The Return of the BOT Model, this Time with Greater Focus on Talent

The market seems to be growing partial to captive and build-operate-transfer (BOT) setups following the post-COVID digital explosion and the global drive for market-relevant skills.

Captive centers and BOTs are attractive models for companies that wish to leverage the advantages of offshore/nearshore delivery while keeping operations as “close to the chest” as possible. Historically, both models were considered restrictively expensive due to the levels of capital, effort and local know-how required to set them up. However, several locations have matured to a high degree, lowering the barrier of entry. 

That, combined with more powerful technological capabilities, the increased digitization of “core” processes and an urge for specialized talents has given rise to another wave of interest in DIY models. 

Chasing the skills

Following more than 10 years of popularity, BOT arrangements began to lose steam by the early 2010s. A decade later, what has been characterized as the “second wave” of BOTs seems to be consolidating in global services delivery.

“The BOT model has reemerged but with a new driver: access to talent,” wrote Juan Coronado, Managing Director for Deloitte’s Tech Strategy & Business Transformation practice and a speaker at this year’s Nexus conference, in a recent report. 

Captives are seeing a similar resurgence, particularly in India. A report by Colliers shows that office leasing for captives saw a dramatic increase during 2023. Captives leased 8.7 thousand square meters of office space during the second half 2022. A year later, that number had jumped to 12.4 thousand square meters. About 71% of that space was leased by companies from the US, with tech dominating demand.

Demand for captives in the country was such that they were relatively unaffected by the waves of tech layoffs seen during 2023. Randstad Digital CEO Venu Lambu told The Economic Times that they expected a 25-30% increase in hiring across captive centers in India, with a focus in tech jobs for non-tech organizations.  

Although talent has for long been a relevant factor in sourcing expeditions, the post-pandemic digital explosion exacerbated its shortage, pushing more business organizations to shop for skills beyond their national borders.

“The supply for professional skills still remains very low, particularly in engineering and IT,” wrote Peter Bendor-Samuel, CEO of Everest Group, in an article for Forbes. “There are now large mature labor pools available in a variety of countries (most notably India, Philippines, Eastern Europe, and increasingly Central and South America).”

Market players and analysts have argued for talent over location, but the fact is that the availability and quality of talent is often location-specific. 

That’s why some geographies have over the decades consolidated their popularity as prime locations for offshore or nearshore delivery. The talent pool is mature and developed enough in their skill set, business acumen and service capabilities to allow for successful DIY operations. Such is the case of Costa Rica and Mexico in the American nearshore, and of India and the Philippines in APAC.

“BOT Wave 2 typically centers on talent versus infrastructure, and on high-value services and capabilities versus cost reduction,” stated Coronado, who’ll be sharing his expertise on the nearshore BOT model at Nexus 2024.

Keeping the tech

The technologization of more “core” business operations is the second factor behind organizations trying to go the DIY route. 

“The definition of ‘core’ has evolved, with once-sourced capabilities increasingly returning under in-house control (e.g., master data management, cybersecurity,development of certain business applications),” wrote Mr. Coronado.

Third-party partners are a useful alternative for situations which call for more solid expertise and a quicker time to market. Business leaders have expressed their preference for outsourced solutions when dealing with cutting-edge or high-specialty technologies, such as AI and cybersecurity. 

Nevertheless, companies are coming to realize that, when the option is viable, in house might be the best way to go. Keeping in line with market regulations for a wide array of technologies is growing both increasingly relevant and difficult. 

We’ve reported on a couple security breaches which involved third-party vendors. There’s been cases also in which outsourcing partners get in trouble and unwittingly drag their clients into the pit with them. Scenarios like that have the potential to draw decision makers towards setups that, though comparatively more costly, will provide greater peace of mind in the end.

“Companies are increasingly reluctant to outsource their tech needs, preferring instead to keep these capabilities close to the heart of their operations,” commented Vit Koval, CEO of nearshore staffing firm Globy. “This approach allows for better alignment of tech development with business goals, ensures a higher level of security and compliance, especially in sensitive industries, and fosters a culture of continuous innovation and agility that external outsourcing arrangements might not provide.”

This represents perhaps the biggest challenge for emerging economies. Most outsourcing locations built their reputation mainly on affordable labor and scalability. Both qualities still appeal to potential investors, but the growing consequence of specialized skills (both technical and soft) has kickstarted a race for tech between traditional and alternative outsourcing geos.

Tech firms and entrepreneurs in the American nearshore see the latest developments in AI, plus the skyrocketing demand for data, cloud and cybersecurity services, as opportunities to level the playing field. This is the chance to break away from the historical perception of the region’s “backwardness” and become truly relevant players in the global market. 

It will all come down, however, to the entrepreneurial capabilities, educational infrastructure and political will of each country.