Outsourcing has been relied upon historically as a cost-saving measure. Many businesses have offshored certain operations such as their everyday businesses processes to countries like India so that they are more affordable to run, but now outsourcing has become a strategic business tool. The value gained from outsourcing has moved to a new phase of "intellectual arbitrage", where the goal has moved beyond simply improving existing outcomes or making them cheaper. Now, it is increasingly about partnering and making use of talent in different geographies and time zones to achieve key business objectives and growth, while winning market share.
In the last few years, we have seen the services value chain go global, in a similar way to the manufacturing supply chain that went atomically global a couple of decades ago. If one buys an iPad today, the inscription on the back of the iPad reads, "Designed by Apple in California, Assembled in China". Likewise, Caffè Nero cannot pour a cup of coffee without a global supply chain.
This also manifests itself in the services economy. Let us take the example of life or car claims processing. Previously, everything was done in one location, for example just in the UK, perhaps with offices across the country, but the global way of working did not yet exist in the same way as it does nowadays. Today, discrete sub-tasks can be broken down and farmed out to different locations where the best talent exists, at an appropriate price point. For example, a claim can be raised in the UK, the data for the claim entered in China, the claim adjudicated in India and the claim validated in Hungary before the settlement is made back in the UK. Access to the best talent for each sliver of every task is what is driving intellectual arbitrage and the evolution of outsourcing into a really global way of working.
Where are the outsourcing hot spots?
While more established outsourcing hubs such as India, China and the Philippines still remain, other regions are starting to make their mark. Emerging markets such as Brazil, Mexico, Indonesia and South Africa offer a rich pool of highly competitive, multi-skilled, and employable talent with strong domain and language skills and a high work ethic. Other strengths include cost advantages, sound IT and telecom infrastructure, good connectivity and ease of travel, which are all required for new global sourcing functions to succeed. Government support in these areas is also on the rise and business-friendly policies and procedures, cultural and socio-political compatibility with other parts of the world, and the positive long-term economic, political and social outlook is also prospering.
However, by definition, no single location can offer everything to everyone. Instead, they are increasingly complementing each other in the global business dynamic. For example, while the Philippines has been the preferred destination for voice-based BPO solutions, India continues to lead in enterprise application services, and China’s key strength lies in specifications-driven execution, thanks to its strong engineering and manufacturing ecosystem. For most countries, success will mandate specialisation in particular services and creation of niche areas of expertise depending on the education and skill sets available.
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Over the next few years, we will see a dramatic shift in the balance of service production among developed and emerging markets, marking the rise of many other countries as attractive service delivery destinations thanks to their large talent pools and cost competitiveness. These could include recent EU entrants such as Estonia and Latvia, as well as Latin American countries such as Argentina, Costa Rica and Chile. The latter has emerged as a niche destination for R&D and analytics, and Costa Rica and Argentina continue to grow their offshore services presence.
The role of innovation
While businesses are looking to expand globally and maximise on local talent and skills to increase productivity, another key focus is innovation to help them remain competitive. This dual mandate is what we at Cognizant call "run better, run differently".
While developing innovation and creative ideas internally is still encouraged, businesses are increasingly turning to outsourcing providers for insight on the best use of technology and ways of working that will help give them a competitive edge. Social, mobile, analytics and cloud technologies (SMAC) are the front runners in disruptive technologies driving business innovation; however, organisations need to assess what will be relevant for them and work with trusted service suppliers that can advise and provide the right tools at each stage. In this way, the role of outsourcing and service providers is changing and businesses increasingly want ‘innovation’ metrics to be built into their outsourcing contracts.
Globalisation has provided new opportunities for today’s businesses and changed the outsourcing world as we know it. To succeed, organisations need to partner with global outsourcing providers that have the expertise to ensure the investments, building of the capabilities and execution of them are carefully planned and tailored to their needs. Central to this is targeting the right geographies with the right skills and infrastructure to meet strategic goals and win market share, while drive growth through innovation. This is true across all business functions from outsourcing traditional business process capabilities to the latest R&D laboratories.
