Shailee Raychaudhuri, Author at Everest Group

South Africa’s Booming BPO Industry | Sherpas in Blue Shirts

By | Blog, Impact Sourcing

Countries across the world are currently grappling with and adjusting to macroeconomic and regulatory changes, the slowdown in ITO-BPO industry growth, and increasing concerns about the availability of relevant talent.

Business Process Enabling South Africa (BPESA) – which operates both as a specialist investment promotion agency for BPO, and as a national trade association and networking body for the industry, with a mandate to create jobs in South Africa – recently took a proactive approach to addressing these issues by collaborating with Everest Group to develop South Africa’s value proposition.

The Present

South Africa’s IT/BPS sector has grown exponentially over the past five years at a rate of ~22 percent – much higher than the global growth rate. Its value proposition for the industry has been closely linked with traditional English contact center delivery, mainly due to availability of talent with high levels of empathy with the end-customer. This remains its key strength and has evolved to provide a more multi-/omni-channel experience for customers. Concurrently, the rest of the IT-BP industry in the country has also evolved to provide a wide array of services that have spawned from its traditional strengths.

Global Services in South Africa

Take the banking sector, for instance. This has been one of the major areas of domestic growth in South Africa. And international companies are increasingly following suit by creating global delivery teams in the fields of asset management, life insurance, and fund accounting processes to service Australia, the U.K., and the U.S. from South Africa. Similarly, in the legal sector, South Africa has carved a niche for itself for contract drafting and management and document review work.

South Africa’s IT sector is providing some interesting solutions which are akin to digital services being delivered from more mature geographies. More than 60,000 students graduate with IT, engineering, and related degrees every year. This talent pool has proved valuable for major industry players. For example, Amazon developed its AWS cloud platform in Cape Town in 2005, and Accenture recently built its Liquidity Studio – which caters to providing client experience on disruptive technologies such as artificial intelligence, blockchain and cloud – in Johannesburg. Analytics is another function which draws stimulus from the contact center industry. Technology start-ups in this space are developing prediction models/algorithms to determine customer behavior; such sentiment analysis is proving to be valuable for upselling and renewing contracts with clients.

The Near Future

While South Africa will continue to be one of the primary locations of choice for English contact center delivery, it will also build capabilities in IT and more unique areas. It has already started to do so in the field of Edtech (such as offering gamified training) and providing English-language training to countries across multiple time zones. It is an exciting time for the IT-BP industry, and South Africa is well-positioned to cater to worldwide markets and create a unique proposition in companies’ global services portfolio.

Click here to get our detailed report on the evolution and growth of the BPO sector in South Africa, and an investor’s guide to South Africa’s competitiveness with other offshore/nearshore service delivery locations.

Signs of Structure in a Disordered Global Services World? | Sherpas in Blue Shirts

By | Blog, Outsourcing, Shared Services/Global In-house Centers

The global services market is in upheaval, and disorder seems to be the new world order. Geopolitical developments, macroeconomic pressures, and unprecedented pace of changes in technology have resulted in huge disruptions to the usual ways of doing business. However, despite the turmoil, the global services market continues to grow, albeit at a much slower pace compared to previous years.

eg5

When developing our Global Locations Annual Report 2017, Everest Group spent considerable time and effort analyzing the underlying data to determine if there are some signs of structure amidst the disorder. Here are some patterns and trends visible from our analysis:

Pervasive rotation of delivery capability toward digital

There has been significant increase in both number and share of new centers focusing on delivery of digital services. Between 2013 and 2016, the number of such centers grew by ~177 percent.

  • Regions: Most of this growth was concentrated in Asia Pacific and nearshore Europe
  • Segments: Cloud, Internet of Things, and Big Data witnessed the highest adoption rates
  • Sourcing model: While the lion’s share of the growth was with the in-house model, service providers also reoriented their delivery portfolios

Greater leverage of nearshore locations

Both service providers and global in-house centers are growing faster in nearshore locations, such as central and eastern Europe, Latin America, and the Caribbean, compared to traditionally offshore locations (such as Asia Pacific.) This is driven by multiple factors, most prominently the drive towards digitalization and the different talent demands this imposes. The chart below shows the increasing share of nearshore regions in new delivery center setups:

eg4

Complementary growth in onshore locations

There has been a rapid surge in large enterprises’ and service providers’ service delivery footprint in locations traditionally considered onshore. While firms either retained or reduced the pace of growth in offshore/nearshore locations, they ramped up presence significantly in the United States and continental Europe (see the following chart for new onshore delivery center setups of top-20 IT-BPO service providers.)

eg31  20 leading service providers across IT and BPS that Everest Group uses as “Index” providers to gauge market trends

This is largely driven by enterprises’ desire to deliver complex services coupled with the advantages of customer intimacy. However, for many providers, this is in anticipation of strict work visa issuance guidelines which may make it imperative for them to have a foothold in the onshore market for hiring talent

While there’s some “method to the madness” in these pervasive trends, there are many operational risks that are likely to add to the disorder. These include:

  • Increased safety and security risks (terrorism and border issues) in Indonesia, Malaysia, and Thailand, and high crime rates in Guatemala and Jamaica
  • Continuing conflict between Russia and Ukraine
  • Frequent changes in political leadership in Egypt
  • Macroeconomic instability in Brazil and Argentina.

For more such trends and analyses on the value propositions of different locations through Everest Group’s MAP MatrixTM, which will help you frame your global services location strategy, please refer to our report, “Global Locations Annual Report 2017: Signs of Structure in a Disordered World.”

Marginal Margin Impact from H1-B Visa Reforms? Maybe Not | Sherpas in Blue Shirts

By | Blog, Onshoring, Outsourcing

On 25 April 2017, U.S. President Donald Trump moved one step closer to instituting new regulations for granting H-1B visas. At the same time, many IT service providers – especially those of Indian-heritage –moved one step closer to realizing their worst fears! The threat of visa reforms became real when President Trump ordered an inter-departmental review of the H-1B visa program, which would ensure formulation of regulations for hiring only the most skilled or the most highly-paid professionals and “would never replace American jobs.”

While it is universally acknowledged that a stricter visa regime will negatively impact most service providers’ onshore margins, particularly the offshore-centric providers that follow the “landed” resource model (i.e., a delivery model that hires resources from offshore centers to work in the U.S.,) it is important to examine the true nature of this impact. The exhibit below indicates the possible impact on onshore margins under various visa reform scenarios.

Scenario-based H1-B visa reform impact assessment on onshore (U.S.) margins

H1-B Visa Reform impacts onshore and offshore margins

Even in a situation where the visa reforms do not translate into full-fledged regulation (the most ideal scenario for Indian-heritage service providers) we expect far greater scrutiny of H1-B visa applications, leading to fewer visa grants. Even in this scenario, we expect more onshore hiring by IT service providers to meet their talent requirements, leading to reduction of service provider margins by 2-4 percentage points.

The probability of the above happening has become more dubious, given recent developments, and it is highly likely that visas will be granted based on either skills/merit or minimum wage requirements of US$130,000. In either case, service providers will need to hire a much higher share of local resources. This further complicates the situation for Indian-heritage providers, as they have a smaller foothold in the U.S. talent market than do the global providers. Whether Indian-heritage or global, hiring landed resources at some/all levels of the delivery pyramid at the minimum salary levels of US$130,000 could drop service provider margins by as much as 14-16 percentage points, resulting in negative returns on onshore deals, at least in the short-term.

While none of the scenarios paint a rosy picture for service providers, the impending visa reforms may act as a catalyst for them to develop more automation solutions and front-end technology products and restructure their talent hiring and value proposition. Interestingly, while onshore resources will increase in U.S.-based contracts, the overall portfolio-level offshore ratios may also marginally increase with providers pushing the offshoring lever to protect their overall margins.

Everest Group has simulated the potential impact on onshore margins using key input variables around existing cost structures, rate cards, staffing pyramid, and onshore-offshore resource mix. Please see our viewpoint on the above topic: “Impact of Changes to H-1B Visa Program on Service Provider Margins” for more details.

Leaping on the Shoulders of Evolution: F&A Delivery from Global In-house Centers (GICs) | Sherpas in Blue Shirts

By | Blog

While Finance & Accounting (F&A) is one of the most outsourced functions, it is also one of the first to be delivered through offshore global in-house centers (GICs) on a large scale.  Indeed, the GIC market for F&A delivery (by FTEs) now comprises ~13 percent of the overall GIC market. During this insourcing process, the F&A function has grown by leaps and bounds, and has evolved along the following key themes.

GICs are gradually moving from the functional definition of F&A to an end-to-end definition

The functional definition of F&A has been evolving gradually, giving way to an outcome-focused approach in which organizations are looking to break down functional silos and achieve effective process delivery. F&A processes are no longer being treated as stand-alone activities with independent objectives. Instead, they now have a broader mandate of being delivered in tandem with related procurement and supply chain activities. For instance, accounts payable is both a transactional F&A process and a transactional procurement process. It has  been “repackaged” under the Procure-to-Pay (P2P) definition, which takes into account end-to-end delivery of accounts payable, travel and expenses, invoice processing, Requisition-to-PO, sourcing support, and catalog management. Similarly, Order-to-Cash (O2C) and Record-to-Report (R2R) are end-to-end processes now included within the F&A definition. Thus, mature GICs are offering seamless delivery of F&A processes with limited duplication of work.

end-to-end process F&A pic

GICs are increasingly leveraging nearshore locations for F&A delivery

Nearshore locations, such as Central and Eastern Europe (CEE) and Latin America, are increasingly playing a greater role in enterprises’ GIC location footprint for F&A delivery. Apart from time zone advantages and cultural affinity with onshore geographies, nearshore locations offer language capabilities that are essential for delivery to multiple onshore locations. For instance, Poland is being leveraged to serve Western and Eastern European countries due to the availability of language and finance talent. Nearshore locations, particularly in the CEE region, are also being leveraged to deliver niche/complex F&A work.

Companies that have chosen the GIC delivery model prefer to keep judgment-intensive F&A functions in-house

Many companies that have adopted the GIC model extensively prefer to deliver judgment-intensive F&A processes through the same in-house model, rather than outsourcing them. One of the key reasons for this preference is that the nature of work requires greater interaction with senior management.

Companies have evolved to a global delivery model for F&A services

Although many parent organizations initially considered F&A a shared function characterized by shared services centers across various regions, they are increasingly looking to break the regional silos and deliver F&A through global delivery centers, which work toward specific business outcomes. Many companies have been able to derive significant cost savings from this transformation through staff reductions, simplification of processes, and integration across functional silos in the global delivery model.

 Multiple GICs have been transformed into Centers of Excellence (COEs) for delivering specific capabilities within F&A

 COEs are expected to push beyond stipulated delivery mandates by unilaterally focusing their talent and investment on specific aspects of delivery, and transforming them to help derive additional value for the parent organization. In F&A, analytics and reporting COEs are being created to deliver analytics processes such as management reporting. By making use of data modeling and information analysis, these COEs can help the parent company make impactful decisions.

In addition to the above themes, GIC-based F&A delivery is witnessing critical changes in terms of operating model characteristics. GICs are fairly aggressively adopting analytics to reduce costs and increase operations profitability. They are also running pilot programs to measure the cost advantages offered by technologies such as Robotic Process Automation (RPA) for transactional F&A processes (primarily, accounts receivable, accounts payable, and general ledger). Although cost savings are the immediate motivation for most GICs, RPA will eventually become an intrinsic part of F&A delivery, as it will impact location decisions and future offshoring of work.

Everest Group has conducted a deep-dive analysis of this market, covering the current F&A delivery landscape from GICs, the evolution of delivery across key themes, descriptions of F&A process maturity achieved by GICs, and key operating model elements.

For more details, please see Everest Group’s latest report, “Finance & Accounting Delivery from GICs: Trusted Partner to Move F&A Beyond Delivery to Value Creation.”

 

Central America and the Caribbean: Calling all Nearshore Locations | Sherpas in Blue Shirts

By | Blog

Over the past several years, Asia has been leading the offshore growth momentum in provision of English-language contact center services. But recently, there has been a steady movement towards nearshore delivery of these services to North America, particularly the United States. Nearshore, in the context of this discussion, primarily refers to Latin American locations that have the advantage of being in the same time zone as North America and share cultural similarities.

Central America and the Caribbean are also gaining importance as part of this burgeoning group. Cities like San Jose, Guatemala City, and San Salvador have established themselves in this market, while locations such as Santo Domingo (Dominican Republic) and Montego Bay (Jamaica) are emerging as strong contenders. What makes this geography unique when compared with the rest of Latin America?

Overview of the nearshore contact center market

Distribution of contact center industry 2014

The figure above depicts the nearshore contact center market in terms of FTEs among Central American and Caribbean locations. As is shown, well established Costa Rica and Guatemala comprise 50 percent of the market, while El Salvador, Panama, Dominican Republic, Jamaica, etc., make up the rest of the pie as emerging locations. Consistent with trends observed in other regions of the world, global/regional service providers are the primary adopters of the emerging areas, while buyers’ global in-house centers (GICs) continue to be concentrated in established locations like Costa Rica and Guatemala.

And out of the confluence arises talent

The key attractiveness of this geography lies in its talent pool. Most of these locations offer large relevant graduate pools, especially for Spanish language delivery. However, challenges with employability of talent for English language skills affect the scalability potential in the region, especially for emerging locations. To overcome this issue, companies typically augment the graduate pool with part-time university students and high school graduates not pursuing further education.

An interesting trend emerging in these locations is that the service providers have tied-up with investment promotion agencies and other government bodies to set up language training institutes. Other providers have adopted staffing models that enable constant access to the best talent in the country. One example involves co-locating the contact centers within university campuses. Part-time university students are employed as contasct center agents, and are given incentives in the form of subsidized tuition fees. This arrangement also helps reduce attrition, which is a constant challenge in the contact center space.

In addition, many locations are taking proactive steps to increase the visibility of the nearshore contact center industry, and make it an attractive and viable employment option. For many, these jobs create the difference between poverty and prosperity. It is no wonder, then, that the Dominican Republic has been dubbed “The Call Center Republic.”

Everest Group has conducted a deep-dive analysis of this region, covering the current nearshore contact center landscape, relevant talent pool, and costs and risks associated with setting up operations. For more details, please see Everest Group’s latest report,Central America and the Caribbean Answer the Call for English-language Contact Center services.”