Examining a "before" and "after" of how global companies take decisions about the location from where to source IT and BPO services shows the evolution and maturity of the global sourcing market. Following three perceptible changes can be noticed. One, during the outsourcing decision-making process, earlier companies talked in terms of countries ("should we source application-development services from India or China"), but now they discuss cities ("should we source from Bangalore or Shanghai").

Two, earlier they discussed generic availability of talent ("how many students does Manila graduate each year"), but now they analyze skill-sets specific to the function they want to outsource ("how many US GAAP-trained accountants are there in Manila").

Three, earlier they considered only the large, established centers for sourcing ("we have a delivery center in Bangalore"), but now they are actively talking about-and getting work done from-tier-2 cities ("we have delivery centers in Bangalore and Coimbatore").

As cost advantages of outsourcing operational processes become a given, the challenge in today's services sourcing landscape is to identify destinations that may be able to provide an equal (if not greater) level of cost effectiveness and operational efficiency than previous or existing locations. As such, the focus for many of the larger and best-of-breed providers has been to scale, expand, and distribute their outsourced processes across multiple cities within a country. For example, companies need to identify calculated benefits of expanding to Cebu City in the Philippines, as opposed to simply expanding their already established operations in Manila NCR.

City, Not Country
This one is a no-brainer. Comparing the availability of skills and the cost saving to be had in say Mexico versus Brazil remains superficial. In Mexico alone, costs may vary between Mexico City, Monterrey, and Juarez. And so would skills-while one city may graduate more engineers, another may have more accountants.

Clearly, no two cities of a country would be at the same level of skills maturity or offer the same cost advantage, and deciding whether to source services from one over the other is just a first necessary step. Companies need to spend time delving deeper into the attractiveness of cities. They must consider various elements of cost and not just salaries and the specific skill-sets that each city has (See box 'Cost Matters').

Discussion on countries is important for macro issues, such as political risk, exchange-rate fluctuation, and wage inflation, which determine the sustainability of savings.

Functional Capabilities
Any decision on which city to choose for outsourcing must be specific to the process that the customer company needs to source services for. Simply calculating the number of graduates a particular city has will not help a customer wanting to outsource Finance and Accounting (F&A) processes; the customer will need to know the number of trained accountants the city has. In China, for instance, Shanghai may be better suited for F&A Outsourcing (FAO) than for contact centers.

Moreover, companies will feel confident of outsourcing high-end work such as engineering services, R&D, or ERP implementations to a larger, established city, while for work like application development or HR processes, they may be fine to source from a less experienced city.

Discussions on cities can be further refined by analyzing them as centers of excellence specific to particular IT and/or BPO processes. Companies need to graduate to referring to Hyderabad and Chennai as prime locations for FAO and automotive engineering services respectively, Cebu City as a strong information systems outsourcing location and Buenos Aires as a viable Spanish-based contact-center site.

Emergence of Tier-2 Cities
As service providers become increasingly wary of investing in only one city because of challenges of saturation and scale, finding alternative locations has become an increasingly important operational consideration. This is so not only in the context of business preservation, but also with regard to expansion, scale, and long-term cost management. This makes the identification and accurate profiling of emerging tier-2 cities increasingly relevant.

Not only will a scientific identification of these alternative cities pinpoint location options, but they will also enable operators to better plan for future growth in these areas. In this next wave of outsourcing when IT and BPO services players will look to better utilize the capacities of emerging tier-2 cities, an effort will be made to focus on cities located further away from primary sourcing destinations. These tier-2 cities will be carefully evaluated, and in many instances will be developed by industry and institutional players to become provincial (regional) IT and/or BPO labor hubs. In creating these hubs, the labor resources can be attracted from similar sized or smaller cities in the vicinity of the region.

Beth Lui, country manager, Philippine, Accenture, rationalized his company's expansion to Cebu City, a significantly smaller city, yet equally capable labor force as compared to Manila. "Cebu alone is a small province. We will have to draw from the neighboring provinces as well. There is a need to create a hub of talent," says Lui.

Global Services-Tholons research report ranks top 50 and profiles the top 15 emerging global cities for outsourcing. These are the ones that may not be top of mind for most companies, but are well suited for specific IT and BPO functions. As there are some global outsourcing cities that stand as the clear winners, the study also ranks the top five obvious choices that need no introduction.

Page(s)   1  2  3