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.
Global services information and predictions for next-wave locations in the Americas: Medellin, Colombia; Heredia, Costa Rica; Lima, Peru; Belo Horizonte, Brazil; and, Queretaro, Mexico Visit the report page
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. To help banks find locations for successful FinTech delivery, Everest Group developed a framework – presented in our recently published research report, “FinTech Services Delivery – Traditional Locations Strategies Are Not Fit For Purpose!” – to measure the innovation potential of a location. 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.
Multiple forces are driving unprecedented disruption in service delivery ecosystems, most notably market pressure, cost and margin tensions, and environment constraints. In the face of this upheaval, enterprises are increasingly leveraging their locations strategies to drive transformation and create differentiation. Everest Group digs deep into the research to offer five predictions on what all this means for locations strategy over the next few years. Read more in Intelligent Sourcing
Poland’s tier-2/3 cities have seen significant digital services activity, unlike other major digital services destinations – such as India and the Philippines – where tier-1 cities account for more than 70% of all digital delivery centers Visit the report page