2011 was a tough year indeed. The global economic turmoil has had a knock-down impact on most areas. The strains were visible on the outsourcing industry too. The pace of activities was rather slow and experts mark the year as one with relatively sluggish growth.
Sweet Lessons from the Recessive Economy
Interestingly, even though the pace was slow, the transformations happening around the industry like the quest for more business value (albeit in the form of cost savings and more), increased accountability placed on service providers to deliver value and business outcomes, heightened awareness for performance management and the recognition of the need to manage and measure risks, were permanent. These are the sweet lessons from the adversity of a recessive economy.
European and US enterprises will continue to battle rising costs and productivity issues. The struggle has also resulted in a huge surge in what these companies expect out of their outsourcing deals. Strategic outsourcing relationships, emerging verticals and new geographical areas were increasingly looked for by buyers, so that every possibility of efficiency gain is made use of.
The economic outlook for 2012 does not augur the rapid recovery of the world economy. Therefore, changes are here to stay and some trends may deepen.
The basics still remain the same as cost still continues to be one major driver. Just that the focus has grown much beyond that and the aim is to build strategic partnerships that help contain costs and at the same time attain long term objectives. The hunt is for service providers that can add value and bring a mix of everything-low cost, innovation and overall efficiency.
Not an Ugly Noun- 'Verticalization'
Efficiency improvement is something all enterprises are looking for, irrespective of what industry or vertical they belong to. Demand is thus likely to come from most areas. Healthcare is expected to consume a significant chunk of outsourcing services. Traditional areas like banking and financial services will see growing demand for e-banking, online authentication and automation services. Hospitality is another opportunity area; a growing number of hotels will use technology like GDS (Global Distribution Systems) and IDS (Internet Distribution Systems) to increase online visibility and enable guests to book online. “In addition, hotels are looking at outsourcing non-core technology functions like managed services, internet marketing and loyalty management” said Binu Mathews, President and COO, IDS Next.
'Verticalization' will be an important trend to watch out for. Service providers need to have improved domain knowledge to be able to play in different verticals. It goes beyond understanding the technology requirements of different verticals to developing deep-seated domain expertise to bring about changes at the fundamental level of business model.
Hunt for New Geographies
When the going gets tough it is natural for enterprises to look for greener pastures. The search for destinations was for a long time driven mainly by cost considerations. Offshore locations like India and China have thus always been prominent spots on the global outsourcing map. Though these established locations still hold their value when it comes to advanced service requirements, unexplored areas are increasingly being sought after for their untapped potential. Tier II and Tier III locations in these countries are hence coming out to be more attractive.
Multiple language capabilities have become more important as enterprises look for a global presence. Cultural affinity, booming infrastructure, cheap workforce are few other factors driving the hunt for new destinations. Certain regions in Europe and Middle East are seeing high nearshore demand from United States and Western European businesses. Latin America too is gaining prominence for its Spanish language capabilities. Amit Singh, Partner, Avasant, says, Spanish is a major language requirement for the US. Some support is coming from Philippines. But most of the Spanish language work is going to Latin America.” Geographical proximity, similar times zones and cultural affinity make these locations attractive.
While new and emerging locations offer certain unique capabilities and competitive advantages, there are important factors to be considered. Europe, for say, is vast and growth is scattered across different countries. It is thus important to analyze and look at each country and region separately. Moreover, the current crisis has sapped the strength of most European locations. The impact is also fairly visible on other regions like parts of Middle East and Africa and Latin America. Economic stability thus becomes an important factor be considered for expanding into these regions.
|Moving to New Areas
|Local knowledge and understanding of specific contexts of each region is essential.
|Risk diversification is going to be important. There needs to be a right balance between offshore, onshore and nearshore activities.
|In the current scenario, economic stability in different regions is an important factor to be considered.
|Scalability is another factor that becomes important in the long run.