Cesar CantuFrom industry consolidation to the looming possibilities of generative AI, 2023 proved to be a defining year for the global services sector, which is still coming to terms with the transformations forced by several years of “permacrisis”.
Last year was one of crisis and uncertainty, but also one which opened tremendous opportunities for global services providers. Opportunities which are expected to echo into 2024, and perhaps beyond, promising a true metamorphosis of the industry.
This year is also expected to be one of paramount changes for some of the industry’s most relevant geos. Political and economic transformations seem to be underway, threatening to reconfigure the landscape in ways that will require careful analysis from businesses operating in these locations and from potential investors eyeing them for future projects.
What follows is NSAM’s outlook for 2024. Some of the observations found below fall under the category of predictions, while others are merely alerts on which developments to look out for during a year which we expect to be as challenging as 2023, but also ripe with opportunities for an industry makeover.
BPO moves deeper into tech, and vice versa
Two of the most talked about developments for the BPO industry in 2023 were the mergers between Teleperformance/Majorel and Concentrix/Webhelp. Although important due to the sheer size of the entities involved, both mergers form part of an even wider shopping trend by large and mid-sized BPOs; a trend driven mainly by the acquisition of tech expertise and capabilities.
With major tech companies moving into the global services sector, expect BPOs to accelerate their shopping sprees in the digital aisle. From AI/ML houses to data analytics firms, and everything in between, the line between BPO providers, tech consultants and even software factories will blur even further.
In a similar manner, tech providers and consultants will continue leveraging their digital capabilities and deep pockets to gain market share in the BPO space.
A move into higher value services will require a major upskilling in the workforces of geos that have for the longest time leveraged sheer volume as their main advantage in the market. Having a hiring pool that’s counted in the millions won’t be enough. Those workers will have to come with a more refined, market relevant, digitally-oriented skill set.
Mexico’s Presidential Elections
The tenure of Mexican president Andrés Manuel López Obrador (AMLO) will come to an end in 2024, with his successor being elected in early June. Given that Mexico is one of the premier destinations for nearshoring by US businesses, international investors will be paying close attention.
At the moment, it is almost a given that former Mexico City governor, Claudia Sheinbaum, will be crowned as Mexico’s next president. Sheinbaum was favored by AMLO months before being officially designated as his party’s (Morena) nominee. Also, AMLO’s popularity remains near 60% nationally, according to several media polls; and Morena has a tight hold on several of Mexico’s state and local governments. These two facts have translated into double-digit leads for Sheinbaum in the polls.
It’s too early to tell what a Sheinbaum presidency would look like. Like AMLO, she’s a long-time activist, but she also has a background in physics, energy engineering and environmental engineering. While she replicated some of AMLO’s populist policies during her time as Mexico City’s governor, she also pushed for the digitalization of local government operations and of the city itself.
In other words, she might not be as “old school” as her predecessor. Then again, AMLO casts a very long shadow within his party. Sheinbaum might feel compelled to stick to the path drawn by the current president.
GenAI hype train slows down
2023 was definitely the year of generative AI (GenAI). The technology was a major point of conversation in business publications, social media, corporate boardrooms, academic halls and even among the general public.
The conversations will continue, for sure, fueling the hype around GenAI’s potential for several sectors. Nevertheless, we expect business leaders to grow more discerning of the technology’s actual capabilities and become increasingly savvy when it comes to determining when and how to spend on projects built on or powered by GenAI.
Although earlier surveys among c-suite executives pointed to a lot of enthusiasm in the business world, by the end of the year, it seemed like sentiment moved towards oroutright caution, particularly among more experienced executives within bigger companies.
In 2024, interest in GenAI will remain, but leadership will most likely have a clearer picture of what can be done with it in their organizations.
The debut of Javier Milei
Self-described “market anarchist” Javier Milei was elected by Argentina as its president and took the reins of the country in early December of 2023. A polarizing figure, Milei pledged to radically transform Argentina’s economic situation with major cuts to public spending, a trim-down of the government apparatus and very market-friendly policies.
Milei was often discarded for his spectacular media stunts, but market analysts and industry observers seem genuinely curious about how his presidency will affect the outlook of one of Latin America’s biggest and most devastated economies.
Like many other radicals, Argentina’s new president toned down his rhetoric once in power. Also, a couple of the country’s tech kings expressed their support for him, making it clear that they have high hopes for their sector under the tenure of a president who claims to be all about market deregulation.
This will be one very interesting year for anyone keeping an eye on Argentina’s fortunes. Given how President Milei kicked-off his plans for the next six years, his administration could be either truly transformative or an absolute disaster.
Rise of alternative geos
Even in the age of remote work and “location agnosticism”, site location remains a crucial factor for service providers, particularly in the BPO space. Business leaders are still chasing the talent, and geos with healthy, well-developed pipelines are preferred.
Some of the world’s most popular delivery locations have grown too crowded, though, pushing big and mid-sized players to try luck in tier-2 or even tier-3 locations. In 2023, we saw smaller cities in Colombia, Costa Rica and Jamaica gain traction. Also, several countries in Africa and the Middle East seem to be raising their profiles in the global services sector.
We expect more landings in tier-2 and tier-3 cities, particularly from mid-sized players looking to move away from the hunting ground of the bigger fish. In the American Nearshore, that means opportunities for geos such as Aguascalientes, Mérida, Saltillo and Cuernavaca (in Mexico); Recife, Campinas and Florianópolis (Brazil); Cali, Pereira and Bucaramanga (Colombia); Portmore and Spanish Town (Jamaica); Córdoba, Rosario and Tandil (Argentina), among others.
DOL v Arise trial
One of the most relevant but least covered developments of 2023 was the Department of Labor’s (DOL) massive lawsuit against gig-CX firm Arise Virtual Solutions.
The lawsuit –characterized by the DOL as the biggest misclassification case in its history– has the potential to at the very least change the conversation around the gig economy and independent contractors in the US.
Both parties are set to meet for a trial scheduled in July 2024. Although there’s a chance for settlement, some of the legal experts we’ve consulted see the possibility of the DOL going full-on with the trial in an attempt to set a clear legal precedent on the issue of independent contractors.
If the courts rule in favor of the DOL, the gig-CX model will most probably be discarded as an option for scaling during demand spikes. Beyond that, we see corporate clients growing more cautious (and demanding) around topics of labor rights when managing third party partnerships.
CFOs hold tight
CFOs kept a tight grip on their budgets for 2023, leading to a slower flow of projects for service providers, which in turn led, in many cases, to a second year of massive layoffs.
The economic outlook for 2024 isn’t much different from 2023’s. International organizations project a slow-down in economic growth, but also cooled-off inflation and lower commodity prices. Monetary policy, while less predictable, is expected to stick to its course of high interest rates in most developed and developing economies.
In that context, service providers can expect CFOs to keep a vigilant eye on their budgets. The AI explosion, alongside the consolidation of cloud, data analytics and other technologies, generated a lot of enthusiasm among business leaders, but that enthusiasm has been kept in check by macroeconomic realities.
We see executives being more liberal with their tech budgets now that they’ve familiarized themselves with emerging technologies. However, few will venture into grandiose projects, sticking instead to solutions and transformative journeys which have a proven track record in the market and which make sense for their particular business needs.
For the labor market, that means a more focused hunt for talent. Organizations will be more specific in what they’re looking for. In the case of those who opt for upskilling, a refined approach will be taken.
Service providers will have to revamp their marketing efforts to catch the eyes of business leaders. Clarity and precission will be paramount when communicating the benefits of implementing novel solutions or transformations, as well as having relevant data at hand to share with executives in search of solid arguments to justify their decisions.
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