The fundamental shifts new technologies bring to our daily lives could fill a magazine, let alone an article. It comes as no surprise that technology firms adopt new technologies early: in the past, ERP and CAD design were first leveraged by technology firms and then exported to other leading commercial enterprises, and we see the same trend today in mobility, analytics and cloud.
Technology enables borderless companies. With technological advances, workers do not have to gather in an office to collaborate; theycan be dispersed across the globe. In technology professional services, this global resource deployment factors into operating cost considerations and potential market expansion opportunities —professional services firms target Latin America for both.
Throughout the technology industry’s history, we have focused on finding ways to strip labor from business models. For example, ATMs do away with bank tellers.As this inexorable march progresses, it becomes increasingly challenging to find ways to economize on labor. The new frontier focuses on stripping cost from professional services delivery.
Labor Cost and Outsourcing
The desire to economize on labor led to the concept of outsourcing, which has evolved into the concept of the borderless company. TBR’s Global Delivery Market Landscape study tracks the professional services staffing developments in major regions, including Latin America. In this new economic business environment, services firms open offices across the world to take advantage of labor cost differentials. The labor force adapts to distributed work conditions and technology allows for the instant access to and transfer of information between employees, with little impact on collaborative work productivity for people situated thousands of miles away from one another.
In today’s economy, professional services firms closely track labor markets, given labor expense represents 60% to 80% of revenue. Technology Business Research Inc’s clients regularly express concerns about labor talent shortages. Where will the scarcities exist? What skill set does TBR predict will be in short supply? Where will labor pools develop, or on what skills, segments and geographies should clients place their bets?
The intersection of trained labor and vibrant emerging economic activity benefitting from technology automation makes specific regions highly attractive to technology companies.
Developing regions can enhance the attractiveness of their local economies by training and educating their citizens with the skills these global firms will need for business operation expansion. Global professional services firms such as IBM, Accenture, Infosys and Deloitte continually evaluate their human capital requirements and work to collaborate with local economic and educational leaders to build out labor pools.
TBR analysis in the Global Delivery Market Landscape study indicates hiring by 14 of the leading professional services vendors in core countries such as Brazil, Argentina and Mexico continued in the 7% to 10% range in 2Q12 (ending June 2012), which, while a steep decline from prior-year levels in the 20% to 40% range, still suggests healthy investments in regional expansion by technology firms.
Slowing hiring activity in the region results from external and internal market implications, including:
- The “Fiscal Cliff”: Firms remain wary U.S. public sector deficit reduction implications. Latin American staffing supports onshore activities in the market and will therefore be viewed with heightened scrutiny until such time as the public policy picture comes into focus.
- Overall Market Saturation: Few business sectors can sustain 40% annual grow rates, so this slowed hiring rate ought not be surprising. The result will be professional services firms placing greater scrutiny on where they add staff around the globe. Latin American countries, then, will find themselves competing against one another and against other, emerging geographies, for MNC human capital expansion dollars. Attractive tax policies will help, but equally as significant will be labor pool skill levels. Countries investing in higher education curriculums focused on hot technology issues such as business intelligence and analytics will continue to attract professional services firms.
This slowdown in hiring rate suggests a shift from rapid expansion to more measured, global staffing monitoring. Fast forward 15 to 20 years, and envision human capital managers in large, multinational firms tracking labor rate dashboards by geography. They will map rises in wage costs against forecasted labor pool availability, and then will look at other regions where they can increase the labor skill capacity to avoid spiraling wage costs in a region. Firms may determine that turnover in a job located in Poland, for example, might be best served being filled in Brazil or Argentina based on wage expectation differentials.
Today’s anticipated shortages around analytics and the somewhat new title of a “data scientist” may last for only five to 10 years before the next big thing sparks a shortage and wage cost run up in another specialty area. Convincing borderless companies to locate staff positions will become a function of constantly monitoring hiring patterns and anticipating what skill positions will be in short-supply based on the next big thing.
Green Patch Versus legacy
The technology enabling borderless companies means these professional services firms can bring their products and services to the most far flung of emerging markets. New computing delivery models built around cloud computing, mobile devices and managed services means new business arising in developing countries can have best-in-class IT infrastructures built out for them in very short order. No longer must firms build and maintain these infrastructures themselves. Cloud services coupled with mobile devices can mean virtually universal information access as-a-Service.
The intersection of trained labor and vibrant emerging economic activity benefitting from technology automation makes specific regions highly attractive to technology companies. Technology firms build out sales presence in Latin America, for example, to capitalize on the growing activity in specific industries, such as oil and gas. To hire staff to provide onshore professional services to that industry and nearshore support to U.S. activities makes logical sense and becomes a competitive cost advantage leverage point for large multinationals with the resources to invest in building out scale in lower cost geographies.
Businesses providing goods and services to the local economy have to be viewed as customers. They need to hirelocal, skilled labor. The extent to which a nation has an educated citizenry with a technology infrastructure capable of plugging them into the global economy will go a long way toward improving the overall standard of living in that region by having labor pools attractive to borderless companies.
Geoff Woollacott and Bryan Belanger team on a number of the large-scale custom consulting projects TBR’s Professional Services Practice executes. Geoff also content reviews pieces of the syndicated research stream. Geoff and Bryan can often be seen playing in front of random white boards where it is never clear from the discussion who is doing the teaching and who is doing the learning.