Over the last decade, IT-BP services delivery from Latin America (LATAM) experienced a major boost as the location became a sought-after nearshore destination for companies in the US and Canada 🌎. While time zones and cultural similarities have played a significant role in the increase, companies have also discovered lower costs, increased government support, and rising English proficiency📊.
📢In this LinkedIn Live recording, we do a deep dive into Costa Rica and explore the opportunities and challenges of services delivery in this market.
The speakers discuss:
✅ What is the value proposition of Costa Rica for global services delivery? ✅ What is the nature of the talent pool, and what skills are available? ✅ How much cost arbitrage does Costa Rica offer? ✅ What is the on-the-ground experience of players operating IT-BPO delivery centers in Costa Rica?
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
Here’s a quick look at the top four global services delivery locations in Africa, by market size – largest to smallest.
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.
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.
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.
Regulatory uncertainty, technological disruption, talent challenges, and a host of other issues have all played significant roles in enterprises’ and service providers’ location strategies for global services delivery over the past couple of years.
The deep-dive analysis we conducted on enormous volumes of 2018 data to develop our Global Locations Annual Report 2019 made it clear that five key trends came into play in 2019, and will continue into 2020:
Increased focus on digital and R&D/engineering services
Increase in nearshoring
Slowdown in headcount growth
Increase in onshoring by service providers
Growth in emerging locations.
Here’s a quick look at each of these trends.
Digital and R&D/engineering services continue to dominate
Enterprise demand for digital services and the associated R&D/engineering services compelled most global service providers to set up innovation centers and COEs to keep up with the changes in the digital landscape. And there was a significant rise in the number of R&D/engineering and digital service delivery centers – especially in APAC and nearshore Europe – as providers vie to develop data-driven, intelligent, and robust systems using automation, cloud, and AI-based capabilities.
Global services delivery is increasingly being characterized by nearshoring
In a move to rebalance and optimize their existing locations portfolio and comply with data protection mandates, both enterprises and service providers are marginally shifting from offshore to nearshore locations. Nearshore Europe experienced the greatest increase in headcount and new center setups in 2018 due to the availability of complex skills, proximity to customers in Western Europe, increased regulatory oversight, and demand for multi-lingual support.
Poland, Ireland, and Scotland will continue to dominate the global services landscape in nearshore Europe, followed by Ukraine, the Czech Republic, and Romania.
Global services headcount continues to grow, but modestly
Increasing use of automation for low complexity, high volume services is having a considerable impact on the talent landscape. While growth in digital services will lead to newer job and skill profiles, the headcount required for newer digital jobs will be significantly lower than that required for low complexity jobs, and the growth will be slower due to technological advances and the shortage of talent for new-age technologies.
Service providers continue to grow in onshore geographies
Leading service providers have been continuously growing their presence in onshore geographies. This is in large part due to increasingly stringent data protection laws and mounting pressure from clients to have local delivery centers. The United States and continental Europe continue to remain the destination of choice for setup activity across onshore locations. The lion’s share of the work delivered from these onshore centers is in IT services.
We expect the United States to continue to grow in the wake of uncertainty around visa regulations and increased pressure from clients to have local delivery centers for ease of coordination, better alignment/training, and promoting customer intimacy. And, we also expect growth in digital services to push providers to continue to expand in other onshore locations – such as Belgium and Switzerland – due to availability of skilled talent and the ability for extensive collaboration with Europe-based clients.
Growth in emerging locations for global services delivery
While use of the traditional delivery locations continues to grow, other locations are picking up steam, including:
Jamaica continues to grow in setups for voice services
Ghana and Kenya are being leveraged to support the East and West Africa regions
Israel is growing significantly for delivery of R&D/engineering and high-end IT services
Lithuania is also growing as a destination for delivery of IT (largely digital) and R&D/engineering services.
Long gone are the days when consumers were welcomed with toasters when they opened a checking or savings accounts at their local bank. Today’s consumers don’t want toast-making capabilities from their financial institution: they want cheaper, easy-to-use Internet- or smartphone-based financial products and services, including payment applications, lending platforms, financial management tools, and digital currencies, all with hyper-personalization. Most customers are quick to make a move if their current financial institution doesn’t deliver.
So, what do banks need to do to retain their customers? Two things. First, they need to deliver the banking experience their customers are increasingly demanding. Second, they need to reconsider much of their service delivery location strategy.
What do Bank Customers Want?
Let’s first look at banking customers’ requirements for a SUPER banking experience.
Few, if any, banks have the ability to deliver on these requirements. So, they’re increasingly partnering with financial technology start-ups – popularly known as FinTechs – to meet customers’ expectations.
This brings us to the second thing that banks need to do to retain and grow their customer base: reconsider much of their service delivery location strategy.
Cracking the Service Delivery Location Strategy Code
With innovation and personalization topping customers’ list of banking requirements, banks can no longer rely on the same location strategy they’ve used to deliver traditional functions such as applications, infrastructure management, and business processes. Why? Because FinTech requires a higher proportion of onshore/nearshore delivery compared to traditional functions and co-locating all FinTech segments such as payments, lending, and capital markets in the same region may be difficult given varying maturity of locations across segments.
With the framework, banks can evaluate all aspects of innovation potential, including the availability of talent with emerging skills (such as artificial intelligence, machine learning, and analytics), adequate cost of delivery, and providers’ financial services industry domain knowledge.
Framework to Measure a Location’s Innovation Potential
To develop our FinTech Services Delivery/Locations report, we started with a list of 40+ global cities with leading FinTech investment and market activity. Subsequently, we shortlisted 22 locations based on multiple criteria including overall investment, technology and infrastructure, and talent. Finally, we used our innovation potential framework, coupled with other factors such as maturity of the FinTech ecosystem and cost of operations, to determine the top locations banks should consider for specific FinTech use-cases such as payments, lending, and capital markets solutions.
Here are some key findings from our location strategy research:
Banks may need to create a parallel portfolio of FinTech delivery locations, as they may be far different than those that are mature in delivery of traditional functions
A location’s innovation potential (not its cost arbitrage or delivery efficiencies) is the most important factor for successful FinTech delivery. This is because the right location will offer depth and breadth of maturity across multiple financial segments, a vibrant startup scene, agile academic institutions, tech-savvy government, ample financing options, modern technology infrastructure, and friendly regulatory environment
Locations that are currently regarded as nascent (e.g., West Africa, Southeast Asia, and Latin America) may emerge as attractive alternatives as the market evolves.