Life is all about choices – whatever your philosophical position on free will – and most of us are keen to exercise our right to choose, most of the time. But some decisions are more difficult than others, and a choice that seemed like a no-brainer yesterday can seem complex and challenging tomorrow. So it is with outsourcing, says Lesley Meall FSN contributing editor.
“Ten years ago Ireland was the most popular offshore destination for call centres, today it’s still India, but who knows where it will be tomorrow,” says Anthony Miller, managing partner with TechMarketView – and something similar can be said of various other business, information technology and knowledge processes.
As ever more processes are being outsourced to ever more destinations, making the right choice is becoming ever more challenging. Even if you focus just on information technology (IT) operations and processes, you can be spoiled for choice. When Gartner last published its top 30 locations for offshore services it considered a whopping 72 countries, and the potential number of destinations shows no signs of diminishing any time soon. “It wouldn’t surprise me if most countries would like to get in on the act to some extent,” says Miller, “though the native IT industry needs to be well organised and reasonably well developed in order to do this.”
So at the moment, India, China and Malaysia remain the undisputed leaders, but there are plenty of newcomers snapping at their heels with varying degrees of success (of which more, later). “Countries such as Mexico, Poland and Vietnam have continued to strengthen their position against leading alternatives, while others have forced their way into the ‘Top 30’,” says Ian Marriott, a research VP at Gartner, and they are understandably keen to exploit the opportunities created by the increased focus that many organisations now have on cost optimisation, making the market particularly “dynamic”.
Given the nature of globalisation, it’s hard to see how the market could be anything else: but the pressures of the economic crisis have accelerated what was already a rapid rate of change. “Call centres and other low-end services may have ignited the outsourcing boom in India, but it moved quickly up the value chain,” says Miller. It is already the favoured destination for the outsourcing of software development and it is an increasingly popular destination for offshore outsourcing of research and development, though India faces stiff competition from other locations including China, Russia, Israel – and some less familiar destinations.
Winners and losers
New entrants into the Gartner ‘Top 30’ are Egypt, Morocco, Panama and Thailand, and they displaced Northern Ireland, Sri Lanka, Turkey and Uruguay. “This doesn’t mean that the relegated countries have under performed,” says Marriott, but the others have made very strong progress. So what has happened to increase their appeal? A range of things: Gartner rates destinations on the basis of language skills, government support, labour pool, infrastructure, education system, cost, cultural compatibility, the political and economic environment, global and legal maturity, data and IP security and privacy – so a ‘Top 30’ rating is based on all of these.
However, there are some wider trends and local strengths behind the appearance of the four new offshore destinations. Non-English European language skills are rare in many of the more established offshore destinations, such as China and India for example, and Morocco’s colonial history has equipped its workforce with the French and Spanish language skills that are increasingly in demand. “Language skills, cultural compatibility, time zone and travel time are important considerations,” observes Marriot, as is cost. But Morocco also has the advantage of a liberalised telecommunications industry and government support.
Until recently, Morocco's outsourcing market has focused on call centres, but its expansion into banking, insurance, telecommunications, and information technology (IT) is being supported by infrastructure investments, and the development of four outsourcing zones at Fes, Marrakech, Tetouan and Casablanca - where the first outsourcing centre Casanearshore was launched in 2007. Managed by the institutional investor CDG Group, it was set up as a (53 hectare) park for business process outsourcing and IT outsourcing, and represented an investment of $314m. It has already attracted the likes of BNP Paribas, Ubisoft, and Teuchos Groupe Safran.
Also, the state is funding a number of special educational initiatives. According to local press, prime minister Abbas El Fassi has called Morocco “ a magnet” for companies interested in outsourcing, and the government is taking steps to exploit the opportunity. To meet the expected high demand from European countries, El Fassi has instigated a large scale employee education programme (a state-funded initiative will train 22,000 graduates in 12 various fields), companies that set up in the offshore zones will be exempt from corporate tax for the first five years, their employees will get preferential rates of income tax.
From India to Egypt
In its analysis of Egypt, Gartner also found significant government support for the information and communications technology (ICT) sector. Egypt has created dedicated technology and contact centre parks, made a reported $2 bn investment in its telecommunications infrastructure, and reduced corporate taxes. In common with Morocco, it is also close to Europe, operates in a smiliar time-zone, has an increasingly skilled and multilingual workforce, and can be very competitive when it comes to cost – so much so, that the more developed Indian ICT industry uses Egypt as an offhsoring location.
“We believe that 20 per cent of our work can be offshored to Egypt,” says Anand Sankaran, senior VP and business head, for India and the Middle East, with the Indian giant Wipro Technologies. Wipro currently employs 100 professionals at its Cairo centre, and plans to increase this number. “The Egyptian government is providing different subsidies towards training and education of new hires,” he adds, “and we plan to hire 400 professionals in Egypt within two years." Almost 30,000 students graduate from Egyptian universities each year in computing and engineering disciplines.
Given its history of domestic terrorism, Egypt might strike you as a potentially dangerous location, and it is. But everything is relative, and in the recent Black Book of Outsourcing 2009: The Year of Outsourcing Dangerously from the Brown-Wilson Group (which considers the effects of political, economic, ecological, and social uncertainty), Egypt features on a short list of emerging offshore locations that have made strides in “mitigating risks inherent to their countries while still keeping costs low”. Overall, Cairo is rated as safer than Belfast, Reykjavic (Iceland), St Petersburg (Russia), and numerous Indian cities, among other places.
Not all new entrants (or existing) Gartner Top 30 destinations fared as well as Egypt when it comes to safety. Thailand may be increasing its footprint as an offshore outsourcing destination, but according to The Year of Outsourcing Dangerously, Bangkok is the second most dangerous offshore outsourcing destination in the world, after Bogota, Colombia. If coverage in the newspaper the Bangkok Post is anything to go by, Thailand also has some other significant challenges to overcome: these range from lack of English language and technical skills among the local workforce, to problems getting the Labour Department to grant work permits for the foreign ICT professionals.
Talk is cheap
Fortunately for Panama, the fourth new entrant in the Gartner Top 30, it doesn’t even rate a mention on the danger list, (after all, it’s 20 year’s since the United States invaded). It may be seen by many as a haven for money laundering, but it is a peaceful country with the lowest crime rate in Central and South America - and these aren’t the only things it has going for it as a rising offshore destination. The tax haven is conveniently located in close proximity to the world’s largest buying market for offshore services, the US (with which it has a free trade agreement) and it boasts a young, technically skilled, low-cost labour pool, and the major languages spoken are Spanish and English.
“Education lags behind some of it neighbours, but literacy is quite high at over 92 per cent,” says Esteban Herrera, chairman of the Latin America outsourcing community of the Outsourcing Institute, so although Panama may not (yet) be the ideal destination for high value BPO and KPO engagements, it has been a popular call centre destination since 2001 when the government introduced a law lowering taxes on calls. It also has the benefit of five major undersea cables passing through its territory, and Herrera describes its teleoms infrastructure as being “about as good as it is going to get in the region.”
Despite all of this, of course, it will take more than some Gartner research, an educated multi-lingual workforce, and a pretty good telecoms infrastructure to make all but a dent in the current dominance of more established destinations. Because when organisations find themselves spoiled for choice, given a choice between the devil (they already know) and the deep blue sea, most will choose the familiar charms of India, China and Malaysia – and they were recently ranked one, two and three respectively in A T Kearney's Global Services Location Index (GSLI). As GSLI project manager Johan Gott comments: “They continue to lead the index by a wide margin through a unique combination of high people skills, favourable business environments and low cost.”
