Likely Impact of RPA on Locations Strategy | Market Insights™
November 21, 2015
Likely impact of RPA on locations strategy on offshore and nearshore locations, virtualization, and portfolio consolidation
Likely impact of RPA on locations strategy on offshore and nearshore locations, virtualization, and portfolio consolidation
Although Asia Pac maintains the majority share of new center setups, its share has declined as other regions, particularly Nearshore Europe, have grown
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India and the Philippines lead global services market share
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New center set-up activity is highly concentrated in APAC, less concentrated in Nearshore Europe and highly dispersed in LAC and MEA
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Global services market heatmap
The customer care industry is going through myriad changes, but none as far-reaching and impactful as the rise in the adoption of non-voice channels. Recognizing this shift in customer behavior, enterprises are working to ensure their customers have a seamless experience across the channels of their choice, in order to increase customer acquisition, retention, and loyalty. This change in buyer expectations is having its effect on the global Contact Center Outsourcing (CCO) market as well.
One of the key findings in Everest Group’s Contact Center Outsourcing Annual Report 2015 is an almost 10 percent erosion between 2011 and 2014 in the voice channel’s revenue share, even though it remained the dominant channel of customer interaction. While voice has grown at a sluggish pace (3 percent CAGR between 2011 and 2014), non-voice channels have witnessed robust growth, led by email, which experienced a handsome 22 percent CAGR revenue share growth between 2011 and 2014. Chat and social media account for smaller proportions of non-voice channel revenue, but grew at 43 percent and 53 percent, respectively, in the same period.
Increasing adoption of non-voice channels has also given rise to solutions specifically targeting multi-channel requirements. Everest Group research shows inclusion of channel management as a value-added service had almost tripled from 7 percent of the contracts signed in 2008-2010 to 19 percent in 2013-2014. In fact, multi-channel solutions have become so pervasive that growth opportunities for players supporting the voice channel predominantly are diminishing rapidly. Barring contracts focused on outbound sales services, 60 percent of new contracts focused on operational or value-added services have a non-voice component. As discussed in our recently published viewpoint, it is becoming increasingly imperative for service providers to design solutions with a portfolio that combines value-added services and non-voice channels.
As service providers make investments to augment their capabilities and build expertise in managing non-voice channels, below are some implications they should keep in mind:
In a heavily commoditized market, non-voice channels give service providers an opportunity to differentiate themselves and stand out from the crowd. While some providers have taken the lead and become front-runners in the multi-channel solutions race, others have more recently started augmenting their capabilities in this space through acquisitions and partnerships. Building capabilities is a key success factor, but as highlighted earlier there are other factors for service providers to consider to ensure they make the best use of these capabilities.
I was introduced to the Philippines about two years back when I started working in the global services sector. And frankly, I was a bit startled by how little I knew about this giant of the contact center services market – I always thought India was the world’s largest contact center market. But its colonial heritage, accent neutrality, cultural affinity with the west, and BPS-conducive environment puts the Philippines at an altogether different level.
I began following the Philippines IT-BPS markets more regularly as I worked on this location for several client engagements. I observed how this country is a perfect example of the “playing on your strengths” approach. It is incredible how the government, iBPAP, and other partner associations have worked together to achieve the growth potential we highlighted in the Roadmap we developed in association with then BPAP and Outsource2Philippines back in 2009. Indeed, the market has doubled in size in less than six years. Today, the Philippines employs over a million FTEs, and is the second largest offshore services delivery location, next only to India.
While voice-based services have always been Philippines’ strength, it has experienced remarkable success in other areas, such as IT services, which grew at ~25 percent CAGR since 2010, and now accounts for ~10 percent share of country’s entire offshore market. While service providers have been key drivers of the growth in IT, Global In-house Centers (GICs) have pushed for growth in FAO and banking services. Several global banking companies, such as American Express, ANZ, Citibank, Deutsche Bank, HSBC, ING Group, JP Morgan Chase, and Wells Fargo, have established sizable centers in the country. Even though Bank of America has exited the country (it shut down its shop in 2014 as part of a global GIC restructuring), and JP Morgan Chase is scaling down owing to global cost cutting, overall outlook remains positive. The country has also made good use of its strong nursing talent—the largest pool of U.S.-licensed nurses outside of the U.S.—and is now the largest healthcare services provider to the U.S. The healthcare BPS sector has grown at over 40 percent YoY since 2012.
Another success area for the Philippines has been its ability to attract global companies. Over 100 have set up their GICs in the country, and close to one-fourth of them are on the Fortune 500. These GICs are expanding their Philippines strategy beyond cost arbitrage, and establishing regional hubs/HQs/CoEs. The U.S. remains the leading buyer market, with ~70 percent total demand. However, demand from Asian markets has been increasing steadily, with several Japanese and Australian companies establishing their captive centers in the metro Manila region.
With increasing emphasis on adoption of digital globally, government agencies (such as iBPAP and PSIA) are making proactive efforts to ensure that the Philippines stays ahead of the curve. It is already investing in building capabilities – from teaching the right curriculum at the universities to supporting companies’ development of required infrastructure to setting up training labs at colleges and universities – to deliver mobility, analytics and cloud-based services. We have seen some evidence of companies already delivering mobility (focused application development services for mobile) from the Philippines in the last year or so. Digital has been the buzzword in the majority of our interactions with our clients looking into the Philippines lately.
Having done well so far, I am intrigued to see how the Philippines will sustain its growth in the evolving IT-BPS ecosystem. It needs to adapt to rapidly changing consumer needs, e.g., the adoption of digital, development of multi-channel delivery systems, and a multi-skilled labor force. It also needs to ensure continuous growth in other service lines, such as banking BPS, FAO, HRO services, animation and gaming, and creative services, by leveraging its interpersonal, voice-based, and strong domain-specific skills to build scale.
It will be interesting to watch what lies ahead in the years to come. Can the Philippines continue shaping its own destiny in the global services market?
Service providers seek to optimize delivery mix by exploring new locations while also developing onshore capabilities
While Brits eat biscuits and chips, Americans eat cookies and French fries. You take a lift in a multi-story UK building, but an elevator takes you to different stories in a building in the US. In the US, you get over-the-counter medications from a pharmacist; in the UK, from a chemist. But, in addition to vocabulary differences between the two countries, they both have very different global in-house center (GIC) adoption models. In the overall GIC landscape (with more than 1,900 in total) UK-based firms have an 11 percent share, which is second only to US-based firms (more than 50 percent). Over 35 percent of the Forbes 2000 UK-based firms have adopted the GIC model, as compared to just 29 percent of US companies. Why are the sourcing decisions in the two countries so different?
Among UK-based firms, BFSI is the dominant vertical (~44 percent), while the technology vertical leads the pack among the US-based companies (~41 percent.) The delivery requirements, regulatory obligations, and intellectual property are significantly different in the two sectors, which partly explains the contrast in their sourcing decisions.
GIC adoption among small and medium sized firms (parent revenue <US$ 10 billion) has been much higher (~50 percent) for US-based firms, while the GIC landscape of UK-based firms is dominated by large firms (revenue > US$ 10 billion) with a staggering 73 percent share. Significant disparity is also seen in the GIC adoption levels for emerging verticals such as consulting, professional services, and legal services, which constitute ~7 percent of UK-based firms as compared to ~3 percent of US-based firms.
There are also big differences in the business leadership style and risk averseness of UK versus US firms. Companies in the UK are much more averse to risk when making a sourcing decision, as evidenced by their choice of mostly tier-1 cities with proven delivery ecosystems, while US-based firms also adopt tier-2 and tier-3 locations to manage costs. Additionally, there’s a lot of nearshore location activity by the UK-based buyers, primarily for contact center delivery, as you’ll see in this Everest Group Nearshored GICs Experiencing Significant Growth among UK-based Buyers. This trend continues, with more and more UK-based buyers embracing CEE and nearshore UK locations.
The following sneak peek into our upcoming report on the GIC landscape among UK-based buyers demonstrates these firms’ changing delivery location preference.
Stay tuned for the report, which provides more analysis of the GIC landscape among UK-based buyers, and differences in delivery trends by offshore and nearshore geographies. Our report will be published by end of June 2015.
Photo credit: Flickr
United States Domestic Sourcing Delivery Center Location Tiers
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