Location Agnostics v. True Believers: What Factors Influence a Winning Position?

The sudden changes in working and sourcing models spurred by the COVID-19 pandemic promised to transform the global services industry. With a couple years of hindsight, it can be stated that the shift hasn’t been as radical as expected. Sourcing strategies remain diverse, spurring a debate between those who still believe in the relevance of site location and those who profess the belief that ‘our people can work anywhere”. 

Although the debate is still going, there are clear signs of  a preference in the market. What follows is a look at where the industry stands at the moment within the lines of the “believers Vs agnostics” debate, in respect to location strategies. 

To be clear: location agnosticism is here defined as a focus on talent over geographical location in relation to sourcing models. While a services provider might set up operations in a specific city, it leverages remote working models and digital capabilities to recruit beyond the boundaries of that location. Location believers, in contrast, consider that the characteristics of a physical site still hold relevance for the success of operations. Both approaches impact talent availability, labor costs, real estate spending, etc.

We don’t expect the lines of the debate to remain static. Global services providers are constantly reevaluating their position in the market and their capabilities to change that position for the better. Now more than ever, business leaders seem willing to experiment. 

The Agnostics  

It’s all about the talent, according to location agnostics. Since the pandemic, industry analysts noticed a heightened interest in people instead of places among global services providers. 

“The more important thing right now, given the shortage, is to attract talent,” commented Sakshi Garg, VP at research firm Everest Group, during a Nexus 2022 panel. “Facilities? Last point on the list. It’s all about talent: what can I attract, how quickly can I attract it; even how much can I scale,” added Garg.

Back in 2021, Deloitte noted that over 60% of businesses surveyed for its Global Shared Services and Outsourcing Report considered implementing an entirely remote or hybrid working model over the following three to five years. In the 2022 edition of the report, 26% of respondents mentioned location agnostic recruiting as a strategy to add agility and resilience to their business operations. 

An additional factor should be considered: the vast expansion of staff augmentation and boundary-crossing IT talent recruitment has helped revolutionize the idea that companies can tap talent wherever they want. This is especially relevant when large city operators (in Mexico City, Buenos Aires, Bogota and others) recognize that recruiting employees far away from city centers can be advantageous. Of course, like many aspects of the IT staffing models, the devil is in the details and the jury is still out on whether attrition is higher when workers are “permanently remote”.

“Remote and hybrid work is here to stay: 17% of GBS organizations are continuing to invest in enabling virtual work environments, compared to 14% in 2021,” Deloitte pointed out in its 2022 report.

The availability of other working/sourcing models has led to the closure of office space by major global businesses. Amazon shut down almost all of its physical call centers in the US, and several of its nearshore CX/BPO jobs are advertised as remote or hybrid. Companies such as AT&T, Github and Yelp have also cut down their office footprint. 

It must also be noted that location agnosticism favors site diversification, a trend which has been growing among global service providers.

“We’ve seen the majority of these scaled organizations diversify across two or three locations,” pointed out Parul Jain, leader of Everest Group’s global workforce strategy practice, in a recent webinar. “Diversification helps in mitigating risks, tapping into broader talent pools, ensuring VCP [variable compensation programs]. These locations need not be across continents, even in the same country.”

The Believers

Labor and business might be trending towards digitalization, but the physical world still exists. As such, providers of global services are still impacted by the locations they chose to operate and source from.

“It has become more important than ever for BPOs to operate in a location unencumbered by political, economic or public security disruptions”, stated analysis firm Ryan Strategic Advisory in its latest Offshore BPO Confidence Index. “Equally, the availability of talent at a time when BPO-oriented labor is tighter than ever is a crucial determinant in the success of different offshore and nearshore locations.”  

Even when remote and hybrid working models have remained beyond the COVID lockdowns, companies are exploring new locations to fight off inflation, high turnover and tight labor markets. Everest Group and Ernst & Young have been tracking heightened interest in tier-2 and even tier-3 cities in India. At NSAM, we have pointed to the potential of less-explored geos in the nearshore too. 

“Increased talent availability at reduced costs with an improving infrastructure and social security is creating a much sought-after business ecosystem for GCC [global capability center] expansion in tier-2 cities,” wrote EY India Partner Kunal Ghatak.

WFH Research Updates: July 2023 – https://t.co/nP2NF44DxV

How much you work from home says a lot about how efficient you think it is. Almost half of workers work outside the home on WFH days. pic.twitter.com/lelRaRZ7Te

— WFH Research (@WFHResearch) July 6, 2023

Remote might be “here to stay”, but on-site work still reigns the global business landscape. The latest Working from Home Around the Globe Report noted that, across 34 countries, workers labored from home 0.9 days of the week on average. In Latin America and Asia, averages ranged between 0.9 and 0.5 days. Two-thirds of workers surveyed said they still work on site, with 25% working in a hybrid model and only 8% in a fully remote one. 

Where the Industry Stands

Working and sourcing models among global service providers have definitely grown more flexible. That does not translate, though, into a complete agnosticism or disregard for the importance of location. 

The industry still believes in the relevance of location, but it is moving away from traditional sourcing strategies. Diversification seems to be the name of the game at the moment. Businesses know they have to remain agile and flexible, so they opt for smaller bets and a footprint that is, though thinner, more spread out.

Everest analysts have pointed out that more mature service providers are moving towards hub-and-spoke models, where a central location is supported by smaller ones. A “satellite model” has also emerged.

Although these models might indicate a form of location agnosticism, the fact is that companies are still evaluating the viability of physical places, taking into account factors such as the size of the talent pool, infrastructure, security and climate risks, political stability, economic stability, etc.

Businesses themselves keep emphasizing the relevance of location. There’s no shortage of service providers announcing the opening of new offices in traditional or alternative geos.

In short: the industry still believes strongly in the importance of location, just not in the ways that it did so even five years ago. The relation of service providers to physical places (what they look for in them, the factors they consider when evaluating viability of operations) is changing.