By Anupam Govil, Chairman, Global Sourcing Forum + Expo
The world is not only getting hot, flat and crowded (as Tom Friedman would put it), but it is also getting very, very competitive and homogeneous. Currently more than 100 countries lay claim to having some sort of outsourcing industry in their region, leading to a very crowded market with almost indistinguishable service advantages. Emerging destinations face significant challenges in establishing their credibility, defining their value proposition and differentiating themselves from their competition.
In every regional cluster, one or two countries usually shine and emerge as strong global outsourcing hubs, such as Costa Rica and Chile in CALA; Egypt and Morocco in North Africa; and Poland and Czech Republic in CEE.
There are many reasons why a country becomes the “preferred” location for the sourcing community, but no sure shot formula for success. However there are some common factors and competitive strategies that have helped in establishing outsourcing regions with a strong brand and critical mass.
First let us evaluate the important factors that buyers look for in a sourcing location – strong linguistic skills, costs, a stable geo-political climate, cultural affinity, high education level, industry skills and workforce size. Sometimes proximity and presence of a sizeable domestic/regional market also becomes an attraction. It is common sense then that sourcing locations should publicize their strengths in these areas as much as possible. No one destination will have a perfect score and even those with strong rankings in many areas may fall short in some others. Hence countries should accentuate their comparative advantages and offset their weaker attributes through contextual positioning.
The key is to create success strategies on the back of competitive wedges that make the region stand apart from the rest.
For example Colombia had an uphill battle to counter its negative image as a country but were able to gain significant success by promoting Bogota as a modern destination with highly qualified workforce, lower costs and a progressive business climate. The key is to create success strategies on the back of competitive wedges that make the region stand apart from the rest.
In addition, here are a few time-tested strategies that countries can adopt to stake a claim to a share of the outsourcing pie —
- Get the Basics Right: First and foremost, it is essential that the country be benchmarked to the right competitors. Key location selection criteria should be evaluated and any shortcomings should be addressed through aggressive intervention. Focus on establishing favorable tax and regulatory environments, implementing government incentives, investing in high quality infrastructure, building state of the art training facilities, reducing attrition, and facilitating access to a qualified workforce. If the country cannot compare favorably on these basic attributes, then it is worth taking a step back to make it right.
- Learn from the Big Guys: Emerging destinations can learn from the experience of established destinations noting the policies, incentives and initiatives these former emerging locations undertook to achieve success. For example, India’s IT dominance is largely a result of a mini ICT revolution started in 1980s followed by establishment of the software technology parks (tax-free zones). In terms of timing, the results of these initiatives were only visible after a decade, and India’s current dominance is built on this platform. So, having a long-term vision instead of short term ‘jumping onto the bandwagon’ approach is essential, especially for creating a lasting impact.
- Create, re-engineer, re-model: Everyone knows this is the mantra in software and technology development, but it rings equally true for human capital development. The goal of any policy in education and training should be to ensure a sustainable supply of qualified labor. The key word here is “sustainable”. There are many instances where rapid growth has sapped the limited labor pool resulting in attrition and wage escalation. Hence countries should have a workforce strategy to continue to scale as well as diversify their skills sets. In fairness, countries like India and China have scale that is not conceivable elsewhere. However other regions can compete on quality, specialization, costs etc. The ability to develop a workforce that fills the industry’s needs both at the entry and the mid-management level is also a crucial factor for long term success of a region. Countries such as Costa Rica and Chile have effectively channeled their resources and educational institutions to gear up for the high growth outsourcing sector while simultaneously focusing on higher end skills to develop a scalable value chain.
- Find Your Niche: As the playing field becomes more competitive, it’s important for countries to differentiate not only on the basis of cost, quality etc. but also in terms of the depth, specialization and expertise of their workforce. Depending on their advantages and resources, emerging destinations should try and focus on the processes and industry verticals that best match the service orientation and offerings. Once this evaluation is done, there needs to be a commitment to improve service levels in the segment, with the goal of eventually setting new benchmarks for the entire industry. Ireland has become the F&A capital of Europe with the right mix of cost and talent by focusing on specialization and continual improvement. As a result it has managed to hold on to its reputation as an F&A hub even after the onslaught of Indian firms. Likewise, Mauritius, despite its remoteness, has carved a niche in the area of disaster recovery and backup centers.
- Let the World Know: As strange as it sounds, key markets and companies are still largely unaware of the numerous alternatives to India and China. Thus, ensuring global visibility — especially in prime markets such as US and Europe — should be top priority. Branding that accentuates the region’s uniqueness can have a great impact. For example, the “Egypt On” campaign has been a big success as it highlights the fact that Egypt is ready and possesses everything that a company needs to set up operations in a plug and play manner.
- Bring in the Good Guys: To ensure momentum in growth, emerging destinations should encourage import of expert resources from established locations and target markets, especially if there are ex-pat’s who can be convinced to return home. This has a multiplier effect as these experts provide transfer of market and operational knowhow to locals and generate an exposure in the target market. Easing travel restrictions, offering tax incentives and special ex-pat packages are a good way to start. Inviting well-known industry evangelists (read consultants, analysts, etc) is also very effective in building goodwill and positive buzz.
- Look Within: A very effective way of catalyzing the outsourcing industry is to evangelize its benefits within the local market. This can be done by convincing domestic or multinational firms to outsource locally or “carve out“ their internal operations. Local service providers can be incentivized to build a domestic market. This “Think Global Act Local” approach can have a multi-pronged effect: Firstly, it improves the service levels within the region and develops local expertise; Secondly, it spurs domestic demand for services which keeps the outsourcing life cycle flourishing and acts as a magnet for global service providers as well as service buyers.
To sum it up, emerging destinations have their work cut out, and a me-too strategy will not produce results in this hyper-charged arena. However, countries such as Costa Rica and Egypt have made the leap from Emerging to Surging in under 5 years and there is no reason that can not be replicated elsewhere. With the right combination of a globally attuned workforce, innovative government incentives, private sector ingenuity and some intelligent positioning, virtually anything is possible.
Anupam Govil, Chairman, Global Sourcing Forum + Expo, is a leading globalization advocate who has advised major corporations, outsourcing regions and service providers across Asia, Middle East, Europe, Latin and North America on optimizing offshore strategies and leveraging global delivery models. He is the founder and CEO of Global Equations, a leading Globalization Advisory firm providing Offshore strategy, sourcing and advisory services.
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