The global services market experienced lower revenue growth in 2018-19 than in the previous year due to the global macroeconomic slowdown, the tightening legal/regulatory landscape (GDPR and Brexit, for example), and volatility in currency fluctuations. The COVID-19 outbreak has further aggravated the slowdown, pushing the global economy into recession and slowing enterprises’ decision-making.
Given the current situation, organizations must rethink their global services delivery location strategies to help ensure long-term success.
Our just published report, Global Locations State of the Market 2020: Moving Forward in Turbulent Times analyzes the ways the global services market has evolved in key geographies/locations, and how sourcing models/functional delivery has shaped up. Here we are sharing a few of the emerging location trends in the global services industry that may help companies strategize their location portfolios/delivery model.
Location portfolios evolving to nearshore and onshore – Nearshore Europe has experienced growth due to the proximity of customers to Western Europe, demand for multi-lingual support, and availability of high-skill talent. Ireland, Poland, and Scotland are the top delivery locations in nearshore Europe, followed by Ukraine, the Czech Republic, and Romania. There has also been an increase in onshore delivery presence due to stricter data security regulations, the US government’s conservative approach to offshoring, increasing work complexity, and greater pressure from buyers to grow their onshore presence for ease of coordination.
In-house sourcing models gaining prominence – GBS organizations are surpassing service providers in new center setup activity due to increased insourcing. Enterprises are extensively leveraging the GBS model to accelerate their digital transformation initiatives, provide a better customer experience, build niche capabilities, and drive operational excellence. In fact, almost two-thirds of the companies that established GBS centers in 2019 were new entrants with no existing offshore/nearshore GBS center. And most new GBS organizations were set up in APAC due to cost arbitrage and high talent availability.
Shift in delivery to digital and engineering/R&D services – Enterprises and service providers are increasingly focusing on digital and R&D/engineering services delivery, with APAC and nearshore Europe setups leading the way. In APAC, India continues to be the largest delivery location for digital services delivery, followed by Singapore and China. Growth in India has been primarily due to high cost arbitrage and strong talent pool availability across digital and engineering/R&D services. The increase in digital delivery setups in nearshore Europe has been driven by high growth of setups in Ireland and Romania. Digital center setups in the Middle East and Africa (MEA) have also picked up pace and even surpassed the number of setups in Latin America and the Caribbean. The majority of center setups in MEA were led by technology and automotive players, and Israel turned out to be the location of choice in this region for delivery of advanced engineering/R&D services, primarily to support the US and Europe.
The road ahead
Onshore delivery will further increase in 2020 as digital delivery and remote work gain prominence. Further, rising unemployment in key demand geographies like Italy, Spain, Germany, and the US might result in protectionist sentiments, which could lead to less offshoring. Enterprises will increasingly embrace the GBS model, as it will enhance their ability to deliver additional business impact in these turbulent times. Enterprises and service providers will both focus on rapid digital transformation and accelerated automation adoption as they struggle to thrive amidst myriad disruptive forces.
To learn more about the global services locations landscape and locations-related developments, and to get an update on locations activity by region and country and trends affecting global locations and locations portfolio strategies, please read our recently published report Global Locations State of the Market 2020: Moving Forward in Turbulent Times. The report is based on deep-dive, first-hand discussions with investment promotion bodies, leading shared services centers, service providers, recruitment agencies, and other market participants.
Relatedly, we’re hosting a webinar on Tuesday, May 19, that will cover topics including:
- How COVID-19 has impacted enterprise workforce strategies to date
- What the next normal is for locations and delivery strategies in this unfolding economic environment
- How organizations can make their Business Continuity Planning (BCP) strategies simultaneously resilient and responsive.
Please click here to register for the webinar.