Author: ParulJain

Will Ukraine’s Invasion Have a Domino Effect on Other Geopolitical Equations? | Blog

The Russian military action in Ukraine has already significantly impacted thousands of services jobs in this region, but the potential reverberations to nearshore European countries and the larger global services industry could be far more damaging – making it essential to integrate geopolitical risk management in your decision-making now. Learn the immediate steps to protect against risks during these increasingly unpredictable times as we continue our expert analysis on this critical issue.   

In our recent blog, we wrote about service delivery risk in Ukraine. Since Russian forces invaded Ukraine on Feb. 24, almost 150 companies operating out of the region supporting IT, Engineering, and Business Process services have ceased or at least suspended operations in the region, impacting thousands of jobs.

But the crisis is not limited to Ukraine, Russia, or even Belarus. Several Eastern European countries such as Poland, Hungary, Slovakia, and Romania are directly impacted. These neighboring countries are taking in refugees, providing financial aid, declaring states of emergency, preparing for military confrontation, and most importantly, witnessing a significant drop in employee morale as individuals and families experience anxiety over the recent events.

These nearshore European countries – Poland, Hungary, Romania, Slovakia, Czech Republic, Latvia, Lithuania, and Estonia – collectively host nearly ~1.5 million Full-time Equivalents (FTEs) in global services delivery, accounting for 15-18% of the total global services workforce worldwide.

We are advising our clients that significantly rely on Central Eastern Europe to stress test their Business Continuity Planning (BCP) strategies at the same time hoping that the ongoing conflict doesn’t escalate to the neighboring countries.

But while we hope for the best, we must prepare for the worst. One of the lessons from this crisis is to not assume that diplomats have everything under control. The events of the past few weeks are extremely disturbing and could embolden authoritarian leaders in some of the other countries.

Below is our analysis of some of the hostile geopolitical equations globally that could impact the global services industry in the event of a major escalation in the associated countries:

  Risk scenario Likelihood Locations impacted Global services Impact

(number of centers and FTEs)

Key players with large footprint
1. Russia versus NATO High Poland, Hungary, Romania, Slovakia, Czech Republic, Latvia, Lithuania, and Estonia ~1,000 centers

1.5 million FTEs

Amazon, Coca-Cola, Deloitte, Dell, Microsoft, E&Y, Nokia, Huawei, IBM, HCL, Cognizant, Accenture
2. China versus Taiwan

Or direct US versus China

Medium-High Taiwan (directly)

China (if US imposes sanctions on China)

~400 centers

320,000 FTEs

Barclays, Citigroup, ExxonMobil, HSBC, Microsoft, Accenture, Capgemini, Tech Mahindra
3. Gulf tensions – Iran versus US and Israel Medium Mainly Iran.

Could impact Kuwait, Iraq, and Lebanon in case of escalations in the region

~100 centers Alibaba, Apple, AT&T, General Motors, Volkswagen, LG Electronics, Accenture, Genpact, IBM, HCL
4. India versus Pakistan Medium-low Locations in Northern and Western parts of India (including capital city); Northwestern region of Pakistan ~2,000 centers

3.1 million FTEs

Amazon, Bank of America, Citigroup, Ford Motors, Dell, Nestle, Microsoft, Accenture, TCS, Wipro, IBM
5. India versus China Medium-low Locations in Northern parts of India; major global services hubs in China are too far out from border regions ~2,500 centers

3.3 million FTEs

Citigroup, ExxonMobil, HSBC, Ford Motors, Nestle, Microsoft, TCS, Wipro, IBM, Capgemini, Tech Mahindra

Risk management actions to take

While we can only hope that none of the above-mentioned scenarios take place, organizations need to be well-prepared to manage the risk impacts. Everest Group advises the following:

  • Move geopolitical risk management up your enterprise agenda
    • New risks require newer risk management systems. While most global companies invoke reactive measures to the changing risk environment, they lack integrated capabilities for managing the cross-enterprise impact of geopolitical risk. Integrate geopolitical risk management into a systematic process and move risk functions beyond the formal views of governance/administration to influence your firm’s core strategy
    • Deploy refreshed risk management mechanisms and take a portfolio view of risks to better understand the implications and interdependencies
    • Empower risk management teams with access to geopolitical intelligence relevant for not just short-term, but long-term challenges and opportunities. Ensure that updated assessments and implications of geopolitical risks regularly feed into the decision-making machinery across the firm
  • Anticipate business-risk implications
    • Examine and understand potential business consequences of geopolitical risks. More often than not, geopolitical movements lead to regulatory changes (e.g., sanctions), thereby impacting corporate risk exposure, with implications for tax rates, cross-border trade, and exchange-transfer risk
    • Scan the horizon for changing sanctions and resultant changes to your third-party ecosystem
  • Rehearse and stress-test the readiness of contingency plans regularly
    • Consistently run tests of work from home and other BCP models to ensure familiarity and effectiveness (in terms of devices, connectivity, collaboration, and project management tools)
  • Strengthen digital security and ensure tech readiness
    • Cyber risks are increasingly associated with political origins, including war and terrorism. Keep a hawk-eye on potential threats related to cybersecurity and invest in strengthening network infrastructures and stronger encryption algorithms to insulate against potential cyberattacks
    • Be aware that historical evidence suggests that cyberattacks are not restricted to just the conflicted zones and often spill over, causing collateral damage in neighboring countries and also putting them at risk
  • Maximize delivery portfolio resiliency
    • Diversification is becoming mission-critical. Instead of operating large hubs in one or two locations, look to dip toes in multiple talent pools across locations (while simultaneously assessing fragmentation risks)
    • Reassess your Global Business Services (GBS)/shared services and vendor portfolio to ensure enough overlap and redundancy across both operational and management processes
    • Invest in process simplification and re-design to reduce hand-offs, decision-points, and dependence on people
  • Increase BCP-led talent management
    • Cross-skill/cross-train the workforce across centers in critical processes to enhance BCP and resilience, and manage workloads in case of a country/center work stoppage scenario
    • Maintain select forms of dispersed/distributed workforce (not co-located with delivery centers). Examples include remote working models or “pods,” contingent and gig workforces

The nature of geopolitical risk is changing and becoming increasingly unpredictable. It is now imperative for organizations to integrate geopolitical risk management in decision-making processes across the organization.

If you have questions or would like to discuss this topic, please feel free to reach out to us at [email protected], [email protected], or [email protected].

As we continue to watch the events in Ukraine, you can access our  resource center where you’ll find our consolidated coverage of this evolving situation, or watch our LinkedIn Live event, “How to Manage the Ukraine-Russia Impact on Service Delivery.

The 2022 Key Issues Study – It’s Not a Talent War, It’s a New Reality | Blog

There is a global challenge to find talent across industries and departments. To find out how enterprises can better understand the talent shortage and start planning their talent strategy going into 2022, read on.

As we look past 2021 and the pandemic, it has become apparent that we are entering 2022 with a completely different and equally challenging set of issues. The more lasting impact will be disruptions and shortages affecting the talent supply brought on by an accumulation of social and cultural changes set in motion over generations and exacerbated by the pandemic.

To understand the talent shortage and what enterprises are doing to adapt, Everest Group is conducting a survey, in partnership with IAOP, to discover strategies and best practices that enterprises worldwide are applying going into 2022 including, key priorities, motivations, and initiatives from a sourcing perspective.

Participate in the Survey

“Winning the war” is no longer the goal, the challenge has become bigger

For the past several years, the “talent war” has had a special emphasis on the demand for high-end digital talent. Today, the challenge to find talent has become widespread across industries and departments and has spiraled into rising attrition rates, higher internal salary demands from employees, and increasing outsourcing rates across a range of job skill sets.

There isn’t an easy answer or a silver bullet to this conversation. The pandemic may have been the match to light the fire, but it’s no longer the root cause of what we’re dealing with now. Enterprises will ultimately need to shift their internal infrastructures to adapt to the change.

We can’t deny the urgency

Currently, there are now 2.7 million more job openings than people actively looking for work. In the US, 4.3 million people quit in August, up from 3.0 million one year ago. Yes, the pandemic set off a landslide of changes; however, the US had been moving toward a talent scarcity long before.

Workers’ life changes bring new realities

When the pandemic hit, a significant chunk of people began working from home – some doing so with children of all ages due to school and daycare shutdowns. Flexibility to allow for work-life blend and overall well-being became top priorities when it came to what people expected at work and how they engaged with their jobs. Now, over a year later, work from home has become a new desired working method, making companies that don’t support it less likely to attract some talent.

It was also during this time that many employees discovered how much they could save by not sending their young children back to expensive daycares. This, combined with the fear of exposing their children to COVID-19, drove some to quit their jobs and stay home with their children.

Further, a combination of all of the above is enough to overstress employees and cause burnout, leading some to leave their jobs to focus on their health. The bottom line is, employees today want flexibility, and they are willing to put their current jobs on the line to get it.

Among college students, we’ve also seen a decline in student Visas caused by worldwide shutdowns. Even now, Visa processing is delayed, lowering the number of possible graduates in the US eager to join the workforce. Since 2015, the number of students and their families, including commuter students, coming to the US has dropped by 300,000.

Finally, the baby boomer generation has experienced accelerated retirements, some due to the pandemic; for others, it’s just time. Across the US and Europe, as the majority of baby boomers retire and fewer people enter the workforce, there will be an estimated 2.3 million fewer workers annually for the next 10 years. And younger generations aren’t necessarily skilled enough or have the experience yet to fill many of the jobs left behind by the boomers, causing a gap for needed talent that just doesn’t exist.

How can enterprises adapt to the new reality?

Looking toward 2022, how should enterprises embark on their talent strategy? We now know that the talent shortage will not right itself, and there is no reset button. Companies cannot keep offering raises to keep employees because it’s costly and not sustainable. And stealing from your neighbor just causes them to steal back. The change will need to happen at the infrastructure level. Enterprises may adapt in a variety of ways, including changing the workforce structure, improving workplace culture, looking at other talent models, evaluating new geographies and looking to outsourcing, or leveraging digital/next-gen or automation capabilities.  At the end of the day there is no one strategy that will be sufficient to “win” this and it will require many different strategies and tactics to build out a successful talent strategy.

Find out what other enterprises are doing

To learn more about the global talent struggle, Everest Group is conducting a survey among global enterprises across multiple departments. The goal is to understand how leading enterprises plan to strategize for talent in 2022. The research will drill into enterprises’ challenges and priorities, attrition levels, resiliency and agility planning, changes in sourcing models or shoring mix, headcount and salary expectations, impacts on environmental, social, and governance (ESG) matters, and more.

We want to address the root cause and better understand what can be done to mitigate the impact of the talent shortage.

What’s in it for you?

Participate in the study, and we will share a complimentary summary of the research results so you can better understand the talent landscape going into 2022 and start a talent strategy.

Take the Survey

If you have any questions please reach out to [email protected] or [email protected].

Work from Home: 3 Underrated Impacts We Should Be Talking About | Blog

When COVID-19 pushed millions around the world to work from home, little focus was given at the time of urgency to the longer-term impacts if the practice continued post-pandemic. Work from Home (WFH) is here to stay, but what effect is it truly having on the environment, society and families, and individuals? To learn more about the less obvious repercussions of this new work model, read on.

COVID-19 impetus   

COVID-19 accelerated a workplace experiment that had struggled to gain traction before the pandemic. As we emerge from the immediate crisis, global companies are increasingly clarifying their stance on the future of WFH.

Some are more bullish about sustaining a scaled WFH model than others. Many organizations are contemplating hybrid delivery models for the long term. Google CEO Sundar Pichai agrees on the importance of incorporating remote working. But other sectors such as the financial industry have a different take, with Goldman Sachs CEO David Solomon calling WFH “an aberration.”

While some organizations flourished during WFH with reported cost savings and productivity increases, others had issues below the surface as we previously reported in our blog post on Future of Work From Home in GBS Organizations – Separating Hype from Reality.

Impacts to pay attention to

The indelible impact of WFH on the environment, society and families, and individuals cannot be downplayed as it affects not only the current workforce but also future generations. Let’s take a look at how these three critical areas have been altered – both positively and negatively.

  • The environment

Transportation, especially business travel and commuting, plays an oversized role when we talk about the environmental impact of remote working models. The lack of commuting reduces fossil fuel usage, leading to reductions in greenhouse emissions, air pollution, and the Scope 3 carbon footprint. Another positive for the environment is the significant reduction of paper and plastic usage in offices.

On the other hand, as we previously reported, virtual meetings require large amounts of data that need greater power. This puts huge energy demands on data centers that power the internet and could partially offset the positives.

Other aspects are a mixed bag of positive and negative impacts. Before the pandemic, the lighting, cooling, or heating generally ran at all times in an office building. Individuals working at home will likely use less energy as they tend to be responsible about energy usage as the onus of power bills is on them.

However, one can argue that the power used by individual homes could be collectively higher than offices using well-designed zonal heating and cooling. Another impact to consider is that the WFH model could duplicate enabling equipment (such as external monitors, keyboards, and printers, etc.), which could offset the positives to some extent.

  • Society and families

 WFH has opened up employment opportunities for those who have challenges working in traditional environments, directly improving diversity and inclusivity in organizations and potentially reducing social inequalities in the long term.

Remote working, for example, has enabled organizations that have not yet made their workplaces accessible for people with disabilities to hire these individuals. It also has allowed companies to improve inclusivity by providing opportunities for individuals from disadvantaged backgrounds for whom office location and delivery models have been obstacles.

Further, WFH can help organizations retain workers who have young children they are caring for at home, as household responsibilities are more redistributed today and both partners play a greater role in upbringing children. The flexibility of work from home also can benefit employees in single-parent households in juggling competing priorities of work and child care.

WFH has also allowed employees living in expensive tier-1 cities to move to lower-cost areas and return to their hometowns, providing the benefits of more time with family and social circles along with cost savings. With the pandemic impacting older adults more severely, work from home has allowed adult children to provide much needed support.

On the other hand, remote working has led many people, particularly the marginalized, to feel excluded and left out. A majority of women have reported a negative impact of WFH due to increased household responsibilities and disruption of work-life balance attributed to traditional gender roles.

The social aspects of interacting at work with many different individuals also have been diminished, limiting the development of employee’s social skills and organizational culture. The virtual environment has made it more difficult for people from under-represented groups to be visible and have their voices heard.

Online networking in discussion groups and forums has been a positive social outlet but tends to favor employees with digital skills and an existing large network base.

Another challenge is the increasing numbers of individuals hired during the pandemic who have never met their colleagues in person. While companies are taking new initiatives to solidify peer connections and foster team collaboration with remote workforces, this is a difficult road that will need concerted, ongoing efforts.

  • Individuals

Of all the aspects addressed so far, the impact on an individual is, by far, the most understated. While employees found the WFH model flexible and enjoyable during its early days, most of them have now reported fatigue and tiredness with the model.

Employees feel a negative impact of remote working on their physical well-being, including weight gain and musculoskeletal problems. Those who walked or biked to their jobs or during breaks are no longer getting this exercise. Lockdowns also restricted other physical activities they may have done outside work. Using non-ergonomic furniture like sofas and beds to work also has had negative health consequences.

WFH has had a profound impact on the mental well-being of employees who have difficulties separating work-home boundaries and managing their workloads with irregular long hours. Microsoft CEO Satya Nadella has commented that online meetings can make employees tired as well as make the transition from work to private life hard, saying, “Work from home feels like sleeping at work.”

Employees are increasingly complaining of sluggish cognitive performance, commonly dubbed as “pandemic brain,” which arises from long periods in isolation. Increasingly, more employees are facing changes in sleep patterns, difficulty in stopping working, increased distractions, and greater work anxiety.

The negative impact of WFH varies across groups but seems to have disproportionately affected the disadvantaged, although a certain amount of this could be attributed to the pandemic and lockdown isolation.

The ability of each individual to cope with the changes has largely depended on the degree of their social and peer connections and support from their organizations. Employees of proactive organizations who have actively supported their mental health have adapted well to their new WFH environment, with improved performance and productivity.

Future of work  

While WFH has been a big success out of necessity, organizations need to adopt a pragmatic approach as they strategically re-think the future of work. WFH is not going away. We expect companies to use different variations and combinations to create their own version of a WFA – Work from Anywhere model.

By going beyond a mere tactical approach and getting their hybrid model right, organizations will realize the benefits that WFH can bring of higher productivity, optimized costs, a loyal and diversified workforce, and a stronger cultural fabric.

How are you dealing with these softer, yet unignorable, impacts of WFH? Reach out to [email protected], [email protected] or [email protected] to share perspectives.

Africa: On the Frontier of IT-BP Services Delivery | Blog

In the last few years, for a number of reasons, there’s been a major uptick in global services delivery from Africa. The most significant driver of growth is Africa’s emergence as the next frontier for small-scale delivery centers. Another is strong government support that enables global services delivery. But there are a variety of other key forces that are making Africa a destination of choice for companies of all sizes, including some of the world’s biggest brands, such as Accenture, Daimler, Google, Microsoft, Standard Chartered, and Teleperformance.

There is less competition for talent in most locations in Africa compared to key offshore/nearshore talent hubs across leading geographies. Expansion into African cities helps organizations diversify their delivery location risk, as most locations have the ability to serve as Business Continuity Planning (BCP) locations to nearshore/offshore centers. Moving services to Africa also helps organizations differentiate themselves by capitalizing on early-mover advantage.

Other factors, such as an attractive talent-cost proposition, strong domestic demand across East and West African countries, and improving infrastructure capabilities (including rapid adoption of Work From Home (WFH) / remote working models), have improved the business case for new center set ups. For example, there’s been an increase in services maturity for delivery of key services across the region, including voice- and non-voice-based BPS services, IT services, and engineering/R&D delivery. And while most locations have low operating costs, ongoing currency depreciation and lower attrition costs across leading countries like Egypt and South Africa have helped bolster overall growth.

Trade-offs and risks

As market players prepare consider options for service delivery from Africa, they need to be cognizant of the key tradeoffs and associated risks for operating in the region, including:

  • At present, Africa is best suited to deliver transactional services. Companies seeking to support more specialized operations or judgement-intensive processes may find it difficult to operate, or they may find that they need to make substantial investments in the talent market
  • There’s a limited pool of experienced talent. Companies will need to invest in growing and developing talent locally, by training recent graduates and building a recruitment engine from the ground-up, among other options
  • The region poses potential challenges with delivery enablers (including utilities, transportation, meals/catering, and stationery providers), low quality office infrastructure, and comparatively poor connectivity to domestic/international locations
  • The business environment in East and West African countries is less favorable than nearshore Europe locations, including infrastructure quality, digital readiness, and safety and security
  • Given low talent availability, language support beyond English is limited and commands high premiums
  • The presence of key players supporting global services is limited in most African countries; the entry of a few large companies could easily congest the market and quickly increase costs

Most leveraged African countries for IT-BP delivery

Exhibit 2

Here’s a quick look at the top four global services delivery locations in Africa, by market size – largest to smallest.

#1 Egypt

Companies leverage Egypt as a hub location for multi-lingual delivery to the EMEA region, as well as delivery to the US, UK, and Australia markets. It offers an attractive cost and talent proposition to support to a wide range of functions – including voice- and non-voice business processes, IT application development and maintenance, and digital services – and high availability of talent to support English and some European languages. While it offers a favorable business environment, it has some geopolitical stability challenges.

#2 Morocco

Companies largely leverage Morocco as a spoke location for multi-lingual contact center and IT services delivery. It provides extensive support to the North Africa markets. While organizations extensively leverage Morocco to support IT services delivery, it also increasingly supports business process delivery as well, including sales, client support, HR, and F&A. French and Spanish language services continue to be in high demand, and are the most widely used for services delivery. The country offers a favorable business environment but has some geopolitical stability challenges.

#3 South Africa

Organizations continue to leverage South Africa as a global hub to support the UK, US, and Australia markets, and – in many cases – South Africa serves as a regional hub for Africa and Middle East countries. It offers an attractive talent proposition to support both transactional and judgement-intensive processes, including customer analytics, actuarial modelling, fund administration, HR, and procurement. IT services delivery has gained traction over the years, and the country boats a large talent pool to support English and multiple European languages. It has a favorable business and operating environment with no significant challenges.

#4 Mauritius

Organizations primarily use Mauritius as a spoke location to support French language delivery and a suite of services including IT services (application development, maintenance, infrastructure services), voice and non-voice transactional business processes (e.g., F&A, HR, and procurement), and analytics. French language talent availability continues to drive overall demand. The country is highly favorable from a business and operating environment standpoint and has no significant challenges.

While the global services market in Africa is relatively less mature than leading offshore geographies such as India and the Philippines, there is significant potential to tap into the domestic market across the top locations. Industry verticals including BFSI, telecommunications, and IT services continue to drive overall domestic demand. Further, with the strong government support, offshore advantage, growing talent pools, and infrastructure capabilities, several African countries offer a multi-pronged value proposition to enterprises seeking an IT-BP services delivery destination.

To learn more about the dynamics in the region, please read our recently published report Africa: Emerging IT-BP Delivery Force, which highlights the relative attractiveness and talent-cost proposition of key African locations to support global services delivery, based on our holistic and multi-faceted assessment across 10 key parameters parameters.

For more information on Africa as a global service delivery location, please contact us at [email protected] or [email protected].

Leveraging Tier-2 and -3 Locations to Strengthen Business Continuity Planning | Blog

It’s time for a fundamental rethink in the way companies approach their Business Continuity Planning (BCP), in general, and their locations strategy in particular. More than 70 percent of enterprises leverage only a single – usually tier-1 – location in one country for global business services delivery, according to our analysis. And even for companies that leverage tier-2/3 locations, deployment is the highest at their tier-1 location. This deployment model not only limits the full value they can achieve from location diversification, but also significantly increases their BCP risk. Let’s take a deeper look at this.

As our recent blog on unlocking value from tier-2/3 locations pointed out, with tier-1 locations fast maturing and saturating, enterprises may soon have to factor in tier-2/3 locations to minimize risk, capitalize on the cities’ advantages, and ensure business continuity. Leading co-working players are also expecting a rise in real estate demand in tier-2/3 cities, and planning to expand to these locations.

In India, in particular, a leading global services delivery location, companies that deliver Global Business Services (GBS) and have leveraged tier-2/3 locations as part of their location strategies (such as IBM and Tata Consultancy Services) have benefited significantly from a BCP standpoint by successfully diversifying their:

  • Concentration risk: Multi-city location strategies, coupled with workload flexibility across delivery centers, have helped minimize prolonged disruption during the pandemic.
  • Delivery locations risk: Tier-2/3 cities help diversify the location risk and also face lower macro-economic and political risk than tier-1 locations, which adds to their viability.
  • Functional risk: Many firms, such as Capgemini, leverage tier-2/3 locations as spoke or support centers in a hub-and-spoke delivery model network. In fact, they don’t shy away from distributing highly critical services and processes across tier-1 and -2/3 locations to reduce the functional risk.

And it’s not just the risk diversification advantage – our client interactions have revealed that leveraging tier-2/3 locations across India can help facilitate business continuity during the pandemic in the following ways:

  • The spread and impact of the virus is concentrated in major tier-1 locations, which account for ~40 percent of the total cases in India. In contrast, most tier-2/3 locations are largely unaffected, and only about 15 percent of them are classified as red zones, or areas with high active cases of COVID-19 and a high doubling rate. Thiruvananthapuram and Kochi in Kerala, Visakhapatnam in Andhra Pradesh, Bhubaneshwar in Odisha, and Trichy and Coimbatore in Tamil Nadu are some of the tier-2/3 locations designated as orange/green zones. Thus, restrictions are likely to be relaxed or lifted earlier in those areas, with a faster return to business as usual.
  • The resilience and back-to-work rate for tier-2/3 locations are higher, as they’re easier to traverse, and employees typically live near offices, unlike in most tier-1 cities, where employees typically rely on public transport to go to work
  • Most firms that operate in tier-1 locations have a considerably large pool of migrant employees who have returned to their native towns/cities in the light of the lockdown and might not be willing to return to work immediately, given the risks.

At the same time, to unlock the full scale of BCP benefits from tier-2/3 cities, firms need to ensure certain baseline factors to facilitate business delivery:

  1. They need to make sure they have ready, skilled, and trained staff for all critical processes in secondary locations, as it’s difficult to transfer employees from one city to another in the event of an emergency.
  2. They need to establish leadership representation in these locations to better govern and manage the increasing workload.
  3. They need a seamless communication system to facilitate data accessibility and transfer.
  4. They should simplify and redesign their processes to reduce handoffs, decision points of contact, and people dependence.

 

We’d love to hear about your BCP experience with tier-2/3 locations and thoughts on the viability of these locations in the coming years. You can also read our blog on “The Coming of Age of India’s Tier-2 and -3 Service Delivery Locations” to understand the key drivers and challenges inherent to tier-2/3 locations to develop your own locations strategy. Please share your inputs with us at [email protected], [email protected], or [email protected].

The Coming of Age of India’s Tier-2 and -3 Service Delivery Locations | Blog

India is widely regarded as a preferred service delivery location for global companies, given its attractive low-cost proposition, skills availability and scalability, and mature global services ecosystem. Until recently, the country’s tier-1 locations shouldered the weight of the services delivery agenda. However, with increasing maturity and saturation, enterprises and service providers are expanding their footprints across tier-2 and -3 locations throughout the country to take advantage of lower competition, cost savings, and better living standards, as well as to diversify location risk.

Read on to learn about the tier-2/3 global services delivery market in India and their accompanying advantages and underlying trade-offs, as well as what it takes to successfully operationalize a tier-2/3 delivery center in the country.

Understanding tier-2/3 locations’ value propositions

Tier-2/3 locations currently account for 18-20% of the global services workforce in India. Unlike most European countries, where a small clutch of cities offer services delivery, India offers a plethora of tier-2/3 location options, including: Ahmedabad, Gujarat; Coimbatore, Tamil Nadu; Jaipur, Rajasthan; Kolkata, West Bengal; Kochi, Kerala; Visakhapatnam, Andhra Pradesh; Chandigarh and Thane, Maharashtra; Lucknow, Uttar Pradesh; Thiruvananthapuram, Kerala; and, Indore.

Delivery of global IT services is more mature than is global business process services (BPS) in most tier-2/3 locations, but the share of global voice and non-voice-based BPS is on the rise. Service providers occupy a larger market share than enterprises’ Global Business Services (GBS) organizations in most tier-2/3 locations, facilitating transactional work, servicing incumbent clients and fixed-price projects, and, at times, supporting complex workstreams.

Multiple factors enhance the tier-2/3 locations’ value propositions:

  • Lower compensation and facility costs translate into considerable cost savings of 10-20% versus a typical tier-1 location
  • Relatively low competition allows the scope to differentiate, create a better brand image, and attain leadership in talent markets, and provides access to a largely untapped talent pool with relevant skills
  • Tier-2/3 locations also experience 10-15% lower attrition than tier-1 cities, resulting in better service delivery and lower hiring and training costs
  • In contrast to most tier-1 locations, which are experiencing increasing traffic congestion, worsening quality of life, and health-related issues, tier-2/3 locations offer a better standard of living at a lower cost, making relocation an attractive proposition
  • Various state governments have started offering incentives such as single window clearances, ease of land allocation, stamp duty exemptions, Floor Area Ratio (FAR) relaxation, and capex/interest subsidies to further increase the attractiveness and viability of tier-2/3 locations

All these advantages have driven companies already to open centers in tier-2/3 cities or at least to begin to explore the viability and value. For instance, a leading telecommunications services firm employs over 40% of its Indian workforce at its tier-2 delivery center; a leading professional services firm is looking to scale its overall GBS headcount at existing tier-2 locations; and, a leading e-commerce firm is evaluating multiple tier-2/3 cities to support customer services delivery. Many service providers are also showing keen interest in expanding their tier-2/3 footprints to support both transactional and complex workstreams.

But, of course, tier-2/3 cities aren’t panaceas, and both enterprises and service providers must be fully cognizant of the realities of establishing a center in one of them and address challenges quickly to unlock their maximum potential.

Key challenges in supporting service delivery from tier-2/3 locations

Scalability, especially beyond 1,000 FTEs, can be a challenge in some tier-2/3 locations (such as Chandigarh, Visakhapatnam, and Coimbatore) with limited peer presence and better opportunities in nearby tier-1 locations. Given the relatively low market maturity and paucity of adequately skilled talent, companies would have to invest in training recent graduates and/or building a recruitment engine from the ground-up. Additionally, the entry of a few large companies can easily congest the market and increase costs quickly.

Challenges with infrastructure and delivery enablers like utilities, transport, meal/catering, and stationery providers, as well as inferior connectivity to domestic/international locations, also pose hindrances. Thus, it might be difficult to relocate experienced talent at the managerial and leadership levels. Further, most tier-2/3 locations primarily deliver transactional services, and companies that want to support more specialized operations would have to make substantial investments in the talent market.

At the same time, we believe that a sound understanding of the location and its advantages and challenges, coupled with a nuanced strategy, can help companies establish successful delivery centers in tier-2/3 locations and integrate them into their portfolios.

How to successfully operationalize a tier-2/3 location delivery center

To extract maximum value from their tier-2/3 centers, we believe that companies should undertake the following steps:

  • Capitalize on the early-mover advantage to access benefits beyond cost savings, such as footprint diversification, lower attrition and competitive intensity, and wider access to talent
  • Create a distinctive employee value proposition, such as defined career paths, exposure to leading technologies, and financial benefits, to ensure better positioning
  • Invest in talent development and revamp the existing operating model to support complex workstreams. A case in point is a leading BFSI firm, which is betting big on its tier-2 delivery center in Thiruvananthapuram to move up the automation and analytics value chain and support new processes
  • Play a talent shaper role by working with the local academic and government bodies to influence educational curricula, training infrastructure, and programs, and reskill/upskill talent or seed talent from other centers. A leading service provider, for instance, has opened one of the largest corporate education centers globally in Mysore, Karnataka, helping it attain leadership in the regional talent market
  • Enhance the relocation proposition for existing talent by providing adequate monetary and non-monetary incentives, especially those that alleviate some of the problems associated with tier-1 locations, such as congestion, pollution, safety, and security

Are you currently leveraging or considering tier-2/3 locations for your service delivery efforts? We’d love to hear your thoughts on including tier-2/3 locations in your portfolio, and/or your views on how the tier-2/3 delivery landscape will evolve in the coming years. Connect with us at [email protected], [email protected], or [email protected].

And keep your eyes peeled for an upcoming blog on how tier-2 and -3 delivery locations can support organizations’ business continuity planning efforts.

Strengthening Your Global Services Delivery Location Strategy for Unprecedented Times | Blog

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.

What Are the Characteristics of Truly Innovative Global Business Services Organizations? | Blog

To gain – and retain – competitive advantage, enterprises are increasingly tapping their Global Business Services (GBS) centers to build innovative, future-ready capabilities.

But what are the characteristics of truly innovative GBS organizations? What sets a small handful of GBS groups – those that we call Pinnacle organizations – apart from the rest? How have they succeeded in generating innovation-oriented business outcomes? To find out, we analyzed 51 GBS centers across diverse industries and geographies.

In this blog, we share a few of these world-class GBS organizations’ distinguishing characteristics. You can find the complete analysis in the full report, Innovation in GBS | Pinnacle Model™ Analysis.

Recalibrated talent strategy with a special emphasis on developing a culture of innovation

As part of their talent management strategies, Pinnacle GBS centers:

  • Invest significantly in upskilling/reskilling programs for their teams
  • Strongly emphasize education and awareness of innovation’s capabilities and benefits
  • Leverage multiple levers to foster an inn­­ovation culture and mindset among their employees
  • Recognize highly innovative employees/teams with non-financial rewards
  • Promote a spirit of intrapreneurship to give employees ownership of their innovation ideas
  • Conduct innovation talks, ideathons, and hackathons to help embed an innovation culture throughout the group

One example we found in the course of our research was a leading electronics, hi-tech, and technology GBS center that has trained about 40 of its employees to work as in-house intrapreneurs responsible for driving and owning their own innovation ideas. This approach not only sends a strong message about the important role innovation plays in the center, but also helps institute a start-up culture and make the workforce more agile and lean.

Proactive proofs of concept and solutions

Pinnacle GBS organizations have recognized that proactively creating their own proofs of concept (POCs) and innovation solutions is one of the vital ways they can evolve from cost enablers to strategic partners, and gain buy-in from their parent companies to drive and support their innovation agendas. For example, one Pinnacle GBS center proactively initiated an innovation-themed accelerator program focused on social entrepreneurs as a part of its parent’s corporate social responsibility initiative. It leveraged this program to showcase its capability and gain buy-in from stakeholders within the parent organization to take a high degree of ownership over the corporate innovation program and drive the organization-wide innovation agenda. Today, the GBS center has significant ownership in the entire innovation journey – from ideation and concept testing to detailed design and development.

A dedicated innovation fund

Pinnacle GBS organizations have realized that a formal and dedicated innovation budget – rather than an ad-hoc or informal one – is essential to drive innovation and achieve long-term success. A dedicated fund introduces more structure to innovation initiatives and ensures that innovative ideas don’t get stuck in the pipeline but instead receive timely and necessary funding. For example, a leading financial services GBS center extensively leverages its centralized GBS innovation budget to drive innovation-focused upskilling and reskilling programs for its innovation workforce. Additionally, it utilizes this fund to drive innovation initiatives at the ideation stage. Then, as the idea progresses to the pilot and development stages, the business unit within the GBS center that owns the idea must generate the requisite funding from its BU-specific innovation fund to drive the idea further.

We’ll be taking a deep dive into our analysis on how Pinnacle GBS centers are building out their innovation capabilities in our May 7, 2020, webinar, How GBS Can Leverage Innovation to Prepare for the Economic Downturn. In it, we’ll discuss:

  • The characteristics of Pinnacle GBS centers
  • Why what they’ve achieved to date is just the tip of the innovation iceberg
  • How they’re likely to build on their current foundation and penetrate deeper into their organizations with ever more complex and value-generating innovative solutions
  • Popular myths – and debunking insights – surrounding innovation delivery from GBS centers

Please reach out to us at [email protected] or [email protected] if you’d like insights on how your GBS organization’s innovation capabilities stack up against the competition, or want more information on the webinar. Click to register for the webinar.

 

Coronavirus Service Delivery Update | Blog

This is the third in a series of blogs that explores a range of topics related to these issues and will naturally evolve as events unfold and facts reveal themselves. The blogs are in no way intended to provide scientific or health expertise, but rather focus on the implications and options for service delivery organizations.

These insights are based on our ongoing interactions with organizations operating in impacted areas, our expertise in global service delivery, and our previous experience with clients facing challenges from the SARS, MERS, and Zika viruses, as well as other unique risk situations.

Over the past two to three weeks, media focus has shifted away from China, where the growth rate of new infections has slowed markedly. Hubei province remains the epicenter of the disease, but 8 of the 10 provinces that make up that core group of provinces where the disease has been most prevalent, have seen no new cases for several days. Hubei and the coastal province of Zheijang alone among the 10 are reporting new positive cases. There have been no public reports of service delivery interruption from any of the 44 Global In-house Centers (GICs) inside the core group of 10 provinces. Indeed, the last week has seen a steady return to work outside Hubei province.

The new global focus is on a group of high-risk countries including South Korea (Daegu and Cheongdo), Iran and Italy (specifically the whole of the north of the country and not just the provinces of Lombardy and the Veneto), and on a secondary group comprising Japan, Singapore, Laos, Thailand, Vietnam and Myanmar.

Data from Everest Group Market Intelligence (EGMI) shows that there are 470 Global Inhouse Centers (GICs) – or shared services centers – and 196 service provider delivery centers located in China and across these additional nine countries. Based on travel advisory and media reporting of regions that are more or less severely impacted, China still has the greatest exposure to delivery risk, with 73 delivery centers in high impact areas, and a further 272 in areas that are likely seeing little or no impact. Italy has 14 service provider delivery centers in the high-risk Northern provinces. South Korea has one or two GICs in Daegu, the city most affected by coronavirus infections. See details by country and sector in the two tables below.

exposure by country

exposure by sector

In view of restrictions imposed by governments, or companies implementing business continuity protocols, or simply out of fear of contracting the virus through proximity to large numbers of people, it is highly likely that most, if not all, of the delivery centers in high impact areas are closed and will remain so until further notice.

Many multinational corporations with offices in China and Hong Kong have imposed either complete travel bans (Amazon, Apple, Citigroup, Credit Suisse, Ford, Goldman Sachs, Google, HSBC, JP Morgan, LG, Salesforce) or have banned non-essential travel (GM, Johnson & Johnson, P&G, PwC, Siemens) to and from mainland China, Italy, Japan, and South Korea. In some cases, cross-border travel has been suspended indefinitely.

The same imposition of a work from home policy for all staff of multinationals in China and Hong Kong, which is beginning to ease, is now the norm for many businesses in Milan, the capital of Lombardy. The cancellation of meetings or conferences involving even modest numbers of international participants is now a daily occurrence.

The outward spread of the disease has also started to impact major service delivery locations, especially India, which comprises 40 percent of the world’s global services delivery capacity. As of March 6, 2020, 30 Covid-19 cases have been confirmed in the country. Initially, only passengers from high-risk countries were being checked at airports, but the government has implemented universal screening for all passengers flying into the country. Multiple companies such as Cognizant, PayTM, Wipro, and KPMG have temporarily closed select offices in Delhi NCR and Hyderabad and stepped up their employee safety efforts. In addition to encouraging the remote working model, these efforts include disinfecting and sanitizing office spaces, putting hand sanitizers at entry and exit points, discouraging staff from conducting physical meetings, restricting the entry of outsiders in office premises and distributing N95 masks amongst employees.

We continue to monitor these locations.

Visit our COVID-19 resource center to access all our COVD-19 related insights.

South Africa – The Emerging Hub for Information and Communication Technology Services Delivery | In the News

The Global Business Services (GBS) industry in South Africa experienced about a 25 percent Compound Annual Growth Rate (CAGR) from 2015 through 2019 – that’s three times the global average. Business process services, especially for English language voice-based delivery, has been the strongest foothold for the country, driven by growing availability of a large, accent-neutral, and empathic workforce, government support with improved access, and enhanced enabling infrastructure. Now, the country is fast emerging as an attractive location for Information and Communication Technology (ICT) services delivery, a segment that today comprises about one-fifth of the total global services market in South Africa.

So, what’s propelling South Africa’s appeal as a destination of choice for all kinds of IT services?

The digital value proposition

South Africa has kept pace with increasing global demand for digitalization and offers capabilities for next-generation services including testing, data services, analytics, and end-user support. The growth rate for next-generation technologies, such as AI, blockchain, machine learning, and IoT, is almost double that of the country’s ICT sector. The country consecutively ranked among the top 20 digital nations in the Tholons Globalization Index in 2018 and 2019, and secured the fourth highest innovation/digital score globally in 2019. Within the continent, it is the leading destination in terms of technological readiness for a digital revolution, and it was ranked among the top five for AI readiness by the Government AI Readiness Index 2019.

The talent value proposition

South Africa has a sizable pool of technically skilled and trainable English-speaking talent, with a more neutral accent than offshore geographies such as India and the Philippines. And because of lower infrastructure costs, GBS-focused government incentives, and relatively low attrition rates, the country offers cost arbitrage rates for ICT delivery that are 25-35 percent less than in competing central and eastern European (CEE) locations, and 50-60 percent less than tier-2 locations in the UK.

The government support value proposition

In the past couple of years, the government has proactively rolled out various incentive plans and policies to develop ICT capabilities for domestic and global companies. Programs including GBS incentives, employment tax incentives, the Export Marketing and Investment Assistance (EMIA) scheme, and the Sector Specific Assistance Scheme (SSAS) are aimed at creating employment by servicing offshore activities and contributing to the country’s export revenue from offshoring services.

The central and provincial governments have also made concerted efforts to build more complex IT skills through industry-academia collaboration and training programs such as Digital Innovation Precinct and ImpaCT, which provide training and education for software engineering, game development, data science, and other digital skills. Cloud engineering, cyber security, data services, and analytics are among the top investment areas for the government’s 2030 Green Target Plan to develop digital/ICT outsourcing capabilities in South Africa.

With all this, it’s no surprise that the country is experiencing increasing demand for IT services across industries, including healthcare, BFSI, and telecom. The country is home to a fast-growing cluster of companies providing website architecture and development, application and platform development, big data analytics, RPA, and cybersecurity solutions. Currently, South Africa houses two Azure datacenters by Microsoft and one by Huawei, and Amazon has plans to open a data center in 2020. South Africa’s thriving start-up community further supports innovation and advances in emerging fields such as Fintech, EdTech, InsurTech, and HealthTech.

While contact center continues to be the mainstay of the South African GBS industry with almost three-quarters of the total headcount, the country’s capabilities in other functions, including ICT, are growing quickly. To learn more about South Africa’s attractiveness as an ICT delivery destination, please contact H Karthik, Parul Jain, or Ratandeep Burman.

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