Drivers of North American Domestic Outsourcing | Market Insights™
May 31, 2015
Drivers of North American domestic outsourcing
Drivers of North American domestic outsourcing
50% increase in North American domestic delivery center set-ups by service providers in recent years, and that growth is expected to continue
There’s a lot of rethinking going on in North American businesses in light of new technologies. In Everest Group’s conversations with clients and in round table discussions we’ve been holding in the industry, we find that these mature companies believe automation gives them the ability to bring their work back on shore.
After more than a decade of achieving value through the offshore labor arbitrage model, one would think that mature organizations that have built GICs or captives, or organizations with extensive use of third-party outsourcing providers, would be at peace with the model. We expected them to move to a model of arbitrage plus automation. But the level of peace and comfort with offshore arbitrage is much less than we expected, and companies are expressing their desire to use robotics automation to repatriate their work.
This is particularly the case in regulated industries with significant compliance requirements. This is where the desire to move work back on shore shows up first. The increasingly regulated financial services industry is especially burdened with complex regulations. These businesses receive a higher degree of scrutiny if operations are in offshore low-cost locations than if they are automated. It’s easier to demonstrate compliance in an automated environment than in an arbitrage labor environment.
Moreover, these companies believe life is easier in an onshore environment than in an offshore environment.
This is not to say the desire to move work back on shore is a sea change. But we are seeing the early stages of this movement.
I think this is a very interesting development. Our hitherto assumption that the market had overcome its xenophobic fears is not correct. It’s quite possible that the steady blast of negative press in the media and the nationalistic pressure from consumers may be starting to play a role in this re-examination.
Photo credit: Flickr
Value leakage can have significant consequences – as much as 38-50% of total spending
Three stoplights. Well, eventually four by the time I moved away in 1985. Also, a line of people each night around the new McDonalds for several days after it opened in the late 1970s. This was the situation in my hometown of Maryville, Missouri with a population of just less than 10,000 people at the time.
Small, rural town, right? Yes, it was in many ways. But it was also home to a university, Northwest Missouri State University, which was the first college in the U.S. to put PCs into every dorm room and a student population of about 5,000. The area was packed with PhDs and farmers quietly living the pleasant life in the middle of the country.
As the buzz about rural and domestic outsourcing has increased over the past five years, I have often wondered “Is this type of location a good candidate for a service delivery center?” To the best of my knowledge, it does not have a service delivery center of any notable scale.
To help answer questions like these, Everest Group is the research partner for RevAmerica, to be held in New Orleans on May 5-7, 2015. This is the only event focused on domestic sourcing in the U.S. and Canada.
The research report that we release at the event will analyze the trends in domestic outsourcing, looking at variations by location type across different functions (IT, business process, contact center), type of service provider, and other factors.
Although we are currently deep in the middle of collecting responses to RFIs and conducting interviews, we have been able to glean a few initial insights from the database of approximately 350 cities, which range from small, rural communities to tier 1 cities. Some of these insights include:
We invite you to join us in New Orleans as we roll out the findings of this important study. We look forward to hearing your experiences.
Drivers of US onshore service delivery
US onshore service delivery: Tier-2/3 US cities offer ~15-25% savings over tier-1 cities
Click the image to enlarge
Proportion of onshore delivery center set-ups nearly doubled from 2012 to H1 2014
Onshore CCO FTEs nearly doubled in the past five years, growing from 16% in 2008-2010 to 29% in 2011-2012. To some extent, this growth in onshore staffing is driven by an increased focus on value-added services as part of CCO engagements.
To participants in and watchers of the UK contact center market, it’s obvious there are many changes afoot. These include the third-party service provider landscape, the nature of outsourcing deals, and the maturity of buyers.
One of the key changes Everest Group is seeing is in the locations UK buyers are leveraging for their contact center activities. Let’s examine the contributing elements.
Offshoring
UK companies only offshore 10-15 percent of their contact center work, which in actual job numbers equates to 70,000 to 90,000. Consider this quantity in contrast to the U.S., which offshores greater than 25 percent/400,000 to 500,000 contact center jobs – a comparison we make given English as the common delivery language – and the fact that offshore locations offer 70-80 percent cost arbitrage advantage over locations in the UK There are two clear reasons for the limited share of contact center offshoring from the UK:
However, the forward-looking view on offshore locations for the UK contact center market is much more promising. There is increasing acceptance of South Africa as a delivery location for voice-based and domain specific delivery (e.g., insurance), due to accent similarity and strong cultural affinity. Recent market activity, such as the Serco-Shop Direct deal, WNS’ acquisition of Fusion, and Capita’s purchase of Full Circle are indicators of this affinity. We expect India to continue its uptake of non-voice contact center services from the UK.
Onshoring/Nearshoring
Contact center work within the UK is moving to low-cost locations in Northern England and to other areas such as Scotland and Northern Ireland. While there is still a higher concentration of contact centers in Southern England (the Greater Thames region), this is more of a legacy effect rather than the result of new or recent activity. The new/greenfield activity is largely moving contact center work up north to Liverpool, Leeds, Manchester, and Newcastle-Gateshead in England, Glasgow, Edinburgh, and Kilmarnock in Scotland, and Belfast and Londonderry in Northern Ireland, driven by:
UK Locations leveraged by leading service providers
Everest Group believes that while onshore/nearshore delivery of UK contact center services will continue to remain the predominant model over the next three to five years, offshoring will grow faster. Buyers’ comfort with the offshore model, particularly with alternatives to India, such as South Africa, for voice-based services is likely to increase. Cost pressures are liable to propel buyers to adopt offshoring and other low-cost delivery alternatives, such as less expensive locations within the UK Finally, the market movement toward multi-channel contact center delivery capabilities, resulting in higher usage of web, chat, and e-mail customer support, will further support the growth of offshore delivery.
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