Too late to compete with the Sourcing Raj? (Part I)

Taking on the Indian outsourcers: too late to make a splash?

HfS Research Fellow and Sourcing Change protagonist Deborah Kops investigates whether India has bowled an unplayable delivery to the rest of the world’s ambitious outsourcing businesses, or if there’s still a chance to nick it over the slips and get on the scoreboard…

Let’s give Indian-legacy providers their due—they arguably initiated, then accelerated acceptance of  the concept of working offshore; they’re well-entrenched in some of the best global clients; they’ve set the bar for industrialized delivery—from hiring to training; from process mapping to technology, from delivery to measurement. As a result, sending critical processes over five time zones away is considered safe and smart today. Other countries want to emulate their positioning, ensuring that the names Brazil or Chile, Malaysia or China, South Africa or Kenya, Ukraine or Poland are mentioned in the same breath when global delivery models are under discussion.

Will the market expand rapidly enough to make non-Indian providers a must-add to business models—beyond a language or regional proximity play? Will clients seriously consider providers based in other geos to deliver critical scale for finance and accounting, knowledge or vertical business functions in the near term?

Despite rising costs and increasing attrition rates, it seems, for the foreseeable future, Indian legacy providers will continue to have a leg up on providers headquartered in other countries, with good reason.

Why is challenging for non-Indian offshore providers to penetrate the global outsourcing market?

Reputation. Bad American sitcoms and call center jokes aside, just as Germany has built a reputation for precision engineering, or Italy for fashion, or the French for fine food, today India’s greatest reputational export is globalizing work. It makes no difference that the Koreans can now go toe-to-toe on the manufacture of quality cars, or some of the best new fashion designers are coming out of Turkey, or London has more Michelin-starred restaurants than Paris—Germany, Italy and France are synonymous with great cars, high style and fabulous eating. Similarly, Brand India is outsourcing.

When buyers think of India, they think of the jobs export destination. Whether that reputation is due to timing, compelling wage rates, undisputable demographics, marketing or luck is unimportant; truth is no other destination  conjures up the same meaning in the minds of sourcing decision makers. Buyers are aware of the plusses and minuses of sourcing to India and understand the map– Bangalore has strong analytics talent, Chennai the right location for technology and Pune a Mecca for finance and accounting. By contrast, what sort of talent can be found in Uberlandia, Timisoara or Accra?

For the foreseeable future, unless there are explicit language, market, or portfolio risk issues, India’s providers will dominate every long list. What’s helping India reign supreme? Why can’t providers in South Africa, Colombia, Ukraine, Brazil or even China come close to India?

Scale. We acknowledge that without scale, any business is seen as a hobby. Although there is sometimes room in our sourcing portfolio for small, emerging best-in-breed providers, we tend to gravitate to markets and providers with scale to serve our needs, even if we don’t plan to expand. Scale says that other clients are placing the same bet; that we’re dealing with a financially and operationally sound operation; and that the provider will be able to make the right investments to improve our business. Plain and simple, at this point in time, other outsourcing destinations do not have sufficient scale to challenge India.

There are several dimensions to scale—scale of the indigenous industry, scale of the export industry and scale of the individual provider. Scale of the indigenous industry is important: corporate decision makers want comfort that the location will grow as a sourcing destination and the government’s economic development policies are aligned with their goals. Corporations have no interest in being held hostage to the vagaries of political and economic policy in emerging sourcing destinations.

Second, few corporations have any desire to be the only game in town. Going it alone is rarely an option when it comes to designing a global delivery model; the herd instinct is the strongest justification for offshore location decisions. Being the foundation client for a provider’s new center is fraught with risk—will the provider be able to attract the right talent? Will the provider scale quickly enough to keep costs in check? Few organizations have the desire to be the biggest fish in the provider’s pond, even though providers think playing the “special relationship” card is a great enticement. In a maturing market, clients no longer have to take this risk.

Lack of network. Have you looked at the roster of so-called global sourcing leadership in blue chip companies lately? Along with Smith and Johnson, you’ll find an increasing number of names that reflect the map of India—Gupta, Jain, Singh. These sourcing-savvy executives, often groomed by stints in leading Indian providers, or selected because they understand how to do business offshore (read: India), have, in aggregate, extraordinary power to devise corporations’ global delivery maps—and source more work in India.

Although India is certainly a vast country, as a percentage of the population, experienced sourcing professionals are relatively few. So the game of seven degrees of separation works wonders when an Indian outsourcing salesperson knocks on the door of a major bank, telecom or outsourcing advisor. This is not to accuse Indian sourcing executives of any overt bias toward India as a sourcing destination, or India-legacy providers; rather, they go with what and whom they know.

Providers from other locations just don’t have the same network of countrymen in place. Chances are, walking into a meeting and greeting the exec in Sichuan dialect, or chatting about the best place to eat in Lvov, is highly unlikely. So if shared knowledge or experience is not in place as a platform to build the trust necessary to establish a good relationship, it means the non-Indian provider has to work that much harder to gain credibility.

Lack of strategy. When Indian providers first came onshore, market conditions were nascent. Timing and luck were often enough to attain scale. It was possible to play the IT card one day, and boast mastery of business process delivery the very next. If one client wanted insurance process delivery, and another logistics support, the provider could—dare I say it—fake it, leaning on a relationship to get enough time to figure it out.

But in today’s mature market, it’s impossible to grow without a plan. With an established sourcing destination map, and a recognizable roster of Indian-legacy providers, successful market entry by non-Indian offshore providers means playing it more strategically.

It’s no longer enough for a provider to show up at a trade show, throwing up a value proposition and seeing what sticks—ITO, analytics, horizontal or vertical BPO. Second, the all-things-to-all-people approach that worked 10 years ago is now passé. Buyers have moved on, demanding proven track records and deep skill sets before they entertain a relationship. So the non-Indian player, with limited relationships and brand recognition, is forced to declare his hand relative to process and domain.

Lack of investment in marketing. Granted, with a few exceptions, Indian providers are not masters of marketing. Most of them are still struggling with differentiating their brands in a market where one provider’s declared value proposition looks like another’s. But the news is they have some semblance of brand resulting from time in market and success in client penetration, not to mention a boost from the India-as-the-premier-sourcing-location reputation.

The “me-too” marketing approach taken by non-Indian providers is simply not workable. Believing that brand doesn’t matter and that the market is big enough for everyone is a non-starter.  They either spend a pittance in marketing, or when they do open their wallets, they get limited bang for their buck, buying ads or showing up at conferences which few clients attend– because the decisions are being made from marcomms managers in Buenos Aires, Kiev, Dalian or Kuala Lumpur. Little attention is paid to deepening relationships with influencers or developing thought leadership as a differentiator. Marketing is treated as a sideline, when it’s the key driver of revenue for new outsourcing market entrants.

Language. English really rules in the outsourcing world. The vast majority of multi-nationals use English as their lingua franca, even if they are based in Germany, Spain or Russia. Industry research and commentary is written primarily in English. Most conferences are held at least in part in English. Computer literacy is heavily dependent on knowledge of English. Buyers want a range of language capability to service particular markets, but who grows a global outsourcing business speaking mainly Finnish, Chinese, Tagalog or French?

Deborah Kops, HfS Contributing Analyst

Deborah Kops, Research Fellow, Sourcing Change Management, HfS Research (click for bio)

The concept that providers without strong English language skills can simply decouple tasks as “non-language dependent” in order to move delivery anywhere is a belief of mythical proportion. And assuming that client-facing staff with less-than-adequate fluency can successfully grow a business is a similar fallacy. The charm of a thick accent pales when a buyer is negotiating a contract or the transition team is mapping processes.

Language skills imply a degree of cultural understanding. When a student is immersed in English language study, he learns more than grammar. The syntax tells him something about the way native speakers look at the world. Exercises help the student understand why the English are fanatics about gardening, or why Americans love their baseball. Don’t underestimate how language drives context in outsourcing—it makes all the difference to relationship success.

Let’s face it–India has the English advantage in spades. Granted, not all staff speaks like Bostonians or Brummies, but the understanding necessary to communicate is present. Outsourcing is about crossing an organizational divide to forge relationships; if the language issue rears its head as an obstacle, it’s difficult to justify working with the provider, all other things being equal.

So, with the reputation, scale, client networks and language boxes checked by India, how do non-Indian headquartered providers compete? Stay tuned for Part Two.

 

Bookmark the permalink | Leave a trackback: Trackback URL

14 Comments

  1. Posted November 26, 2011 at 8:03 pm | Permalink

    Good analysis Deborah. While one could nitpick/debate subtle points you have struck at the top with pragmatic precision. India, is without a doubt a brand synonymous with outsourcing. The real fact is that buyers are getting a whole lot smart and looking a little closer at what the region/city/supplier is offering vs. taking the short cut? Despite this the provide side of the supply chain is still lingering on old paradigms or trying to reinvent itself from a product line standpoint, not always with an astute understanding of the consumer. Would be a great topic to get the intellectuals to discuss; double opposing panel form, will consider for 2012 Think Tank.

  2. Posted November 27, 2011 at 9:28 am | Permalink

    Deborah,

    I think you should also add one more key point to your analysis. The good legacy Indian players have now at least one delivery location in the other geographies that you mentioned. To add to this they also have operations in nearshore client locations.

    Ratish Pandya
    SourcingGurus.com

  3. Posted November 27, 2011 at 3:43 pm | Permalink

    Ratish,
    Maybe it will be in Part II. It’s a good point but it would then also have to depend if their are operating in a cohesive vs. disconnected fashion, if the operation is for bandwidth or market opportunities, and whether the depth of skills is evenly disbursed across the operation. We see allot of providers with multiple locations to which some are nothing more than an office front with minimal delivery capability. This may be fine if you are looking for that sort of thing but one must always refrain from the hazard of size vs. need.

  4. Posted November 27, 2011 at 6:00 pm | Permalink

    Thanks, Jerry and Ratish, for spending your holiday reading HfS. Ratish, get the point that the Indian legacy players are global; globalization even for the small fry is the price of entry these days. But the core of my argument is not that the Indian firms are now global; it’s the fact that they are established, and even more important, have a buyer network that is absolutely unparalleled. It now rivals ex Accenture, ex McK in scope and breadth….and will not be dislodged in favor of a non-Indian firm without this breathtaking buyer power.

  5. JSD
    Posted November 28, 2011 at 10:23 am | Permalink

    Once again, a very insightful article. The only addition that I would make is that most of the more reputable non-Raj players in this space are yet to shed their consulting heavy operating models to provide an integrated, cost-effective solution to their clients.

  6. Posted November 28, 2011 at 10:40 am | Permalink

    Thanks, JSD, for your comment. I am not focused on the so-called global players; they are indeed global and in a league of their own at the present time. Rather, i am talking about aspiring players coming out of China, Brazil et al. The have a tough road to hoe.

    But don’t dismiss consultancy out of hand. It’s no coincidence that 3 of HfS’ top F&A providers come from consultancies. Please refer to my article “Where have all the Consultants Gone” (http://www.horsesforsources.com/consultants-gone_041311) and see if you agree.

  7. Posted November 28, 2011 at 12:28 pm | Permalink

    Thanks Deborah!
    Perhaps another basic reason for our success is that the Service / Support / Flexible / Going EXTRA MILE attitude runs in our Blood. Not just for extra money, its just how we grow-up.

    Once again a very good writing Deborah! Would like to read more from you. Thanks.

  8. Posted November 28, 2011 at 12:57 pm | Permalink

    Deborah,
    My point was not just being present in multiple locations (upcoming outsourcing hubs)… But now with the restrictions on Visa process in many countries it becomes important to have Nearshore presence.
    The Indian providers have invested significantly in this over last few years. However the providers in the upcoming location the have to leapfrog into this new environment and face difficulty in positioning resources on client site on a short notice. I do not think this is a trivial advantage in current scenario.

    Ratish Pandya
    SourcingGurus.com

  9. Posted November 28, 2011 at 1:21 pm | Permalink

    Thanks, DJ, for kind words. Outsourcing is as much about service as it is about processing efficiency. And Ratish, agree with your point about delivery maturity as a differentiator for Indian legacy providers….and the global guys.

  10. Posted November 28, 2011 at 3:36 pm | Permalink

    I think we all understand the H1b issue but isn’t it ironic that in this age of technology that we are still looking to feet on the ground as a way to deliver service? Granted there are decisive advantages and on occasion the need to have a physical presence. But in a majority of cases this is not necessary, the incremental increase in cost is not warranted and the results are minimal (if at all). Much more a case of buyer perpetuated habit and provider increased revenue pursuit.

  11. Posted November 30, 2011 at 8:40 am | Permalink

    Deborah,
    I completely agree with your analysis of India’s strengths, but think it’s important to recognize that India is not the best offshore location for every offshore need. Some needs can best be served by niche locations that meet specific talent (technical, industry, or language) or geographic (regulatory or proximity) requirements, whether or not those locations operate as part of a portfolio of locations. Even where India offers an attractive range of services, buyers with medium and large offshore workforces should also consider additional locations to mitigate the economic, political and infrastructural risk associated with single country operations. Buyers that concentrate large workforces in any one country increase their country-specific risks, particularly when the country is not a significant market for the services buyer. I have outlined this further at http://globallegal.wordpress.com/2011/11/23/beyond-india-optimizing-the-locations-of-offshore-operations

    Matthew Sullivan
    Red Bridge Strategy, Inc.

  12. Posted November 30, 2011 at 10:16 am | Permalink

    Matthew, agree completely. The thesis is not that clients should not develop a portfolio of locations for alternative service delivery; rather my point is that in the main, non Indian headquartered firms have a rough road in front of them pulling up to the drawing power of Outsource to India, Inc. And they are not doing a stellar job so far.

  13. Posted January 2, 2012 at 3:17 am | Permalink

    As always…great insight and not afraid to call it as it is. Interconnect Indian dominance, language, labor arbitrage bubble, the innovation myth, cloud vapor, issues of passion, general global economic decline, and the pretty touchy idea that we can in polite circles associate cities with capabilities/skills…and we’re moving ever closer to the truth. I look forward to the next installment!

  14. Posted January 26, 2012 at 7:37 pm | Permalink

    Deborah: excellent article and as always, your article has a very appealing, and high “insight-density” …..

5 Trackbacks

  1. [...] This is not to accuse Indian sourcing executives of any overt bias toward India as a … read full news Published: Sat, 26 Nov 2011 23:00 Tags: Too late to compete with the Sourcing Raj? (Part [...]

  2. [...] Too late to compete with the Sourcing Raj? (Part I)Horses for SourcesWhy is challenging for non-Indian offshore providers to penetrate the global outsourcing market? Reputation. Bad American sitcoms and call center jokes aside, just as Germany has built a reputation for precision engineering, or Italy for fashion, … [...]

  3. [...] Too late to compete with the Sourcing Raj? (Part I)Horses for SourcesWhy is challenging for non-Indian offshore providers to penetrate the global outsourcing market? Reputation. Bad American sitcoms and call center jokes aside, just as Germany has built a reputation for precision engineering, or Italy for fashion, … [...]

  4. [...] Too late to compete with the Sourcing Raj? (Part I) It's no longer enough for a provider to show up at a trade show, throwing up a value proposition and seeing what sticks—ITO, analytics, horizontal or vertical BPO. Second, the all-things-to-all-people approach that worked 10 years ago is now passé. … Read more on Horses for Sources [...]

  5. [...] Too late to compete with the Sourcing Raj? (Part I)Horses for SourcesOther countries want to emulate their positioning, ensuring that the names Brazil or Chile, Malaysia or China, South Africa or Kenya, Ukraine or Poland are mentioned in the same breath when global delivery models are under discussion. … [...]

Post a Comment

Your email is never published nor shared.