Offshoring, Onshoring, Nearshoring, Rightshoring ? The Changing Landscape of Global Delivery

1. Offshoring, Onshoring, Nearshoring, Rightshoring? The Changing Landscape of Global Delivery Phil Taylor Professor of Work and Employment Studies University of Strathclyde, Glasgow Professional Outsourcing – Network Dinner London, 30 October 2012

2. Context and Reflection • Trajectory of offshoring contact centre/BPO - relocation from developed to developing countries • Now a core element in corporate cost-reduction, re-structuring, re-engineering programmes • From tactical or responsive outsourcing to strategic and even transformational offshoring • A radical shift in perspective from one-to-one migratory flows to…. • .…global service delivery in sourcing and service supply chains • Increasingly, multi-locational, multi-site strategies from both the demand and the supply sides

3. Global Service Delivery Model • Capitalising on differing mixes of accessible skills and resources in diverse locations • e.g. a firm seeking lower cost solutions may source simultaneously and be supplied by firms:- • English-voice from India or the Philippines • Spanish voice from Mexico or S. America • IT or technical help desk from E. Europe • HR, A&F, LPO – ‘the back office’ from India • Multi-lingual from Scotland, Dublin, Netherlands, E. Europe • Functional mixes, reduced risk, time zones • Scale – for some companies a single-country solution • For most a ‘best fit’ scenario – ‘horses for courses’

4. Variable mixes of offshore, onshore, nearshore sourcing – what should matter is rightshoring • Location decisions are multiple, nuanced, complex • Not just labour cost differential but cost does matter • The rationale is cost plus availability of skills, depth of labour pool, accommodation costs, techno-structure, performance quality, political stability, risk, industry maturity, financial assistance, vendor quality, level of attrition, exchange rates etc. • Phase 1 - Cost arbitrage • Phase 2 - Talent and quality arbitrage • Phase 3 - Efficiency or excellence arbitrage (post-2008 crisis)

5. ‘They’re quicker at answering the phone, highly numerate and keen to come to work every day…Staff are hugely enthusiastic. They dress well. A lot have degrees. I would not (?) say in all cases the performance of the UK is inferior. The quality of work overseas is exceptionally high’. Keith Whitson Chief Executive of HSBC, Autumn 2002 • Bi-polarity of onshore v onshore not tenable

7. Offshoring or ‘Remote’ Shoring • The contact centre/BPO world is not flat - á la Thomas Friedman - but lumpy and uneven • Indiastill overwhelmingly the most important location for IT/BPO combined - its share of global market has even grown from 55% in 2010 to 58% in 2011 • BPO employment - 107,000 (2002) to 876,000 (2012) • Indian firms have now of course ‘globalised’ following GenPact, TCS - e.g. Scotland has 4 Indian providers • However, in ‘voice’ the Philippines has overtaken India in volume and employment ~ 410,000+ (end of 2012) • Reduced cost differentials over time in context of rising labour costs and tight labour markets

8. ‘Off-shoring does reduce the headcount cost, there’s no question about it…but what happens to the process, the function? An interesting benchmark aggregate for North America. we looked at a mechanism called cost per trade…We profiled 24 banks on this. From this data there’s no conclusive proof to say that offshoring has actually systematically reduced the cost per trade. Startling!...How is that possible? We did reduce the cost [when offshored] but we dropped productivity as well. In fact faster than the cost of the import’. (Noshir Kaka, Director of McKinsey and Co., India, Nasscom Leadership Forum, Mumbai, 9 February)

9. Despite some movement to 2nd or 3rd tier locations, 90% of services still delivered from 7 Tier 1 cities • Depth of labour pool comparatively but not unlimited = attrition in India has often at extraordinary levels • CSRs and managers moving for ‘a few dollars more’ • Impact of 2008 crisis slowed growth – Indian firms believed that HR problems had been solved • Recovery in 2009-2011 – return of attrition – the single most important problem in Indian centres • Indian Chamber of Commerce Report (2011) • Concerns too with quality and ability to deliver complex phone based customer contact • Inflexibility of SLAs and ‘performance excellence’

10. Philippines the second most important geography in English > 410,000 • 90% of BPO delivered to N. American market • Replication of some of the HR difficulties evident in India and echoes of UK and US in late-1990s • Attrition, labour pool, over-heating = Metro Manila • Near-hires and government support for training • Cluster effects – remarkable characteristic • Stop thinking of countries as homogenous entities • Beyond these two destinations….which countries • No magic bullet, no secret geography that can provide a ‘one size fits all’ global sourcing solution • Caution against simplistic location indices

11. A.T. Kearney – countries scored on 3 criteria • Thailand & Vietnam above the Philippines – India below Estonia for business environment • Many destinations have not fulfilled their potential or not scalable • Does not mean they should be totally discounted as they can be important niche complements • What about South Africa? • What about China? • What about the Middle East e.g. Egypt? • ‘most of the world’s core service delivery sources have been tapped’ David Poole

12. Nearshoring • Symbiotic relationship between offshore and nearshore/onshore sourcing geographies • e.g. contact centre growth in Scotland – from 46,000 (2000) to 86,000 (2008) to 90,000 (2012) • 38 centres owned by orgs. with HQs abroad • 55 centres provide dedicated foreign languages • Ability to access high quality skills at relatively lower cost than more expensive metros • 30 per cent lower than London and SE England plus technical ability, tacit knowledge, emotional intelligence and empathy, linguistic sensibility etc.

13. Bifurcation in call complexity between offshore and nearshore/onshore – prevent lengthy calls, overscripting, bounce back, escalation, hands-off ‘Offshoring may be good for mundane calls, but as soon as calls require greater complexity beyond the script there are problems. I use the Guinness analogy of the white head and the black body. Agents in India can deal with the froth but cannot go deep into the body of the call’.(Centre manager, Telecoms Co.) • ‘We keep the meaty stuff at home’ (Finance Co. Exec) • Recent trend to re-shoring or repatriation of callflows • e.g. Santander, Powergen, RSA, BT but back office?

14. Impact of Financial Crisis and Recession

15. 77 per cent of Scottish centres expected developments in automation within three years • Internet based customer self-service as a channel shift to ‘take out’ or segment call-handling • Standardised/transactional v complexity • Web chat, SMS, social media and IVR – upskilling • Operational excellence and drives for efficiency • Step changes in implementation of lean • ‘Doing more with less’ – watchwords • Performance Management and ‘operational excellence’ • How to maintain customer engagement….

16. Conclusion • Impact of recession – cost reduction, productivity gains plus continuous quality improvement • Kaizen of C.Sat. scores and quantitative metrics • Clients demanding and vendors offering both plus expanded portfolios of sourcing options • Self-service, web chat, ‘doing more with less’ • Efficiency arbitrage is ever more important • Globalisation actually heightens the importance of differences between places and people • Still at the very beginnings of rightshoring = with different combinations of location