Not surprisingly, as global corporations gear up for what looks to be a strong re-emergence out the malaise of the worldwide recession, there are clear signs that offshore outsourcing will remain a key pillar to helping drive this growth.
But what is going to be different in this rejuvenated economic environment is the offshoring equation will increasingly be based around the level of efficiency built in to the process of services delivered and the ability of providers to fully optimize potent new technologies like cloud computing.
Following is our own take on the major tidal shifts coming to the nearshore/farshore outsourcing industry over the next year.
1) Providers offering increasingly integrated solutions
The line between BPO and ITO has blurred this year, as more and more vendors present a one-stop-shop for all a client’s outsourcing needs. That’s the opinion of Ashutosh Vaidya, Senior VP at Wipro BPO Solutions, who told BusinessLine recently that the company’s integrated offerings are what has kept it profitable over the last three quarters. He says that a pure-play BPO has to depend on an external IT partner in case the solution calls for it, while clients who instead want both IT and BPO solutions come to companies like his. It’s a fast growing trend, and BPO providers across the board are moving away from solely back office work and turning toward these combo-orders, or complete client solutions including IT.
Vendors also continue spreading their delivery centers globally, and then distribute work across those centers according to client preferences and each country’s area of expertise. In fact, the choice of which provider to hire may become more important to the success of your project than the location. We’ve seen this over the past year as Indian locations continue to lose outsourcing market share, but the Indian players themselves continue to gain it. The reason is partly due to their growing footprint in Latin America and the US.
“Major companies will seek to work with only a handful of vendors and hire those that have global reach and presence in both established and emerging markets”
2) Rise of the Nearshore and Onshore
This is a no-brainer, but it’s difficult to over-emphasize how much excitement Latin America and the US have generated as new sourcing destinations this year. The rural sourcing model onshore is projected to gain a lot of visibility in 2011 because of work-from-home concepts that cut firms’ overhead costs, while giving them access to a skilled labor pool eager to work after the recession. In addition, aggressive investment incentives by states like Michigan and Ohio continue to attract companies that are not comfortable sending work offshore.
In Latin America on the other hand, we’ve seen a slight decline in demand for heavyweights like Mexico (due to the ongoing violence), but the rise of Central America as a sourcing destination. Emerging locations like Guatemala, Honduras, Nicaragua and El Salvador are projected to be next year’s leaders in the BPO and bilingual voice support market.
Is Latin America showing signs of maturity? Hotly debated. But if Nearshore Americas’ Red Hot Startups contest taught us anything, it’s that tech innovation and IT skills are coming out of the Nearshore, especially in social media, web marketing applications and software design and development. Countries like Chile and Colombia continue to target bilingual IT skills, and clients will continue to ask for those and similar locations.
3) Business consolidation and flexible sourcing contracts
With firms outsourcing in a more integrated way, it’s natural for them to look for increased consolidation of their sourcing operations. We don’t mean that in terms of geographic location but instead the number of vendors they hire. “Major companies will seek to work with only a handful of vendors and hire those that have global reach and presence in both established and emerging markets”, says Ossama Nazmi, Chairman of IAOP’s MENA Regional Advisory Board. “Companies heading for that type of business consolidation will enjoy an easier and leaner vendor management coupled with higher bargaining power with those few selected vendors”.
That increased bargaining power leads clients to demand more flexible sourcing contracts that are shorter in duration, and allow for scaling up and down of service volumes without returning to the negotiating table. As they apply the lessons they learnt from the recession, cost efficiency will continue to be the watchword, which will only make bidding for outsourcing contracts even more competitive.
4) The cloud explosion
Cloud sourcing has been a huge trend in 2010 due to its scalability and the fact that clients pay for only what they use. Yet the risks regarding data security are much too great at the moment for clients to commit any valuable projects to the cloud. 2011 will see that technology being developed further, giving clients more control over their cloud sourcing operation.
We’ve been hearing terms like ‘private cloud’ and ‘internal cloud’ thrown around this year, but as Forrester analyst James Staten says, “The main reason that empowered employees to go to the public cloud is speed and standardized procedures and service. Most enterprises aren’t yet ready to offer the same value proposition”. He also predicts that if you’re expecting standardization of cloud offerings in 2011, you’ll be disappointed – the market is much too immature for that.
This being said, cloud sourcing is still the hottest thing in our industry at the moment, and those that learn to leverage it first will gain an advantage. Firms are starting with applications that are easy to protect, but will soon be using the cloud for real-time business intelligence.