Coronavirus cruelly exposes the fragility of the offshore outsourcing industry: Will clients trust all their eggs in one basket again when this is over?

The outsourcing industry is fast-becoming be the first vital piece of the global economy to come under the microscope as nations, businesses, and societies try to build a blueprint for what the post-coronavirus economy may look like.

India and Russia, in particular, are now being widely seen to have the slowest response to the coronavirus pandemic across all the major economies, and the situation is forecasted to worsen rapidly in the coming days and weeks – perhaps at the most alarming scale of all the current major global economies.

In addition, the current curfew (just announced) in India is going to have serious and immediate consequences for the smooth delivery of IT and business process work conducted for both overseas and local clients. Many IT support staff are poorly equipped to support work-at-home staff, not owning laptops, often living in unsuitable accommodation for work, and often with poor internet / wireless connectivity.

In short, like our governments and healthcare systems, the offshore outsourcing industry just wasn’t prepared for this.  All the warnings were ignored and now some very sick chickens are coming home to roost…

We’re running out of global locations to source service delivery, while work-at-home measures are proving woefully inadequate for offshore IT service provision

In short, the global industry is quickly screeching to a halt as a consequence of this pandemic. Most of the leading service providers have been instilling “safe distancing” in their centers, increasing onsite medical facilities and sanitary measures. However, with the death rate spiraling massively in Italy (almost 800 per day and rising) and US and UK expected to accelerate significantly because of their slow response to locking down public gatherings, workplaces and travel, the increased curfew measures just announced in India render these efforts from services firms pretty much moot.

In short, all global businesses are being significantly disrupted because of major restrictions mandating employees to work at home, and not having sufficient resources in India is going to exacerbate the situation for supporting critical IT delivery. Global enterprises may be forced to source local service providers to plug critical gaps, such as security monitoring, disaster recovery etc. which is going to put a strain on their budgets and my least to some major contract disputes (although many of the IT service contractors should be protected by Force Majeure provisions). In addition, service providers with strong delivery resources in locations such as Russia, which is resisting a lockdown, may take on additional business at this time, though most nations with strong IT delivery, such as Poland and Ukraine, are already in lockdown situations. The Philippines is also seemingly open for business, which is keeping the lights on for delivering a lot of voice-based services, but we expect them to shut down their centers soon with Duterte discussing emergency measures with the Philippines Congress on 23rd March.

Finally, the robustness of outsourcing will be tested to its maximum.  And – most likely – well beyond its maximum 

Discussing the issue with multiple executives in leading offshore IT Services firms paints a telling picture of how broad and painstakingly detailed business continuity plans are now. And, by inference, how woefully inadequately designed they were for a situation of this magnitude. Executives are telling us they have never seen such widespread implementations of business continuity in their multi-decade long careers. For their clients, while more measures from key offshore locations are understandable and, frankly should be applauded given their laissez-faire approach thus far, could still not come at a worse time. Outsourced service desks are already overwhelmed as they move to support huge volumes of end-users trying to access systems remotely and, in some instances, using technology stacks with which they have no training or familiarity. While it’s not clear how the curfew will impact these engagements, one possible outcome is enterprises – out of desperation – start to develop and stand-up their own in-house capabilities to handle the glut in core IT work.

In terms of outsourced customer support, leading call center firms are showcasing their ability to shift a lot of work to their WAHA (Work at Home Agents) if the need arises, and most are still able to utilize their large Philippines centers because of Duterte’s confusing attempts at a lockdown. However, we will only witness the true reliability of whether WAHA can actually deliver at a massive scale, when these workplaces are finally locked down… which is surely coming very soon.  In addition, after more than a decade of hype surrounding crowdsourcing, we will finally witness whether that can really do more than plug a few gaps for occasional developer needs.

The Bottom Line: Will enterprises still have an appetite to keep outsourcing when this is all over, or are those days fading fast?

Should this become widespread – we may emerge from this situation with a very different outsourcing landscape and a reluctance from enterprises to put all their eggs in one basket again – in-line with broader comments about de-globalizing supply chains. In short, the outsourcing industry may be the first vital piece of the global economy to come under the microscope as nations, businesses, and societies try to build a blueprint for what the post-coronavirus economy may look like.

Keeping enterprise clients’ critical support services functioning is becoming the biggest challenge ever facing India’s IT industry as it tackles this exacerbating health crisis. Provisioning laptops to essential IT staff, ensuring internet infrastructure is functioning under the strain while enforcing staff takes the necessary self-distancing and hygiene precautions are the critical functions of service provider management at this time. They have to operate on an immediate short-term footing to keep the lights on for enterprise clients, and with a medium-term focus on surviving the next few weeks with the right emergency provisions in place to keep staff healthy and a financial fallback to keep the wheels on the track as we go through these very painful motions. Whether governments will be bailing out outsourcing firms and laid off contract staff is very fuzzy right now, and the concern is whether there is an outsourcing industry to save after all this is over – even if there are some emergency financial relief measures in the interim.

Posted in : Business Process Outsourcing (BPO), IT Outsourcing / IT Services, policy-and-regulations



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  1. Like most things, I think it will be a case by case decision rather than a broad backlash against outsourcing. If the outsourcing workforce was adequately trained, not over-leveraged, and properly prepared to work at an alternative site, then the client would see little to no disruption to the outsourcing service. I can certainly say this was the case with Milestone as we spent a lot of time preparing plans and alternative working arrangements which have worked well thus far. What I do think will happen is that this crisis will cause longer term trends to accelerate towards automation in the broadest sense — using virtual agents for almost all level 1 work and a good portion of level 2 work; pushing more towards autonomic fault recovery and increased resilience in infrastructure and applications (which is a major benefit of true cloud computing) and causing new techniques to be developed for larger scale video conferencing & virtual events to make them even more attractive options to in person events.


  2. And not to mention that the services firms have mostly lost the trust of their offshore employees – given the kind of policies and HR procedures they have moved to in recent years.

    But, all this is for later. There is going to be a sharp immediate reaction at a fundamental level. Accenture has already anticipated it?

    In the short-term we may see an impact almost on a daily basis to their revenues, given that the world has changed so rapidly in the recent three weeks. And it is the world economy that is going to shrink now, including the economies of US, China, Europe, UK and India, even as it has already been in some kind of a transition (de-coupling from a tightly integrated globalized financial and business model) to a slow economic growth rate in every part/sector, in the recent 2-3 years.

    The shift in the market had already started (Coronavirus irrespective) and we are facing a situation where demand for any kind of goods or services is going to reduce dramatically. It is unrealistic to think that this will not reduce demand for offshore centres and their services. And that this will be manageable or gradual is also unrealistic to assume. The new normal (that already led to a slowdown in the growth rates of the IT services firms) is now going to shift to an even newer normal (driven by these recent events not just by tech/automation etc.).

    If you approved expansion of an GIC (offshore) location a month ago, will you still proceed with it now or would you put this on hold (given that the projections on business need and IT may have changed significantly) and operate at a lower threshold for risk?

    Now add to that (if you think) there is going to be a struggle to even deliver steady state business as usual work, if there is a struggle to just keep it all running together as before, well that is not going to help either.

    The trade wars and protectionist policies and immigration controls have already hit manufacturing exports driven leaders (Ex. China). This new scenario will impact services exports economies, like India.

    And it is not going to be small or temporary.


  3. Excellent summary of the situation by Phil Fersht of HFS Research. A research group whose work I always make time to read.

    Recently the head of the TATA Group announced their WFH

    In practice it will be very difficult for all of its workers to work from home. TCS the largest IT Services and Business Process outsources has over 400,000 associates. As Phil quite rightly points out
    “Many IT support staff are poorly equipped to support work-at-home staff, not owning laptops, often living in unsuitable accommodation for work, and often with poor internet / wireless connectivity.”

    Of course it’s not only TCS that will struggle to keep its outsourcing centres fully operational Infosys, Wipro, WNS and many others are in the same boat.

    Locally we hear that the Commonwealth Bank of Australia has reached out to Qantas to see whether they can retrain and use some of the 20,000 personnel laid off by Qantas. I should point out that no statements were made as to whether this is related to offshore outsourcing. However, will COVID-19 trigger a trend of bringing jobs back to local markets? Let’s see.

  4. If we tie corporate compensation to long term performance, not quarter to quarter or 12-24 month performance, leadership will be better able to play a “long game” and making investments in domestic or nearer supply chain capabilities or in-house capabilities. I do think it starts with how we measure corporate success. If it also starts to include things like environmental stewardship (with responsibility for your 3P value chain as well) and “being a good citizen” in the countries you’re doing business, that would help too…

  5. Agree Phil. It’s never a good idea to put all eggs in one basket. Growth in RPA and onshore resources are needed to sit along side an offshore operating model. Our onshore team transitioned to WFH overnight with zero client interruption. Now trusting in all teams to do the right things and stay healthy.

  6. I have a totally different view. India is the only major economy where the actions for containing coid-19 has been one of the swiftest. That is reflected in the low number of infections as well as mortalities – only 6 mortalities as of 23rd march. All this, despite having a 1.2 billion population with very high population density. All Kudos to the government actions coupled with companies’ and citizens’ cooperation. So, the statement that India was slow to act compared to the western economies is unfounded and far from truth. Now coming to the measures taken to avoid business disruption, it is driven by many factors. The outsourcing partners’ business continuity plan, investments that go in, people’s willingness to go extra mile etc. When a pandemic of such magnomous nature happens, it is only natural to think that there will be some disruptions. If someone is expecting that there will be zero disruptions, it is kind of taking the expectations to an all new level which is impractical. Entire world is impacted with every organization impacting their customers, why single out outsourcing industry? Can you name an industry which is not impacted and whose customers are not impacted?

  7. There is a great variety in the offerings & capabilities of BPO providers and likewise in their ability to cope in the current environment. The higher end providers (the Accenture’s, IBMs and Genpacts) seem to have weathered the storm well (in the main) and mobilised quickly. Other providers have
    and continue to really struggled.

    One of the great advantages of having a major high-end provider is that the fail-over between their multiple locations in multiple geographies is robust. Working on single processes, trained in the same way, used to changing teams, much more advanced cloud based technologies than their captive counterparts gives them a much greater ability to cope in this and other disaster situations. Putting all our eggs in one basket doesn’t seem to be the right analogy for all Outsourcing operations, only some.

  8. This is the best comment on this article, I think – QoQ rat race hasnt yielded much to the ITES industry, since it was adopted since 2003-05.

  9. Phil,
    The pandemic has impacted all segments and regions of the global economy. Has it spared any?

    Time for outsourcers to show some gratitude and thank the workforce that is continuing to work odd hours to support customs and companies beyond their national boundaries.

    Decent telecom network, solid work ethic and customer first culture may prove doubting Tom’s otherwise.

    Wish the world a speedy recovery

  10. This was always a train wreck waiting to happen.

    You can’t have people working on critical apps at more than a critical latency from where the service is required.

    And that’s not even taking into account the current situation where everything is locked down and WFH home the only option.

    WFH is not an option in most of India and China where most don’t have the basics like a laptop/PC and decent internet.

    There is going to be a very big rethinking around all of outsourcing going forward I imagine.


  11. Outsourcing is not going to work for Critical Apps due to its inherent latency and as we now see other DCP issues

  12. We have a substantial presence in India and have seen little impact of the virus on IT so far – even though the majority of our staff have been working from home for three weeks now.
    The reason is simple – we paid our attention when doing Business Continuity Planning and took it seriously. Every year we tested it by making staff work from home and ensured we had the infrastructure and training to support it.
    Hopefully India will get the virus under better control and ensure that public services, access to food and water doesn’t become the next issue.
    I salute everyone who is keeping us going in these trying times.

  13. i read the blog post as well as many of the comments with lot of interest. It is a good indicator of how different people think in these challenging times.

    The first step obviously is to save lives. Operationally, many governments and organizations have stood behind this goal. Saving jobs, or bringing back jobs are definitely tactical in nature.

    Strategically however, outsourcing had changed its face long time ago. There are thousands of organizations that have setup their captives in distant countries. These captives were the next stage of outsourcing or offshoring. When a bank or a retail shop setup these captives in India or Philippines, they have already cast their business models to new ways of working – get the best output wherever it is available.

    It is to be noted that even when the captives had to scale up, they depend on the services companies that are referred in this post.

    Covid-19 will force organizations to re-look at their sourcing strategy. However, need for new customers, will keep the flame of outsourcing continue.

  14. A very insightful view of what is coming at us presently and the potential impact of the “New Normal.”

    Workforce Agility is the underlying issue here. With contingent workforces becoming a key lever to rapid scale and the ability of true workforce agility to break down siloes and boundaries- either internally or externally of the business- those organisations that master this concept will position themselves for the correction.

    The key question then becomes how to integrate workforce agility both within the business and across the Outsourced Providers to reduce the impact of these sorts of events. The ability to share resources across entities and geographies can then strengthen the response on a global scale.

    So the race is on- if individual businesses can embrace this model first, Outsourcing will diminish, but if the outsources can solve the puzzle first, they will remain relevant.

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