mexico as an occasional alternative – but as with everything IT services related, the geographic options have increased substantially over the past few years. Viable sites now range from North Africa to Vietnam, with all these locations positioned to deliver offshore services and join the ever growing cluster of offshoring locations

Success is not just about shiny new technology parks, favorable taxation regimes, and a viable workforce. While these are all important, a large part of the battle starts at the “awareness” stage, and with ensuring that global investors achieve a level of comfort with the location. For this, governments need to get stakeholder engagement right at every stage.

Choice and Competition

The market for countries to host IT and BPO operations to service the ever growing offshoring market is becoming increasingly competitive as more countries look to attract services foreign direct investment (FDI). Consider the progress made by countries such as Costa Rica, Colombia, Romania, and Malaysia. Through governmental investment, judicial commitment, and the facilitation and enablement of a functioning business environment, these countries attracted considerable FDI, created jobs, and largely turned around what were once negative perceptions.

In light of increasing competition, any location looking to attract outsourcing investment needs to not only find a competitive advantage to attract international investors, but also ensure that these investors do not find an excuse not to invest. In an increasingly risk-averse investment environment, investors could be deterred by preconceived notions or legitimate but addressable concerns.

The key to sparking and maintaining the interest of international investors is a complex, multipronged balancing act that ensures consistent delivery at all stages of the “wooing” process.

Trust: An Influential Factor

Trust has become a much used (and sometimes abused) tool in the vocabulary of investors. Following the 2008 global financial crisis, the Satyam scandal, the Arab Spring, and the Greek debt crisis, phrases such as “risk mitigation” and “trusted advisor” have become more prevalent in investment decisions. As a result, gaining access to funds has become more difficult. Once trust has been lost, it is a long road to win it back – regardless of whether the point of contention is based on real issues or wrong perceptions.

Many countries are adopting an approach taken from the commercial sourcing space that is focused on ensuring the investor feels comfortable. At the macro level, the ability of governments to foster trust ensures that historical and political factors are addressed head on, and that safety and security is not compromised. At an operational and functional level, this approach is very much about the removal of red tape and the facilitation of common business practices.

Investment: Start Before Formal Due Diligence

Investors begin evaluating investment opportunities far before formal due diligence, whether consciously or not, and are often at their most skeptical during these initial stages. Therefore, investment agencies need to be conscious of the so-called “small things” – logistical planning of in-country site visits (such as booking travel and accommodation well in advance for prospective investors and site selection assessors), tax accounting, official engagement and communication, and rapid decision-making.

The perception is that problems with the “small things” may indicate institution building issues, while the stability and efficiency of institutions suggests a stable political and business environment.

As such, in addition to addressing the larger issues, countries looking to encourage international investment need to ensure that the daily operational and administrative processes run smoothly.

Glitches at this level could be the difference between investment and a missed opportunity.

Create Agile Teams

The key to sparking and maintaining the interest of international investors is a complex, multipronged balancing act that ensures consistent delivery at all stages of the “wooing” process.

Potential locations should implement a program of work that facilitates smoother engagement across tactical and operational processes. Ovum suggests that governments should create a specific agency that is responsible for external investment. This team should be small, agile, and report to the highest authorities. It should also be protected to a certain an extent from political flak. Such flexible structures cut through red tape and enable teams to create a positive environment, even if the central bureaucracy does not function optimally. These agencies should not simply be targeted at “selling”. Their ultimate Competition for outsourcing investment brings “small things” into focus.

Peter Ryan is a leading analyst with Ovum and contributes regularly to Nearshore Americas. This article is reprinted upon permission of the author.