Topic: Investment Incentives – How Much Do They Matter?

The global sourcing location landscape has evolved rapidly over the past few years; resulting in significantly increasing the location options available for investors. In this competitive scenario, offshore destinations are increasingly attempting to differentiate themselves in their efforts to attract investors. Specifically, governments in these locations (state/provincial/national) are offering attractive incentives, trying to stay ahead of competition.

However, as investors evaluate locations in terms of incentive opportunities and the consequent benefits, they need to effectively deal with the following complexities:

1. Differences in types of incentives offered. While most countries offer financial incentives, the types of incentives vary significantly across countries, often making it difficult to compare (e.g., tax holiday in India, training subsidy in Czech Republic). In addition to financial incentives, some countries also offer strong support in set-up and running of operations (e.g., government guaranteed infrastructure service levels in Malaysia).
2. Changing incentive policies/focus. Countries are getting more sophisticated and intentional about designing incentives and are constantly revising their incentive schemes to align with their overall focus areas. This often results in complex incentive structures with variations driven by multiple factors such as the location of the center, scale, type of work, etc. For example, Czech Republic introduced differential incentive eligibility criteria for voice versus non-voice BPO work to align with its overall strategy of attracting more high-value non-voice work.
3. Negotiation room beyond stated incentives. It is quite possible that investors could negotiate special packages beyond the stated incentive policies. However, the extent of negotiation room and the specific negotiation levers could vary across countries (e.g., KPO work in Czech Republic, SAP development work in Malaysia).

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Key location developments

Market activity

• Asia continues to be the hotbed of outsourcing activity
• Both HP and American International Group (AIG) have recently announced plans to set up centers in Cyberjaya in Malaysia
• OPI established a shared service center in Bangalore, expected to employ ~3,000 professionals
• Convergys announced plans to increase its call center headcount in the Philippines by 7000. It plans to open five new contact centers spread across Manila, Cebu, and Santa Rosa in the next two years
• Neusoft established a software campus in Dalian for IT and BPO services, with a capacity to seat ~10,000 people
• Monterrey in Mexico and Bucharest in Romania have emerged as strong outsourcing destinations over the past few months
• Following Infosys, Wipro, and ACSs’ footsteps, Accenture also has entered Monterrey with a global IT delivery center
• Computer Generated Solutions (CGS) has expanded its BPO and customer care operations in Romania by establishing two new facilities in Bucharest and Brasov, expected to employ 1000 people

Location promotion initiatives

Countries continue to refine their investment strategy to attract investors and address the challenges of the growing IT/BPO industry

• The Brazilian government has taken steps to benefit the IT/BPO sector such as reduction in the mandatory contribution to social security on payroll, training, and R&D subsidies to export-oriented units
• Government of Kenya has allocated US$14.5 million to establish a modern BPO park, which will provide tax incentives to investors, while offering accessible, reliable, and affordable ICT services
• Polish government has allocated over one billion PLN to promote science and engineering education in the country and has offered to award scholarships to students enrolling in the same

Global Sourcing Market Vista provides a comprehensive, quarterly analysis of outsourcing and offshoring trends including key location developments. For more details on Market Vista, click here.

Overview of Location Optimization

Everest Research Institute provides actionable insight and visionary research on a wide range of offshoring issues through its Location Optimization practice (LO). Our Location Optimization research covers multiple regions and issues relating to offshoring locations, with a focus on helping companies assess the trade-offs of choosing between alternative locations. Our Location Optimization team combines deep subject matter expertise with broad analytical skills and insight into the global sourcing market, all of which are based on years of experience working in the offshoring industry.

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