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Anurag Srivastava

Anurag Srivastava is a member of the Global Sourcing team and assists clients on topics related to location optimization, benchmarking, and global service delivery strategy. Anurag’s responsibilities include leading Everest Group’s Location Insider subscription offering. To read more, please see Anurag’s bio.

Aspirants Show Potential as Star Performers | Sherpas in Blue Shirts

By | Blog

The global services space is complex and dynamic, impacted on a daily basis by developments and challenges – both natural and man-made – economic blips, corporate mergers, acquisitions, and divestitures, and so much more. Given this changeable nature, global services leaders are hard pressed to keep up with, much less make sense of, the global service delivery landscape.

Everest Group’s MAP MatrixTM cuts through the clutter and helps guide decision-making. This framework categorizes service delivery locations based on operating cost, talent availability, and relative risk into three clusters, plus a bonus category:

Leaders: The most attractive locations, Leader locations are characterized by significant talent availability at comparatively low cost, but also high levels of competitive intensity.

Major Contenders: These locations offer an attractive mix of talent availability and cost efficiency, but not quite at the level of Leader locations.

Aspirants: Aspirant locations generally have low talent potential due to limited market activity and/or a constrained entry-level pool. They may offer relatively lower costs but also may require higher investment to develop talent.

Star Performer: This is the bonus category. A Star Performer is a location that has experienced significant new center set-up activity in the past year; Star Performers can fall into any one of the three clusters.

How does an understudy qualify as a star?

Given those definitions, people are often confused when we rate a location as both an Aspirant and a Star Performer; “how,” they ask, “can a low-potential location possibly perform at a ‘Star’ level?”

Here’s how. First, remember a Star Performer is not a location that shines brighter than all other locations; it is, simply, a location that has seen significant activity in recent years.

In 2015, in fact, three Aspirant locations (Kingston, Santo Domingo, and Colombo) also performed at the Star level.

Exhibit 1: MAP Matrix – Business Process Services (BPS) (English and Spanish)

There are many things about the Aspirant locations that make them attractive:

  • They are compelling for companies that are primarily planning to establish small-scale delivery centers (<300 FTEs)
  • These locations offer access to a significant bi-lingual, entry-level talent pool, enhanced by low competitive intensity for various business processes
  • These cities provide comparatively low cost of operations
  • They offer potential as “spoke” locations to complement nearby “hub” locations
  • Their geographical and time zone-driven ease of business management may be attractive

Service providers are the growth engine in these locations as they try to drive lower overall cost of operations at the same time that they diversify their talent base in a relatively less competitive market.

Colombo, specifically, emerged as a Star Performer in the Aspirants cluster for delivery of transaction-intensive BPS, with significant new center set-ups in the past year.

Exhibit 2: MAP Matrix – Transaction-intensive BPS

These locations’ talent profiles – as well as that of Guatemala City and Belfast – also fundamentally shifted, as they are moving up the value chain, especially for BPS delivery for both voice and non-voice processes and, in some cases, judgment-intensive processes (such as financial planning and analysis, analytics, and banking middle-office).

Exhibit 3: Aspirants progressing towards higher maturity
Aspirants_progressing

Given the dynamic nature of the global services market, not to mention the overall global economy, it is truly possible for Aspirants to perform at Star level.

For more insights on the global service delivery landscape, please see Everest Group’s Global Locations Annual Report 2015: Resurgence of Activity Amidst Evolving Propositions.

Changing Talent and Business Needs Drive Growth: Diversifying Global Locations Portfolios | Sherpas in Blue Shirts

By | Blog

Practitioners of global service delivery are continuously diversifying their delivery locations portfolio and looking beyond the traditional choice of offshore locations for expansion. In fact, onshore (source geographies) and nearshore locations witnessed aggressive market activity in 2014-2015, despite often offering higher operating costs than their offshore counterparts. Here are some highlights from Everest Group’s recently released Global Locations Annual Report 2015: Resurgence of Activity Amidst Evolving Propositions.

Nearshore locations

During 2014-1H2015, nearshore locations (in CEE, Ireland, Northern Ireland, and Scotland for Europe, and in Latin America and the Caribbean for the U.S. and Canada) witnessed growth in terms of new center setups and increasing headcount. This increase in market share was at the expense of the Asia-Pacific region in the global services delivery context.

One of the major drivers of significant growth in these markets is the changing value proposition of these locations. Companies are now looking at these areas for delivery of high-end work, such as analytics for knowledge-based services, judgement-oriented processes for both BFSI and non-BFSI sectors, and cloud and digital in the IT services domain.

Beyond an attractive talent profile, these locations are also enticing due to cultural affinity with source markets, as well as geographical and time zone proximity that makes managing the business easier.

Exhibit 1: Snapshot of market activity (new center set-ups) in major regions

APglobaldelivery

Tier-1 and 2 locations in Chile, Costa Rica, Jamaica, and Mexico led growth in Latin American and the Caribbean.

In the nearshore Europe region, Ireland, Romania, and Poland accounted for the highest number of new center setups – due primarily to highly skilled talent, significant availability of a multilingual pool, and moderate-high savings – driving growth for the entire region.

Onshore locations

Onshore delivery experienced significant market activity in locations in the United States, United Kingdom, Western Europe, Australia, Japan, and New Zealand.

Exhibit 2: Number of new center setups by top 20 service providers in onshore locations

onshorelocations

Providers have been increasing their presence in onshore locations, although the pace of setups appears to be stabilizing. Several factors have led to this increase:

  • Increase in the complexity of services, and lack of adequate talent depth in offshore/nearshore locations
  • Increased pressure from buyers to grow onshore presence to enable easier coordination, better alignment/training, etc.
  • New regulations around data security, especially in the banking sector, making onshore delivery necessary, or at least preferred
  • Willingness of service providers to explore newer models and newer tier-2 locations in onshore geographies

For detailed insights on key changes in the global services sector in terms of delivery and sourcing models, please refer to Everest Group’s Global Locations Annual Report 2015: Resurgence of Activity Amidst Evolving Propositions.

A Snapshot View of Locations’ Changing Value Proposition| Sherpas in Blue Shirts

By | Blog

There has been a lot of market activity buzz in some offshore/nearshore regions in the last year. Declining local currency, strong sector-aligned growth, and niche offerings from certain locations (e.g., high-end knowledge services work and SI/consulting, cloud, and digital) have all contributed. Let’s take a quick look.

The changing cost proposition

Chile, Argentina, Mexico, Colombia, Brazil, and Ukraine witnessed a steady decline in local currency, making them attractive from offshore/nearshore delivery standpoint.

Exhibit 1: Countries that witnessed significant decline in local currency during 2014-2015

countries

This changing cost proposition enabled tier-1 and 2 locations in India, China, Mexico, and Costa Rica, to grow at a significant rate and thereby become “Star Performers” for various functions on Everest Group’s MAP Matrix™ 2015.

Function/sector-aligned growth

Costa Rica is witnessing surge in IT services along with its sweet spot for BPS and CC services.

Exhibit 2: Everest Group’s MAP Matrix™ 2015 – IT-ADM

mapmatrix

Singapore and Poland witnessed growth primarily on account of strong BFSI industry. The domestic / regional BFSI market remains strong (and continues to grow), hence, enabling the growth of back-office sector aligned to these services.

Exhibit 3: Everest Group’s MAP Matrix™ 2015 – Transaction-intensive BPS

transactionbps

Niche offerings

Despite relatively high operating costs, Singapore and Dublin managed to grow in terms of new setups and expansion of current setups. Niche offerings in these locations were one of the primary reasons for an upshift in market activity in these regions. For example:

  • Growth in Singapore was led by a push from the strong domestic BFSI industry
  • Growth in Dublin was driven by increasing leverage for high-end work in knowledge services (analytics), IT-ADM (SI/consulting, cloud, and mobility), and judgment-intensive business processes (primarily aligned with the BFSI industry.)

In the Everest Group’s Global Locations Annual Report 2015: Resurgence of Activity Amidst Evolving Propositions, we evaluate key shifts in the relative positioning of locations from their cost, talent, and risk profile attractiveness for various functions, e.g., Contact Center (English), Transaction BPS, Judgement-oriented BPS, IT-ADM, Bilingual (Spanish and English) and Multilingual (European languages) BPS. The report covers key shifts in the relative positioning of locations from their cost, talent, and risk profile attractiveness. The report also offers perspectives on the suitability of locations under various scenarios – with insights on key risks and rewards associated with each cluster of locations.

Are You Familiar with the Offshore GIC Hot Spots? | Sherpas in Blue Shirts

By | Blog

If you said Asia Pac, great … but do you know what APAC is particularly good at? And do you know about available alternatives beyond APAC?

We all know location is half the battle (possibly the entire battle). But location selection is difficult – it’s not just about cost arbitrage, talent scalability, and sustainability, but also linguistic and cultural affinity.

The most mature location may not be the best fit for your company or your industry, and you definitely can’t toss a dart and hope to find the right location.

Here’s the battle plan – a map of GIC “hot spots.” Need multi-lingual support? Check out Central & Eastern Europe; Poland alone delivers services in more than 34 foreign languages. Need support in the Technology and Telecom industry? You might want to take a look at MEA (Middle East & Africa). While you’re there, check out Latin America, India, and the rest of Asia, too.

Click on the map to expand the image

GIC-Heatmap

 

Looking for more information on GICs? Check out these three resources:

Is Costa Rica’s Magic Beginning to Fade? | Sherpas in Blue Shirts

By | Blog

Recent news announcements on several third party service providers’ pullouts from Costa Rica may lead people to believe that the country is losing its luster as a sourcing destination for outsourcers and global in-house centers (GICs). But, before jumping to any conclusions, let’s gain some perspective on these announcements.

HP

HP in February 2013 announced it was scaling back the English-language customer support team in its Global Services Center by 400 employees. However:

  1. HP has nearly 6,500 employees in Costa Rica, spread over multiple sites and processes/functional areas, and this move affects only 400 working in just one of the company’s 20 different units operating in the country
  2. This particular reduction in headcount was part of a global restructuring plan announced in May 2012 by CEO Meg Whitman
  3. Most of these 400 employees will be given the opportunity to apply for one of the 300 new jobs being created in the other 19 units
  4. HP is planning to hire 150 employees into the Global Engineering Services unit it opened late in 2012

Rather than signaling that HP’s confidence in Costa Rica is shaken, this move indicates a strategic shift in how the company plans to utilize the location, and that the kind of work supported in the country may be moving up the value chain.

Stream and Teletech

Reportedly driven by rising wages and other operational costs, TeleTech is expected to cut ~ 160 of its 1,250 positions in Costa Rica. And while Stream Global Services recently shuttered its 700-750 FTE operations in the country, it opened a new center in Honduras with a capacity of 750 FTEs.

Everest Group believes these developments are the result of the providers’ evolving location portfolio strategies to control/optimize service delivery costs with rebalanced footprints.

Costa Rica Facts

While the country has traditionally been, on average, 30-40 percent more expensive than other less-developed locations in Central America for delivery of bilingual (Spanish-English) voice-based BPO services, it is still fairly attractive due to its:

  • High cultural affinity and solid English language skills
  • Geopolitical stability, and relative safety and security
  • Well- established depth and breadth of ITO/BPO service offerings
  • Opportunities to support European languages per its ability to attract people from countries in Latin America and Europe

And although wage inflation and attrition levels increased steadily over time, and are now at levels that make its cost profile less attractive than lower-cost and lesser-developed options in Latin America (Managua, Guatemala City, San Salvador, Tegucigalpa, Santo Domingo, Peru, and Colombia) and the Caribbean, sourcing activity in the country has not slowed down for third party providers or GICs.

In fact, Costa Rica experienced record delivery center establishment activity in 2012, on par with China, and behind only India (see Exhibit 1). Amazon and Bridgestone are among the most notable companies that setup GIC operations in Costa Rica last year.

Exhibit 1

Costa Rica delivery center setups

Moreover, as depicted in Exhibit 2, it has dominated center set-up activity in Latin America for the past three years.

Exhibit 2

LATAM delivery center setups

Costa Rica clearly continues to present an attractive mix of skills and opportunities, and these often outweigh the higher cost of operations in service providers’ and GICs’ tradeoff analyses.

So what’s in Costa Rica’s future as a sourcing destination? Everest Group predicts the market will continue to mature across multiple dimensions, and will exhibit the following major shifts/trends:

  1. It will increasingly be leveraged for up-the-value-chain, more complex work, not just in business processes such as F&A, but also in areas including knowledge processes, IT, and creative media. This will be driven primarily by a maturing talent market, synergies with customer service work, and efforts by companies to optimize facility costs
  2. Wage inflation and attrition for bi-lingual (English-Spanish) professionals will plateau in the next 18 months, driven by a moderate slowdown of growth
  3. Call center players will rebalance their Latin American portfolio footprints, and transactional contact center work, especially that requiring a medium level of English proficiency or monolingual Spanish delivery, will move to emerging locations
  4. Large new investments in the contact center space, or existing players scaling to more than 1,500-2,000 in the country, are unlikely. There will be a gradual decrease in size of new centers as companies start to support higher-order work that is less FTE-intensive
  5. Players will continue to leverage some unique talent and operating models to continue operations/grow in the country. These will include tapping into pools from areas adjacent to the Greater Metropolitan Area (GMA), leveraging part-time students and diploma holders, and even opening satellite centers outside the GMA
  6. GICs will continue to play a significant part in the increasing maturity of Costa Rica. They will find value in expanding the depth and breadth of services supported from Costa Rica, in part to better utilize their sunk costs

While we do not expect Costa Rica’s magic to fade away anytime soon, some of its charm will shift from some specific areas, especially English-Spanish voice delivery, to emerging areas of work such as  IT, knowledge processes and F&A. Moreover, the recent developments in Costa Rica are an inevitable part of the natural evolution/maturation of a delivery location; we’ve seen, and continue to see, similar trends in other sourcing destinations such as India and the Philippines.

For a deeper analysis of the GIC landscape in Costa Rica, please refer to our recently-released report, Global In-house Center (GIC) Landscape in Costa Rica and Trends in Offshore GIC Market

Poland GIC Sector Growth: Unique or “Way-to-Go”? | Sherpas in Blue Shirts

By | Blog

Everest Group recently published a report focusing on the Global In-house Center (GIC – our new term for captive center) market in Poland. During our analysis, we came across a very interesting fact: more than 40 percent of all GICs in Poland are based in Tier-2 and Tier-3 cities, while globally, the share of Tier-2 and 3 cities with GICs is only around 20 percent! This immediately raises some compelling questions:

  1. What does Poland’s GIC landscape look like? Where does most of the demand come from?
  2. What cities are we talking about? What companies are venturing / have ventured into Tier-2 and 3 cities?
  3. What factors make Tier-2 and 3 cities enticing to enterprises?

Let’s look at each of these questions individually to shed some light on what may be behind the Poland’s unusually high share of Tier-2 and -3 city-based GICs.

  1. Enterprises based in Western Europe and European subsidiaries of U.S. enterprises dominate the Polish GIC landscape. In terms of industry verticals, manufacturing leads with ~40 percent share, followed by banking and technology.

    Although Poland was initially leveraged primarily as an F&A BPO/shared services destination, the IT and engineering services / R&D functions have experienced a notable uptick. In fact, Poles’ aptitude for complex skills and cutting-edge technology is now well-known in global sourcing circles.

  2. The figure below depicts Poland’s GIC growth story. As you can see, numerous Forbes 2000 organizations (e.g., Citigroup, GE, Microsoft, Samsung, and Unilever) have set up GICs in Tier-2 and 3 cities in the country.

    Poland GICs

    Click on image to expand

  3. A number of factors have led to the high share of Tier-2 and 3 cities in the Poland GIC market:

    • Congestion and resulting high occupancy rates in Tier-1 cities sent office space and other operating costs soaring. Tier-2 and 3 cities provide ample office space, are not as congested as Tier-1’s, and  costs tend to be lower
    • High competition for talent in Tier-1 cities means higher attrition and wage inflation, while salaries and wage inflation levels in Tier 2 and 3 cities are comparatively lower
    • Most Tier-2 and 3 cities are home to large universities that offer large pools of graduates. The presence of universities also allows companies to hire students as part-time employees, offering additional flexibility
    • Most Tier-2 and 3 cities in Poland are well-connected by air, road, and rail, not just to its own Tier-1 cities, but also to the major business centers throughout Europe

The chart below provides a comparison of operating costs in Tier-1 and Tier-2 Polish cities. The presented cost savings do not account for any subsidies / financial incentives that governments at the city/state/federal level might be offering to investors.

Poland T1 T2 Operating Costs

Click on image to expand

However, we must here give perspective to a couple of points:

  • Although Tier-2 and 3 cities are less congested, they may present lower scalability as compared to Tier-1 cities due to lower overall maturity and a smaller pool of experienced professionals. The average scale of GICs in Tier-1 cities is around 600 FTEs, as compared to approximately 300 FTEs in Tier-2 and 3 cities
  • Each location offers a unique set of skills, e.g., Lodz is attractive for back office business processes, but is not scalable for IT

All this brings us to a profound question: is the Poland market model way ahead of others’ time? In other words, is this how other markets could operate if enabling conditions in Tier-2 and 3 cities were ideal? Or is Poland’s model just a result of a unique combination of factors/situations?

We’ll continue to provide our insights on this topic, but welcome our readers to weigh-in with their thoughts and perspectives!

For more information on Poland’s GIC landscape, please read our “Global Offshore Global In-house Center (GIC) Landscape and Trends: Focus Geography – Poland” report, and our newsletter edition,  “Global Location Insights: October 2011 – Perspectives on Global Services Market in Poland.”

Photo by jaime.silva

Increasing Globalization of Global Services: Next Global Sourcing Frontier – Africa? | Sherpas in Blue Shirts

By | Blog

The mandate of Everest Group’s Location Optimization practice is to assist clients with data, insights, and advice on which global sourcing practitioners can rely to make their most critical decisions related to global locations. As we go about conducting our day to day business, three questions underpin the discussions with global sourcing practitioners nine out of 10 times.

What are the key locations for global services delivery?

Which regions are attracting attention and interest to meet the next wave of global services requirements?

How do the key global services stakeholders (buyers and service providers) perceive the next frontier(s) for global sourcing?

In order to build awareness on the trends we are observing across the global locations space at the highest level, we will attempt to provide the answers to these three questions.

First, let’s look at the key regions for global services delivery today. Exhibit 1 depicts our Market Vista Locations Maturity Heatmap, which tracks and compares the level of market activity across global locations. Asia remains the dominant location of the global services installed base by a large margin. This should come as no surprise as the global sourcing story has been pioneered and successfully played out in Asia – India provided the proof of concept for building industrial scale in global services, and the Philippines has rapidly adopted this successful model and opportunity to become a world leader in customer service. The success seen by India and the Philippines has encouraged other locations in Asia to concoct their individual recipes for succeeding in the attractive global services space. For example, China has emerged as a credible option for sourcing R&D and engineering services (read more in Everest Group’s “What is the True Maturity of China’s Offshore Services Market?”) while Malaysia is making concerted efforts to carve out a niche in the shared services space.

Exhibit 1 – Market Vista Locations Maturity Heatmap

Market Vista Locations Maturity Heatmap

Central and Eastern Europe (CEE) and Latin America are the next set of regions beyond Asia in terms of installed base of global delivery. These regions experienced waves of expansion, especially as companies strive to put in place a global portfolio of delivery locations for purposes, such as risk diversification, leveraging technical/language skill sets, 24×7 coverage, regional support, etc. There are more than 10 locations in both these regions with credible evidence of global services activity. Poland (in CEE) and Brazil (in Latin America) are the two large locations that have built credible scale in global services delivery and are recognized as mature locations on our Market Vista Location Maturity Heatmap. Poland has carved out a niche as a nearshore location for servicing Europe in non-voice business processing and IT, while Brazil is recognized for IT talent and an attractive domestic market, in addition to its proximity as a nearshore location for global services. (Read more about Brazil in Everest Group’s “Perspectives on the Maturity of Brazil’s Offshore Services Market.”)

Africa is a relatively new entrant in the global services locations landscape and has three or four locations with nascent global services activity. It presents specific and, at times, niche propositions and opportunities. And its value proposition is now being slowly understood by global investors.

Next, and before we discuss Africa in greater detail, let’s look at the set of locations attracting interest from buyers and service providers to meet the next wave of global services expansion. Exhibit 2 is based on Everest Group’s comprehensive survey of key global services stakeholders and compares regions that buyers and service providers are planning to leverage for setting up new centers. (Read the Everest Group Location Insights detailing buyers’ and service providers’ location-related plans and perceptions).

Exhibit 2: Location Expansion Plans of Buyers and Service Providers

Location Expansion Plans for Buyers and Service Providers

As is clear, Asia figures prominently in the plans of buyers and service providers for setting up new centers. Asia continues to attract interest from buyers and service providers, despite the high installed base of current activity. The Asian locations witnessing sustained interest include India, the Philippines, China, and Malaysia.

The survey results also give a big “thumbs-up” to Latin America. This is corroborated by recent market activity trends that show the region is experiencing activity in establishment of both captives and supplier delivery centers. Key countries that are witnessing increased interest include Brazil, Argentina, Chile, and Mexico.

Let’s go now to one of the most interesting findings from the survey – Africa! Indeed, as many as 20 percent of all respondents from the service provider segment indicated plans to add new countries in Africa to their global delivery portfolio. South Africa seems to be especially popular with service providers, with 10 percent of all respondents disclosing plans to set up a center there. Egypt also figures into the list of leading choices for locating a new delivery center.

So what are the reasons behind this emergence of Africa countries as the next frontier of global locations, especially for service providers?

  1. They provide a capable (although nascent) low-cost alternative to CEE locations
  2. They offer scalable language skills and cultural affinity with the developed world. South Africa and Morocco have strong cultural similarity with the United Kingdom and France, respectively. Egypt offers the opportunity to cater to the lucrative Middle East market.
  3. A foothold in the African region gives service providers the ability to serve domestic African markets, e.g., South Africa for sub-Saharan regions, and Egypt and Morocco for North African markets. Business from local firms and especially MNCs operating in the region present a lucrative opportunity for service providers looking for the next set of clients

In addition to the above value propositions offered by African locations, we can contextualize the motivations for location portfolio expansion from both the buyer and service provider standpoints. Buyers set up captive centers or influence service providers to provide support from new locations primarily to complement their current global locations portfolio in terms of access to specific talent pools for language skills, time zone proximity, to support international business expansion, etc. At the same time, buyers are also sensitive to the complexities associated with a wider geography footprint and, hence, are looking to find the optimum balance of value capture and risk mitigation from global services programs.

On the other hand, Tier 1 service providers usually have a wider frame of reference due to their servicing of multiple clients, and hence are typically more globalized than buyers. In addition, service providers are more open to moving into hitherto unexplored territories due to incessant cost pressures and the need for differentiation. Most of the Tier 1 service providers are already well penetrated in all the major global services theatres and are now looking to explore the African continent.

Although it remains to be seen how much of this enthusiasm will ultimately get converted to any action, the sheer level of interest itself should excite countries in the African continent – South Africa, Egypt, Morocco, and Mauritius – to develop the global services capabilities in their individual countries, sharpen the articulation of their value proposition and differentiation theme, and craft effective marketing strategies to attract global investors.