Onshore Global Business Services Centers on the Rise in Europe | Market Insights™
September 21, 2020
onshore global business services centers
onshore global business services centers
While enterprises around the globe began their steady march toward cloud services well before the outbreak of COVID-19, the pandemic has fueled cloud adoption like never before. Following the outbreak, organizations quickly went digital to enable remote working, maintain data security, and ensure operational efficiencies. Globally, first quarter spend on cloud infrastructure services in 2020 increased 39% over the same period last year.
Given the new realities, as firms make long-term cloud investments, it is vital for them to understand the cloud landscape and how various regions and countries fare in comparison to each other as cloud destinations. In this blog, we evaluate and compare the capabilities of different geographies in delivering cloud services.
North America is among the most mature geographies for cloud services delivery. The US and Canada offer excellent infrastructure, a mature cloud ecosystem, high innovation potential, a favorable business environment, and business-friendly rules and regulations. The US is the most mature location in North America, offering a large talent pool and high collaboration prospects due to the presence of multiple technology start-ups, global business services centers, and service providers. However, the cost of operations is significantly high, primarily driven by high labor and real estate costs.
In contrast, most locations in Latin America (LATAM) have less mature cloud markets and ecosystems. While they provide proximity to key source markets in the US and considerable cost savings as compared with established markets (60-80%), they offer low innovation potential, a relatively small talent pool, few government policies to promote cloud computing, and limited breadth and depth of cloud delivery. Mexico is a standout location in LATAM, scoring better than others on parameters such as quality of cloud infrastructure, size of talent pool, and business environment.
Europe provides a good mix of established and emerging locations for cloud services. Countries in Western Europe have a fairly robust infrastructure to support cloud services, with high cybersecurity readiness, sizable talent pools, high complexity of services, and robust digital agendas and cloud policies. England and Germany are the most favorable locations in the region, driven by a comparatively large talent pool accompanied by high innovation potential, excellent cloud and general infrastructure, and high collaboration prospects due to numerous technology start-ups and enterprises. However, high cloud-adoption maturity has markedly driven up operating costs and intensified competition in these markets.
Countries in Central and Eastern Europe (CEE) offer moderate cost savings (in the 50-70% range) over leading source locations in Western Europe. While they offer a favorable cloud ecosystem, talent availability, greater proximity to key source markets, and lower competitive intensity, they score lower on innovation potential, complexity of services offered, and concentration of technology start-ups and players. The Czech Republic is a prominent location for cloud services in the CEE, while Poland and Romania are emerging destinations.
Most locations in APAC have high to moderate maturity for cloud services delivery due to the size of the talent pool and significant cost savings (as high as 70-80%) over source markets such as the US. For example, India offers low operating costs, coupled with a large talent pool adept in cloud skills and a significant service provider and enterprise presence. However, it scores lower on aspects such as innovation potential, infrastructure, and quality of business environment. Singapore is an established location that offers well-developed infrastructure and high innovation potential but also involves steep operating costs (40-45% cost arbitrage with the US). The Philippines, a popular outsourcing destination, has lower cloud delivery maturity given its low innovation potential and talent availability for cloud services.
Israel is an emerging cloud location in the MEA that has achieved high cloud services maturity, but that benefit is accompanied by high operating costs and low cost-savings opportunity (about 10-15%). Other locations in the region have moderate to low opportunity due to small talent pools and lower maturity in terms of cloud services delivery.
Our analysis of locations globally reveals that, while different locations can cater to the increasing cloud demand, there is no single one-size-fits-all destination. Instead, the right choice depends on several considerations and priorities:
The exhibit below helps clarify and streamline location-related decisions, placing an organization’s key considerations up front and identifying acceptable trade-offs to arrive at the best-fit locations shortlist.
Key considerations for choosing your cloud services delivery location
To learn more about the relative attractiveness of key global locations to support cloud skills, see our recently published Cloud Talent Handbook – Guide to Cloud Skills Across the Globe. The report assesses multiple locations against 15 parameters using our proprietary Enabler-Talent Pulse Framework to determine the attractiveness of locations for cloud delivery. If you have any questions or comments, please reach out to us at Hrishi Raj Agarwalla, Bhavyaa Kukreti, or Kunal Anand.
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:
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.
#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].
Before COVID-19, most organizations were reluctant to adopt Work From Home (WFH), viewing it as a hard-to-govern delivery model relevant only for limited functions and employees. However, the pandemic has made WFH a requirement, at least for the short term, for most enterprises. Despite the massive disruption, we believe most organizations will make WFH a business-as-usual component of their “next normal.” But that means they’ll have to take a long, hard strategic look at the locations they use for services delivery, whether they operate in a shared services environment or leverage a third-party provider.
Historically, most location portfolio decisions were based on an evaluation of traditional factors including the talent landscape, market attractiveness and competitiveness, cost of business operations, and the business and operating environment. Now organizations need to factor in and evaluate a location’s business case for WFH adoption, including the interplay of additional drivers like infrastructure, restrictions for remote delivery, presence of strong governance mechanisms, employee security, data protection, intellectual property safety, and determination of additional benefits that can be tapped into.
We’ve developed a framework that assesses 20 additional factors that we have categorized into three buckets: viability, security, and potential benefits.
Each of these parameters plays a crucial role in an organization’s selection of services delivery locations for a WFH environment.
Understanding a given location’s WFH viability will not only help enterprises carve out their next wave of growth, but also help them tap into the additional benefits offered by the location.
Here’s a look at each of the three overarching buckets.
This category is all about evaluating a location’s business ecosystem through a new WFH lens. It involves:
We believe all organizations should assess each location on these factors as they will play an essential role in WFH success.
Another critical factor enterprises need to evaluate in each location they’re considering is the overall security of their employees and their data. Here, organizations need to look at the robustness and effectiveness of local data protection and cybercrime laws across each location. Understanding local governance mechanisms and laws will help bolster viability for each location and help organizations map suitability for each function. Further, as their employees will be working from home, organizations will also need to understand the nuances around crime rates across employee neighborhoods, civil unrest, and natural hazards, as these can potentially increase the business cost for crime and violence, and also disrupt operations.
Adopting a WFH model will not only help organizations drive the next wave of cost optimization (significant savings over leasing real estate infrastructure and utility expenses) but also will help them overcome challenges related to availability of real estate across leading talent hubs in tier-1 locations.
WFH adoption will further help organizations establish additional satellite locations, or tertiary sites, in which talent works remotely, either permanently or part-time, with or without a corporate physical presence in the location. This will not only help reduce travel time, but also help improve employee productivity and reduce overall attrition for organizations. Based on a recent survey we conducted with leading enterprises, more than three-quarters of the respondents said their organization’s overall productivity has increased in the current COVID-19 period. The average improvement in productivity was just over 13 percent, as compared to before the pandemic period.
The WFH business case is a win-win proposition for most organizations as they adapt to the “next normal.” While there are multiple factors that potentially sweeten the business case for WFH adoption, taking a detailed view by each location will be an imperative as organizations progress and evolve on this journey. An iterative and continuous thinking approach will further help organizations overcome some key challenges including employee and organization development, legal, and regulatory concerns. Watch this space for more updates.
For additional details on this topic, reach out to us at [email protected], [email protected] and [email protected].
Before COVID-19, most Global Business Services (GBS) organizations have been reluctant to adopt a Work From Home (WFH) delivery model, viewing it as hard to govern and only relevant for a few work types and employees. As a result, organizations primarily used WFH for Business Continuity Planning (BCP) purposes – and with less than 5% of organizations deploying WFH at any scale (i.e., 20-50% of the workforce working from home), there was limited/no focus on building an enabling ecosystem to support remote working.
COVID-19 led to widescale (and forced) adoption of WFH in GBS organizations across verticals and geographies, as organizations were compelled to scale up WFH quickly to ensure operational continuity and prevent large-scale absenteeism. After initial challenges to ensure home infrastructures were optimal, robust, safe, and compliant with service delivery standards/regulations, most GBS organizations found that productivity did not suffer. In fact, several organizations have reported productivity gains, though the volume of these gains remains debatable. As of May 2020, more than 90% of GBS organizations were delivering services in a WFH model. COVID-19 has redefined what’s possible, truly changing global leaders’ view of WFH, as Exhibit 1 shows.
Exhibit 1: Blueprint for scaled WFH adoption in GBS – the next normal
When we find ourselves on the other side of this pandemic, there will be a growing appetite for more WFH adoption, with many organizations considering it a permanent model. Leading organizations, including Facebook, Google, Microsoft, TCS, and HCL, have already announced plans to adopt WFH. We expect WFH to emerge as an imperative for GBS organizations, with more than 30-40% of GBS organizations adopting scaled WFH even after lockdown restrictions are lifted.
Even when there is no pandemic or other external threat forcing organizations to engage a WFH model, there is a strong business case to scale it. Our assessment shows that WFH can help drive significant GBS operating cost savings (anywhere from 5-15%), improve the talent model, lower risk in the location portfolio, strengthen the GBS value proposition, and provide societal and environmental benefits, as highlighted in Exhibit 2.
Exhibit 2: Business case for WFH
Adopting a WFH model can drive the next wave of cost optimization for GBS. WFH can directly impact and reduce costs related to real estate infrastructure, transportation, and consumption. WFH can also reduce people-related costs by lowering attrition and increasing employee productivity. To support these gains, GBS organizations would have to invest in technology-related infrastructure such as equipment, tools, platforms, and technologies. Detailed Everest Group analysis indicates that GBS organizations can save up to 15% of their annual operating cost with 50% of the workforce working from home. They can further increase savings potential by:
WFH can help GBS organizations improve talent acquisition and engagement. For the current workforce, WFH can improve GBS employee retention, improve employee productivity due to reduced stress (such as eliminating the commute) and office-based distractions, and help strengthen branding as a socially conscious organization. For the future workforce, WFH allows the GBS organization to improve the speed and effectiveness of talent acquisition, accessing talent far from its physical site locations, as well as by leveraging the gig economy.
Beyond these benefits, WFH reduces GBS concentration risk without necessitating a change in locations portfolio. Some GBS model features, such as greater control and governance, better protection of IP and domain knowledge, and ease in driving long-term transformation, may be better suited to the WFH model. Thus, GBS organizations can leverage adoption WFH to further strengthen their value proposition to their parent enterprises.
Such a strong business case seems to indicate that WFH is a win-win-win for enterprises, GBS organizations, and the workforce. As a result, it seems inevitable that WFH will become an integral part of the services delivery model.
However, before scaling WFH, organizations must understand the interplay of various decision drivers to determine overall potential to scale it. WFH adoption does not come without challenges, such as its implications for employee development and expectations, social capital, leadership development programs, the role of front-line managers, and work-life balance. Further, there are several regulatory aspects – such as data security, labor and employment laws, SEZ norms, and current limitations of the Shops and Establishment Act or telecom departments – that may hinder scaled WFH. Stay tuned – we will cover these aspects in our subsequent blogs.
For more details on this topic, see our “Playbook: Integrating Work From Home in the Global Business Services (GBS) Delivery Model.” Or reach out to us with your perspectives and experiences, write to us at [email protected] and [email protected].
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:
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:
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:
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].
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