Do you know anyone who hasn’t had a frustrating experience because the contact center rep they interacted with didn’t speak their native language? We didn’t think so. The truth is that while enterprises have multiple business reasons for establishing their contact centers in offshore locations in Eastern Europe, Latin America, and Asia Pacific, the reps’ language and communication skills often have a negative impact on the overall customer and brand experience. And although many companies have developed their own solutions to assess candidates’ language capabilities, they’re plagued with multiple challenges, including:
Resource intensive: Developing language assessment solutions takes considerable time and resources. They need to be thoughtfully designed, particularly around the local nuances of the markets where they are being leveraged. This can escalate the development budget and timelines, and put an additional burden on L&D teams.
Lack of standardization: Most language assessment tests are developed by in-house experts in a specific region. This approach can be detrimental to organizations with operations in multiple geographies, because it lacks consistency across regions, and can leave gaps in the evaluation criteria.
Involvement of human judgment: Because humans are responsible for evaluating candidates, a lot of subjectivity comes into play. And human bias, whether intentional or not, can greatly reduce transparency in the candidate selection process.
Maintenance issues: The real value of these solutions depends on their ability to test candidates for unprepared scenarios. But regularly updating the assessment materials to keep the content fresh and reflect changing requirements further strains internal resources.
Third-party vendors’ technology-based solutions can help
Commercial language and communication assessment solutions have been around for years. But innovative vendors – such as Pearson, an established player in this market, and Emmersion Learning, which incorporates the latest AI technology into its solution – are increasingly leveraging a combination of linguistic methodologies, technical automation, and advanced statistical processes to deliver a scalable assessment that can predict speaking, listening, and responding proficiency. For instance, technology-driven solutions may test candidates’ “language chunking” ability, which means their ability to group chunks of semantic meaning. This concept is similar to techniques that are commonly used for memorizing numbers. By linking numbers to concepts, a person can be successful in retaining large sequences of digits in working memory. Without conceptual awareness, memorization is hard. During an assessment, through automation and AI, the candidate may be asked to repeat sentences of increasing complexity. Success in this exercise relies on the candidate’s ability to memorize complex sentences, which can only be done when they can chunk for meaning. A candidate’s mastery of an exercise to repeat sentences of increasing complexity is a great predictor of the candidate’s language proficiency. Organizations that embrace technology-based solutions for language assessments can anticipate multiple benefits: reduced costs, decreased hiring cycle times, improved quality of hires, better role placement, freed time to devote to value-add initiatives, and improved customer experience and satisfaction. Ultimately, it’s a triple win for the organization, its candidates, and its customers.
For years, India has been the epicenter of offshore technology services delivery for U.S.-headquartered enterprises. But our Market Vista Annual Report 2019 and Predictions for Global Services Delivery Locations 2019 reports show that a host of factors are driving a much closer look at Latin American countries as a destination for the delivery of IT services. So, what’s making Latin America click with companies of all sizes, including some of the world’s biggest brands, like Amazon, Facebook, Google, HP, Intel, and Microsoft?
Proximity with the U.S.
The time zone differences between India and the U.S. are impeding demand for agile development. But because Latin America and the U.S. share similar time zones, the delivery and client teams can collaborate in real time.
Availability of skilled IT professionals
Due to strong government and educational support, Latin American countries are producing an ever-growing number of talented professionals with relevant, and often advanced technology skill sets, like blockchain, artificial intelligence, and machine learning.
Rise in technology start-ups
The abundance of low-cost technical talent is driving a surge in Latin American country-based technology start-ups through accelerator programs such as 500 Startups, Techstars, and Y Combinator. Investors are also betting high on tapping the potential of technology start-ups in the region. For example, SoftBank Group in March 2019 announced a US$5 billion Innovation Fund, touted to be the largest-ever technology fund in Latin America.
Less competitive intensity
Although India is far more cost competitive than Latin American countries, competition in India is increasingly intense given that it is home to more than 1,100 shared services centers and thousands of service provider delivery centers. Because there are fewer service delivery centers in Latin America, competition for talent is comparatively lower, making it easier for companies to hire the best talent.
Most Latin American countries have significantly improved in English language proficiency over the years. And their Spanish language skills are valuable to the U.S. market given the large Spanish population residing in the country. What are the top five Latin American countries doing to advance their attractiveness to technology services clients?
Mexico -- #1
Passed new regulation for its FinTech sector, which is the largest FinTech ecosystem in Latin America
Established INADEM to support establishment of start-ups
Launched 500 Startups Latin America, Startup Mexico, and Startup Weekend Mexico to develop tech start-ups
Launched the world's largest free economic zone along the US-Mexico border to attract tech investments.
Argentina -- #2
Passed the Entrepreneur’s Law, which accelerates businesses’ registrations
Launched programs such as Startup Buenos Aires and IncuBAte to support entrepreneurship
Provides free university education to everyone.
Brazil -- #3
Established Start-Up Brasil, a federal program to support start-ups
Launched TechD, a public-private partnership, to fund emerging technology companies
Initiated a national plan on digital transformation, IoT, and information, communications, and cyber security strategy
Launched STEAM courses to develop a large pool of engineers and technical talent
Passed a law to hire temporary workers on a longer contract term.
Colombia -- #4
Rebranded Colombia as a technology center, and offers tax incentives and a professional training program
Established a Ministry of Science, Technology, and Innovation, and a High Council for Innovation and Digital Transformation to support tech initiatives.
Chile -- #5
Launched a centralized web system that allows one-day business registrations
Established Start-Up Chile to support development of start-ups and boost the local tech ecosystem
Launched a tech visa facility to help technology talent and investors acquire a visa in 15 days
Introduced a blockchain-based platform for public payments.
An interesting offshore/nearshore locations strategy dichotomy is emerging for today’s major third-party service providers and enterprise firms, as well as their GICs. On one hand, they are continuing to set up delivery centers in new and unexplored locations due to increasing competition, business continuity planning, and risk diversification. On the other hand, the pressure of new disruptive technologies, changing consumer demands, and need to maintain points of parity with competitors is pushing them to consolidate their footprint in the top 10 locations.
Growing Oligopoly of Offshore/Nearshore Locations Driven by the "Digital Winds of Change"
Top-10 offshore/nearshore locations include – India, Poland, Republic of Ireland, the Philippines, Costa Rica, Singapore, Romania, Malaysia, Mexico, and China In the past few quarters, new center setups in the top-10 locations have jumped by ~10 percent, from 60 percent in 2015 to 70 percent in 2016. The key driver of this change has been availability of talent; only selective locations currently have the capability to support complex digital services. Thus, both external providers and GICs are leveraging these locations for digital services centers and setting up relevant centers of excellence. While several other non-top-10 locations are also investing in building digital talent, they are still not considered a viable option for digital delivery.
The major gainers from this shift have been India, Poland, Singapore, the Republic of Ireland, Romania, and Costa Rica. Analytics and cloud are the leading digital services segments in these offshore locations, primarily core software-based analytics. Both types of providers are also building centers in these locations for mobility, social, IoT, and cyber security.
The major losers from this shift towards digital have been China and Brazil, given providers’ caution around language constraints and political uncertainty, respectively.
Going Forward, Concentration and Diversification
While most firms are investing in the emerging technologies/digital space, they are still in the nascent stages of building capability. As they mature, they will start diversifying and distinctively leveraging different locations for supporting elements of digital, thus driving a uniform distribution amongst top-10 locations in the next three to six years. Following are highlights of our research on the future of digital services delivery destinations:
India and Singapore will be large scale offshore hubs. Analytics, cloud, and mobility will continue to hold strong, while other technologies, (e.g., IoT, cybersecurity, and blockchain,) will, ultimately, be broadly and deeply supported
Nearshore locations such as Ireland, Poland, Mexico, and Costa Rica will support real-time innovation and product development, and provide multilingual service delivery for social media and mobility services
Offshore locations such as Tel Aviv, Cairo, and the Baltic states are currently the ”dark horses” in the race towards the top-10, and will gain momentum in the future. Look for them to deliver regional content contextualization, especially for mobility and social and interactive segments. Some of them will deliver digital technology R&D as well.
Recently, an official from the Trump administration accused Indian IT providers of abusing the H-1B visa process by “flooding” the lottery system with applications, giving them an unfair lottery draw advantage. The statement again spotlighted the issue of importing foreign IT services workers to the U.S., thereby limiting job opportunities for domestic candidates. It also underscored the huge extent of outsourcing being done by U.S. corporations, especially to offshore-heritage providers. What it didn’t discuss was other types of companies’ usage of the H-1B program to import skilled talent into the country. Everest Group conducted a quick analysis on the Labor Condition Applications (LCAs) employers filed to obtain H-1B visas in the last few years. We classified the employers into several categories:
Offshore-heritage service providers, such as Cognizant, Infosys, and TCS
Multinational service providers, such as Accenture, Capgemini, and IBM
Professional services firms, such as Deloitte, EY, and PwC
Product companies, such as Apple, Cisco, and Oracle
All other companies
While the total number of certified positions increased at a CAGR of 11 percent between FY 2011 and FY 2016, offshore-heritage providers’ share has dropped significantly, from 74 percent in FY 2011 to 40 percent in FY 2016
The biggest share grabbers are professional services firms, which are increasingly competing with traditional IT services players across deals. Their share in H1-B visas has increased from 7 percent in FY 2011 to 37 percent in FY 2016. On an absolute basis, that’s an almost ten-fold increase
The top 25 employers contribute ~50 percent to the total positions certified, which implies that offshore-heritage providers have only a 20 percent share of the total positions certified for H-1B visas by the Department of Labor between FY 2011 and FY 2016.
(For the uninitiated, a certified LCA (ETA Form 9035), is a prerequisite to H-1B approval. The LCA must be certified by the Department of Labor (DOL) before the H-1B petition (Form I-129) is submitted to USCIS. The LCA contains basic wage and location information about the proposed H1B employment. Please note that a certified LCA does not guarantee H-1B visa approval, however, certified position trends are good indicators of H-1B visa usage. Also, note that the data below includes positions certified for new H-1B visa applications as well as renewal and transfer of H-1B visa.) One of the Trump administration’s suggested reforms is to increase the minimum wage for H-1B visas from US$60,000 to US$130,000. But as this minimum wage recommendation is applicable to companies that are “H-1B dependent” – and most offshore-heritage providers fall into this category – the required increase in minimum wage, whatever it ultimately is, will likely affect offshore-heritage providers more than any other type of organization. At the same time professional services firms have quietly increased their leverage of the visa-led model, offshore-heritage providers have been the unfortunate recipients of far greater scrutiny and negative limelight. In order to successfully compete, offshore-heritage providers have no choice other than to prepare now for the impact of visa policy changes. As the old saying goes, “better safe than sorry.”
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
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.