KPMG€™s outsourcing €˜locations to watch€™

KPMG has released its ‘locations to watch’ report which outlines some emerging locations in the outsourcing market. In total 31 cities were highlighted as ones to watch within the outsourcing market and countries such as Australia, Ireland and Brazil have all had cities highlighted as threats to India’s BPO stronghold.

However, it is difficult to compare these countries as there is such a variance in the benefits they offer. Belfast for example was highlighted as an emerging “threat”, however Belfast has been prominent in the BPO market for quite some time and generally deal with end users who are looking for nearshore destinations to outsource to.

Cities such as Brisbane do benefit from excellent language capabilities and the costs are also competitive. Combine this with a western culture and a trusted democratic government and it is not hard to see why destinations such as this are so appealing.

However Brisbane’s population is 1.8 million a small number compared to Mumbai’s 13.8 million, something which Mumbai can be assured will attract big businesses looking for extensive workforces.

So comparing locations in this report to India and making the claim that they are chipping away at India’s iron grip on the BPO industry could be seen as over zealous. It is not a case of suppliers in this report trying to directly complete with Indian suppliers based in Mumbai or Bangalore.

End users seeking big cost savings and an access to huge workforces will undoubtedly still turn to traditional destinations like India. Those users looking for nearshore locations or western cultured workforces will consider other areas. It is simply different locations catering for different user needs.

What should be looked at when considering a market loss for India is the current economic climate and what effect that is having on Indian suppliers and end user needs.

As a result of currency appreciation and significant salary inflation the cost of the Indian workforce has increased and the previously huge pool of graduates willing to work for less, has diminished somewhat.

Suppliers experiencing financial difficulty are also moving to cheaper areas that may not appeal so much to the new breed of workers and those that are already with the company are feeling that their contract is insecure if they do not relocate.

End users, under pressure to keep jobs as close to home as possible may look locally first before considering far away destinations or consider suppliers offering workforces with a similar cultural upbringing to that of the user.

However we are in a recession and the ‘cost is king’ approach to outsourcing will become more prevalent so despite initial patriotic sentiments users may still look to the supplier that best enhances the bottom line, Indian suppliers have a lot of clout in that department.

This is certainly an interesting time for the outsourcing industry. Although we expect the industry to boom during the downturn, the landscape of the market is set to change.

End users will undoubtedly consider new destinations within their procurement strategy however, they must ensure that they do not simply ignore the traditional locations.

Outsourcing deals are strategic partnerships and whether new or old, companies should judge suppliers and their locations based on how well they would fit into the overall business strategy.


Copyright © 2009 IDG Communications, Inc.

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