Stepping Back from Globalization and Offshoring | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

A sea change is starting because of digital technologies. The impact as companies apply these technologies to their business will be massive – much bigger than the Industrial Revolution with the invention of the loom for manufacturing clothing and Ford inventing the production for manufacturing automobiles. Everyone has been talking for some time about how big an impact these technologies will have on the services industry. But there is a new factor now that makes the potential impact even more significant: the protectionist activities driving companies to step back or pause in globalization and offshoring. I think the services industry would be foolish to ignore the potential of this greater impact. Let’s look at where businesses are headed.

There can be no denying that the stakes have been raised and barriers are being put in place to make globalization and offshoring less acceptable and expensive. In Europe, it is evident with the Brexit bill and the UK opting to leave the EU. In the US, protectionist barriers are starting to be executed through proposed changes to immigration law and H-1B visas, tax reform and potential border tax implications, and reputational risks arising to companies from government entities or disgruntled employees and vocal press entities. The result: companies are paying more attention to how to do work onshore without suffering negative cost impacts.

By investing in digital technologies such as Robotic Process Automation (RPA), cognitive computing, automation and cloud, companies can drive cost improvement by dramatically improving the productivity of their workforce. In many cases, they can achieve cost improvement even greater through improved productivity than through labor arbitrage and thus offset impact of not sending their work offshore.

Of course, service providers also can use these technologies to improve their own workforce productivity to offset the potential of rising costs from immigration and H-1B visa reform in the US.

Our market data shows leading providers in the services industry have been looking at digital technologies and associated digital models well before this step back in globalization. Our tracking of service providers clearly shows the traditional services (labor arbitrage, offshore factory model, remote infrastructure management and asset-intensive infrastructure) grew by only .1 percent last year. Almost all the growth in the IT and business process services market came from new digital offerings – which are currently growing at over 18 percent a year.

Although the trend in digital services has already been growing, we believe the current climate discouraging globalization and offshoring will further accelerate the adoption of digital models. This will force the current shared-services structure. It also will force the provider community to fundamentally change their business models and the way they currently structure their business to deliver services.

Companies Face A Deal They Can’t Refuse | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Just a month into 2017, the acceptability sentiment toward sending work offshore has changed. Companies are increasingly eager to explore ways to do work onshore which they would otherwise do offshore or is currently offshore. The question is how to do that without creating a negative cost impact.

A wide variety of factors are shifting the sentiment toward offshoring work, including …

Read more at Peter’s Forbes blog

IT Future Shifts from Labor Arbitrage to Productivity | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

The labor arbitrage/offshoring model is powerful and relatively simple — compared to investing in productivity for U.S. workers over the past couple of decades. Perhaps your company is like most enterprises in America, having opted for this strategy to achieve cost savings. I believe it’s important to recognize that the arbitrage/offshoring model took companies’ attention away from investing in internal productivity improvements. But there are fewer opportunities now for the labor arbitrage model since it is maturing, and new barriers are arising for sending/maintaining U.S. work offshore.

Read more at Peter’s CIO online blog

India’s $150 Billion Outsourcing Industry Stares at an Uncertain Future | In the News

By | In The News

“The proposed visa and immigration legislation … will raise the cost to operate by raising the cost of the Indian firms’ landed or onshore costs,” says Peter Bendor-Samuel, CEO of offshoring advisory Everest Group. “Given the hyper-competitive pricing environment, it seems increasingly unlikely that they will be able to pass along the cost to their clients, putting increased pressures on margins.”

Read more at Economic Times

Trump Presidency Could Sound Death Knell for Offshore Outsourcing | In the News

By | In The News

“Any Trump-inspired reform of the U.S. immigration laws will likely make it harder to move employees into the U.S. market,” says Peter Bendor-Samuel, CEO of outsourcing research firm Everest Group. “This will likely take the form of fewer H-1Bs, higher costs for visas, and caps on the number of visas the firms can utilize. That would likely result in IT services firms having to hire more U.S.-based resources, raising operating costs and reducing the labor cost advantages of offshore outsourcing.

Read more

Sky Is Not Falling on Offshoring, Despite Market Maturity and Disruption by Service Delivery Automation | Press Release

By | Press Releases

Downloadable, high-res Market Insights™ graphics and webinar summarize 2015 developments, 2016 predictions in Global Services marke 

The maturing global services industry experienced continued growth in 2015, with location activity reaching an all-time high. The drivers of that growth, however, have evolved. Small and mid-sized buyers led growth across industry verticals, and the adoption of new technologies caused disruption in the market, according to Everest Group, a consulting and research firm focused on strategic IT, business services and sourcing.

Looking ahead to 2016, Everest Group predicts service delivery automation (SDA) will become a priority for Global In-house Centers (GICs), often called Shared Services or Captives, and will impact the location portfolio in a variety of ways, including a rise in both consolidation and reshoring, the latter especially in situations where speed-to-market is important.

“Twenty-eight percent of GICs have already implemented SDA across multiple processes and have started reaping the benefits of greater operational efficiencies,” said Salil Dani, vice president in the Global Sourcing team at Everest Group. “Fifty percent are pursuing pilots or actively planning to implement SDA, and 22 percent are thinking about it. So, there is no doubt that SDA is impacting the location portfolio; however, it will not replace offshoring.”

These research findings are summarized in a set of high-resolution graphics available for complimentary download here. These Market Insights™ illustrate key takeaways from Everest Group research on the developments that took place in the global services industry in 2015. The graphics may be included in news coverage, with attribution to Everest Group.

The graphics include:

  • Global services market activity heatmap — 2015
  • Key global services location opportunities for 2016
  • The nature of the global services industry is shifting
  • Service providers relying on inorganic growth
  • Global services location activity increased in 2015 as buyers invested ahead of demand

***Webinar Replay***

The research supporting these Market Insights graphics was discussed in a webinar conducted by Everest Group last month. Listen to a recording of “Market Vista™ | Global Services Developments: 2015 Trends & 2016 Predictions” or get the presentation here.