Engineering Services Delivery Locations
Engineering Services Delivery Locations
India is widely regarded as a preferred service delivery location for global companies, given its attractive low-cost proposition, skills availability and scalability, and mature global services ecosystem. Until recently, the country’s tier-1 locations shouldered the weight of the services delivery agenda. However, with increasing maturity and saturation, enterprises and service providers are expanding their footprints across tier-2 and -3 locations throughout the country to take advantage of lower competition, cost savings, and better living standards, as well as to diversify location risk.
Read on to learn about the tier-2/3 global services delivery market in India and their accompanying advantages and underlying trade-offs, as well as what it takes to successfully operationalize a tier-2/3 delivery center in the country.
Tier-2/3 locations currently account for 18-20% of the global services workforce in India. Unlike most European countries, where a small clutch of cities offer services delivery, India offers a plethora of tier-2/3 location options, including: Ahmedabad, Gujarat; Coimbatore, Tamil Nadu; Jaipur, Rajasthan; Kolkata, West Bengal; Kochi, Kerala; Visakhapatnam, Andhra Pradesh; Chandigarh and Thane, Maharashtra; Lucknow, Uttar Pradesh; Thiruvananthapuram, Kerala; and, Indore.
Delivery of global IT services is more mature than is global business process services (BPS) in most tier-2/3 locations, but the share of global voice and non-voice-based BPS is on the rise. Service providers occupy a larger market share than enterprises’ Global Business Services (GBS) organizations in most tier-2/3 locations, facilitating transactional work, servicing incumbent clients and fixed-price projects, and, at times, supporting complex workstreams.
Multiple factors enhance the tier-2/3 locations’ value propositions:
All these advantages have driven companies already to open centers in tier-2/3 cities or at least to begin to explore the viability and value. For instance, a leading telecommunications services firm employs over 40% of its Indian workforce at its tier-2 delivery center; a leading professional services firm is looking to scale its overall GBS headcount at existing tier-2 locations; and, a leading e-commerce firm is evaluating multiple tier-2/3 cities to support customer services delivery. Many service providers are also showing keen interest in expanding their tier-2/3 footprints to support both transactional and complex workstreams.
But, of course, tier-2/3 cities aren’t panaceas, and both enterprises and service providers must be fully cognizant of the realities of establishing a center in one of them and address challenges quickly to unlock their maximum potential.
Scalability, especially beyond 1,000 FTEs, can be a challenge in some tier-2/3 locations (such as Chandigarh, Visakhapatnam, and Coimbatore) with limited peer presence and better opportunities in nearby tier-1 locations. Given the relatively low market maturity and paucity of adequately skilled talent, companies would have to invest in training recent graduates and/or building a recruitment engine from the ground-up. Additionally, the entry of a few large companies can easily congest the market and increase costs quickly.
Challenges with infrastructure and delivery enablers like utilities, transport, meal/catering, and stationery providers, as well as inferior connectivity to domestic/international locations, also pose hindrances. Thus, it might be difficult to relocate experienced talent at the managerial and leadership levels. Further, most tier-2/3 locations primarily deliver transactional services, and companies that want to support more specialized operations would have to make substantial investments in the talent market.
At the same time, we believe that a sound understanding of the location and its advantages and challenges, coupled with a nuanced strategy, can help companies establish successful delivery centers in tier-2/3 locations and integrate them into their portfolios.
To extract maximum value from their tier-2/3 centers, we believe that companies should undertake the following steps:
Are you currently leveraging or considering tier-2/3 locations for your service delivery efforts? We’d love to hear your thoughts on including tier-2/3 locations in your portfolio, and/or your views on how the tier-2/3 delivery landscape will evolve in the coming years. Connect with us at [email protected], [email protected], or [email protected].
And keep your eyes peeled for an upcoming blog on how tier-2 and -3 delivery locations can support organizations’ business continuity planning efforts.
Although Europe is the second smallest of the world’s continents by surface area, it packs a huge business and economic punch. And because the continent is home to 24 official languages, businesses that are headquartered or have large operations there need to have workforces proficient in languages beyond the native tongue in the country in which they’re located. Extensive language capabilities will help them penetrate new European markets and enable them to have more productive conversations with stakeholders across the globe.
So, just as we did in a recent blog on service delivery destinations best suited for Asian language delivery, we’re taking a look at the countries best equipped to handle the wide range of European languages.
While Europe is, of course, the go-to continent for European language delivery, there are considerable differences among the Central and Eastern Europe (CEE) and nearshore regions, and among the different countries within each region.
CEE locations offer high scalability of multiple European languages at relatively moderate cost, but many face certain regulatory and macroeconomic issues.
Poland is the premier location in the CEE region. Because many shared services centers – or global in-house centers – are based in Poland, it has a mature service delivery ecosystem and robust infrastructure. Poland also has significant talent availability with the ability to support complex service delivery, and a multilingual talent pool with high scalability potential for a number of European languages, particularly German and French, and Russian, Italian, and Spanish to a lesser extent. However, because it’s a preferred location in the region, high competition for talent has created sourcing and talent retention issues. The country also lacks the ability to scale delivery in other European languages, such as Dutch and Portuguese.
Romania and Hungary are other good options in the region; they offer particularly high scalability for French, Spanish, and Italian language skills at a moderate cost of operations.
Nearshore locations provide the best quality of life in an optimum business environment, but operational costs are high.
Ireland is the top nearshore destination in Europe. It offers a high quality of life, a favorable business environment and infrastructure, and significant availability of multilingual talent, with high scalability potential for French, German, Spanish, and Italian due to its ability to attract quality talent from other countries. And many companies are attracted to its high proximity to onshore locations.
However, like Poland, it suffers from high global and regional player competition for talent and struggles to achieve scaled service delivery for Dutch and Portuguese. It’s also among the most expensive locations in Europe for service delivery.
Scotland is a good alternative, as it offers comparable languages skills and infrastructure at a lower cost of operations.
There are also destinations in Latin America and the Middle East and Africa (MEA) region that can satisfy some European languages needs.
Most Latin American countries have large graduate pools with bilingual capabilities, despite a general lack of high-quality educational infrastructure. In particular, Mexico and Costa Rica provide strong Spanish and English skills, along with mature global services ecosystems and proximity to onshore locations. However, as the premier location in the region, Costa Rica suffers from high competition for talent and the highest cost of operations in Latin America.
Destinations in MEA also have large graduate pools with strong multilingual capabilities. For example, Egypt and Morocco offer abundant French – and, to a lesser extent, Spanish – language skills, driven by a strong cultural and historical affinity to France and Spain. But the cost of operations is high in Morocco, and Egypt is politically unstable.
To learn more about the relative attractiveness of key global locations to support global languages, please see our recently published Talent Handbook for Language Skills. The report, which assesses locations against 20+ parameters, uses our proprietary ”Enabler-Talent Pulse Framework” to determine the attractiveness of locations for language delivery. You can also reach out to the report authors: Parul Jain, Kunal Anand, and Pagalam Rajeshwaran.
Asia has long been an important business destination, as it’s home to more than 60 percent of the world’s population and accounts for a major share of world consumption. In fact, forecasts suggest that – with increasing access to credit, low inflation, rising income levels, and a favorable regulatory environment – Asia alone will account for 40 percent of the world’s consumption by 2040. The region also accounts for approximately half (about 2.2 billion) of the world’s internet users, which constitutes an enormous pool of digital consumers.
So, it’s no surprise that many businesses have set up facilities closer to the region and that many indigenous organizations have emerged as well. Indeed, about 40 percent of the world’s 5,000 largest companies are based in Asia.
However, to truly succeed in this market, enterprises need a crucial weapon: a multilingual workforce proficient in Asian languages.
Although English is still widely accepted as the universal language for business, a workforce proficient in Asian languages brings additional value to the table. It acts as a conduit between the organization and the region by helping develop a deeper cultural connection with customers, revealing their concerns and preferences, which might not be understood otherwise.
Major Asian business languages include Mandarin, Korean, Thai, Bahasa Indonesian, and Malay, and each one provides access to a different consumer market. Thus, one key strategic consideration for enterprises selecting an Asian service delivery location is the language capabilities of the talent in the destination.
Let’s take a quick look at some of the major multilingual destinations in Asia and the value proposition they offer.
Malaysia ranks among the top service delivery locations for Asian languages, primarily because it lies close to source markets and is a mature destination that supports a wide range of services and languages. The country supports scaled delivery of Mandarin and Bahasa Indonesian and, to a lesser extent, Korean, Japanese, and Thai. The only challenge is the relatively high cost of operations compared to other Asian service delivery locations.
Another attractive location for service delivery in Asian languages, the Philippines offers moderate cost savings, breadth and depth of services, and scalable language delivery. However, the country struggles with achieving scaled service delivery in Thai.
Vietnam is a moderately attractive location for Asian language delivery, driven by the significant cost arbitrage it offers compared to other prominent locations. Organizations can achieve scaled delivery of services in Japanese and Mandarin but will experience challenges in scaling up service delivery in other Asian languages.
Although India is a key global services destination, the country falls behind its competitors in multilingual service delivery in Asian languages. India struggles to scale up service delivery in almost all major Asian languages, and compensation for multilingual service delivery approximately costs 50 percent more than service delivery in English.
With India out of the race, what’s the best service delivery location for your organization’s Asian language needs? If cost is an important consideration in setting up your multilingual team, the Philippines and Vietnam are attractive locations. But if you are looking for market maturity, scaled language delivery, and proximity to source markets, Malaysia is the clear winner. The country can comfortably cater to Indonesia, Korea, Japan, China, and Thailand – a huge belt within Asia – which combined house a population of nearly 1.6 billion.
To learn more about key locations for language-based service delivery and the primary drivers – including infrastructure, talent potential, business environment, adoption maturity, competitive intensity, and financial feasibility – that impact location attractiveness, please read our recently published report, Handbook for Language Skills, or reach out to the report authors: Parul Jain, Kunal Anand, and Pagalam Rajeshwaran.
Mexico continues to be the destination of choice for global services delivery across Latin America. Indeed, our research for our “Global Locations Annual Report 2019: Demand for Next-Gen Services Defining Locations Strategies” report found that 26 percent of LATAM’s new set-ups established during 2017 to 2019 were in Mexico, including those by Atento, Continental, Harman International, Hexaware Technologies, Neoris, Tech Mahindra, and Zensar.
There are multiple reasons that Mexico is the top LATAM global services delivery destination. First, while voice and non-voice business process services continue to grow moderately, the country is the leader in digital due to an increase in support for services including analytics, cloud, mobility, big data, IoT, and artificial intelligence. Second, very few locations offer a better cost-talent proposition to North American enterprises than does Mexico. And third, the fact that it’s a nearshore location makes it highly attractive to North America-based companies.
So, what are the top delivery destinations in Mexico?
Mexico City has the largest share of the Mexican market and is the most mature location in terms of breadth and depth of IT and business process services delivered, including IT consulting, digital, accounting, tax, and actuarial services.
However, despite being the country’s capital city and biggest business hub, Mexico City lags behind most of its Mexican counterparts in quality of life aspects including crime rates, traffic congestion, and air pollution. And, it ranks second to last of 32 cities assessed across Mexico on “ease of doing business.” All of this, coupled with the fact that clients care most about the talent capabilities in the destination, is opening the door for several other Mexican cities to carve out greater portions of the Mexico services delivery pie.
Let’s take a quick look at these dark horses.
Guadalajara, often referred to as the “Silicon Valley of Mexico,” continues to grow due to its availability of IT-related talent and delivery of key skills such as IT-ADM, cyber security, and IT consulting. Large pools of talent from adjoining areas have been migrating to the city. Today, Guadalajara is home to some of the top service providers, including HCL Technologies, IBM, and TCS.
Monterrey continues to grow in the finance and accounting space and is one of the country’s most mature locations after Mexico City. The city also delivers some of the more complex functions including tax and accounting. Given its proximity to the U.S. border, the English language proficiency and scalability potential of its global services workers is the highest in the country. The city also offers the best overall business environment, primarily due to better quality of life, infrastructure, and connectivity.
With its proximity to Mexico City, Queretaro has grown steadily as a delivery location across functions over the past several years. The city has had maximum percentage growth in graduates across Mexico since 2015, albeit on a smaller base. However, its development is still nascent, so it’s largely being leveraged as a smaller spoke to a larger hub within the region. From a cost standpoint, most global companies view it as a low-cost alternative, primarily driven by lower people- and non-people costs.
To learn more about the dynamics shaping the global services locations landscape, please read our recently published report, “Global Locations Annual Report 2019: Demand for Next-Gen Services Defining Locations Strategies.” We developed the report based on deep-dive discussions with regional investment promotion bodies, leading shared services centers, service providers, recruitment agencies, and other market participants.