Strategy : offshore options multiply in buoyant market

 

Despite having suffered from criticism is some quarters, the practice of offshoring continues to be popular with companies in the US and Western Europe. Typical offshored services include contact centers, application development, payroll and finance. A new report from analyst Gartner predicts that offshore spending in 2008 will grow by 60 per cent in Europe and 40 per cent in the US. Multiple locations now allow companies to choose partners or sites that match their specific business requirements.

 

Although India remains the dominant country for offshore services, Gartner has identified a total of 30 countries worldwide that are good locations for establishing 'offshore' or 'nearshore' operations; nearshore refers to locations that are physically closer to the company's home country. Gartner used ten criteria to identify these locations, which were: language, government support, labor pool, infrastructure, educational system, cost, political and economic environment, cultural compatibility, global and legal maturity, and data and intellectual property security and privacy.

 

“The aim of the study was not to rank each country, as every organization will have a different view of which factors are the most important for their needs, but rather help sourcing managers determine which locations are right for their organizations,” said Ian Marriott, research vice-president at Gartner.

 

By region, the top 30 countries Gartner identified were, in the Americas: Argentina, Brazil, Canada, Chile, Costa Rica, Mexico and Uruguay; in the Asia/Pacific: Australia, China, India, Malaysia, New Zealand, Pakistan, the Philippines, Singapore, Sri Lanka and Vietnam; and in EMEA: the Czech Republic, Hungary, Ireland, Israel, Northern Ireland, Poland, Romania, Russia, Slovakia, South Africa, Spain, Turkey and Ukraine.

 

The home base of companies looking to offshore often dictates the location choice. Language knowledge is an important prerequisite for contact centers and US companies, for example, are increasingly having to service Spanish speakers by choosing locations in Latin America. China, on the other hand, is not an option for European and US contact centers because of the lack of language skills.

 

Although underrepresented in Gartner's top 30, Africa is starting to emerge as a promising new offshore location. South Africa has been winning business for some time, but a January 2008 report from the Yankee Group highlighted the potential of Egypt. The analyst said that the country was a good match for European companies because of the similar time zone and a large young labor force with technical knowledge and excellent language skills.

 

 

For many companies the choice of offshore location is a trade off between risk and cost. The political and economic environment remains a concern in a number of Gartner's choices for the Asia-Pacific, specifically Pakistan, the Philippines, Sri Lanka and Vietnam. However, the increasing number of options allows companies to choose multiple locations to best meet their requirements in a so-called 'rightshoring' strategy, which blends both nearshore and offshore locations. Rightshoring allows them to keep sensitive data in their own country or locations with fewer security concerns, while still being able take advantage of lower-cost labor locations for low-risk activity.

 

According to Yankee Group research published in August 2007, of US companies outtasking business processes, 46 per cent used locations in North America, 18 per cent in India, 9 per cent in Western Europe, 9 per cent in the rest of Asia, 7 per cent in Eastern Europe and 7 per cent in Central and South America. A similar pattern is evident from Western European companies.

 

Companies using multiple locations need to use modern IP networks to knit them all together. Global virtual contact centers are a good example of this in practice. By having the call intelligence in the network, companies are able to route calls dynamically to wherever the right skills are available to deal with them. Routing happens transparently to customers and allows companies to deal much more easily with surges in demand or deliver 24x7 service.

 

The popularity of offshoring is a reflection of the increasing globalization of business. By blending nearshore and offshore locations, businesses are able balance the risk of locations versus their cost and skills profile. And global IP networks give them the flexibility to add new locations or change them as the business requires.