Whether it's cash management in Casablanca, or payroll in Patagonia, there's one guy who'll have a Harvey Ball polished and ready for you. Enter Everest Group's rock-loving, paint-balling enthusiast, Anand Ramesh, who lives and breathes global sourcing locations.
However, before you read the excellent guest article he's submitted for us, please spend a few minutes assisting Anand with his new study to understand how companies are leveraging offshore locations – particularly for high-value services – and how the landscape is likely to evolve. Just click here to access his study, and he'll send you a summary of the "Market Vista" report in return for your efforts. Over to you Anand...
Global Sourcing Destinations: Perspective 2010
The ripple effects of the global economic slowdown made 2009 an interesting year for outsourcing and offshoring. Rapid growth in offshoring slowed in 2009, despite the fact that the trend of high wage inflation in offshoring markets diminished significantly.
Although India and Philippines witnessed significant slowing down of hiring and consequently slower growth, these countries will continue to be the hubs of activity in 2010. In the last 12 months, India and the Philippines accounted for nearly 40 percent of new delivery centers set up globally. A combination of low-cost, large-scale, highly skilled talent pools and a high degree of offshoring maturity will contribute to both countries retaining their dominant position in the market. By Q3 2010, we expect the conversations around India and Philippines to center back to where they were two years ago – inflation, attrition, pressures of rapid growth!
In recent months, several other countries saw increases in activity. Most notable are Brazil, Argentina, Central American countries, and parts of Africa. Buyers and suppliers expanded to these geographies by setting up new delivery centers. Several offshore-centric suppliers such as Polaris Software, TCS, Patni, Genpact, and Cognizant announced large plans for Latin America. The hot location pick for 2010 will be Peru – with more activity than before, new local suppliers entering the market, expect at least one major global supplier to set up a delivery center in the country.
Delivery centers in Latin America and Eastern Europe are increasingly focused on more niche services. For example, centers in Eastern Europe support language-specific requirements and high-end R&D or engineering services. Similarly, Singapore is increasingly emerging as a logistics and knowledge-services hub.
These factors point towards an increasing focus on specific services in these locations in smaller scale, in contrast to a broader suite of services supported from India and the Philippines at large scale.
As buyers’ focus shifts to cost reduction, low concentration risks, and improved productivity levels in the future, they will tend to seek greater flexibility in service delivery models. This is already manifesting itself in multi-geography, hub-and-spoke models. In 2010, we expect to see an increasing number of buyers push towards globally integrated networks where locations both complement and supplement each other.
The result will be a mix of domestic, near-shore and offshore delivery /shared-service centers – often in a “hub and spoke” model. Suppliers will continue to explore the new terrain and tap specialized skills and language capabilities to address the outsourcing needs of local and regional economies.
In summary, as the offshoring industry recovers, the location landscape will see substantial changes in 2010. Buyers will increasingly focus on developing the right portfolio of locations and suppliers will continue to push the envelope into new countries. The key challenge for all participants will be to think beyond selecting single locations to develop a portfolio view of locations.
Anand Ramesh (pictured) is a Research Director at Everest Group’s Global Sourcing practice. He tracks global sourcing market trends across buyers, suppliers, captives and locations and plays a leadership role for the company's quarterly Market Vista research.