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Offshore outsourcing is perhaps one of the most subjective and emotive business decisions that any large company faces today. And as enterprises increasingly look beyond India to new locations for their offshore services, cultural perceptions and subjective requirements will again come the fore in the decision making process.
Almost by definition, offshoring requires the integration of at least two very different, if not opposing, cultures. The onshore client will tend to be from an economically and technically more advanced nation, while the offshore supplier will be based in an almost opposite environment, though hopefully with a workforce that is educated, motivated, and importantly, cheap.
This dynamic, or tension, within offshore relationships is not a cause for concern in itself. After all, both sides benefit from the situation: one through the ability to cut costs, and the other from growing revenues. There is no real suggestion of exploitation in either direction.
But it is clear that “trust” and the ability to “work together”, which are themselves cultural conceptions, are the most important “soft” issues that enterprises must feel they have established with their offshore partners or chosen offshore countries. And this is regardless of the skills base and cost that an offshore supplier or chosen offshore location can provide.
Building offshore trust Ten years ago India started its rapid rise to prominence as an offshore nation by coordinating its IT services industry under the banner of a national association (NASSCOM) which worked steadfastly to fight negative perceptions of its country, and promote its political, legal and business infrastructure as modern, trustworthy, and high quality.
NASSCOM’s contribution to offshoring is immeasurable, because it not only made clients more comfortable with outsourcing to India, but also made them more comfortable with the concept of offshoring full stop. And despite recent hiccups in the Indian narrative (not least the fraud revealed by fifth-largest Indian supplier Satyam in 2008), India is still considered the major offshore location of choice thanks to NASSCOM’s efforts.
Global sourcing opens up new destinations But the world has moved on, as have clients’ needs. “Global Sourcing” has taken over from “offshoring”. It is no longer seen as prudent to put all your eggs in one offshore basket such as India, and more often clients are looking to spread their offshore risk across multiple different global locations, even if these use India as a central hub.
Moreover, the market has expanded to include more continental European clients than a decade ago, when it was primarily English speaking businesses looking for English speaking locations. There is increasing demand for offshore resources from clients in France, Germany, BeNeLux and the Nordics. In such a context, India’s key ability to provide an English speaking skills base is no longer as relevant.
The upshot is that today’s enterprises are choosing from a wide array of competing offshore locations in Latin America, Africa, Eastern Europe, the broader Indian subcontinent, and the Far East. And increasingly, clients are demanding more and more standardized information as well as opinions on which they can base they’re decisions regarding the soft issues related with each country. The ability, and need, to trust an offshore location and understand whether you can work with its business and social culture, is once again an important issue.
How do new offshore locations rate? In order to meet the needs of clients interested in understanding the risk perception of different offshore locations globally, Datamonitor’s Black Book of Outsourcing surveyed 424 senior executives involved in selecting offshore locations for their companies. The results are available in full in our recent “Offshore Location Risk Survey” report, and they reveal an interesting “state of the nation” viewpoint about clients’ current perceptions of different offshore locations.
The survey asked respondents to rate locations that they had experience with across 10 key metrics, including geopolitical conditions, anti-corruption enforcement, legal system maturity, policing and crime, and weather and climate. Bearing in mind that this survey did not focus on issues such as price or staff availability, the results are an indication of how clients rate the softer concerns regarding each potential offshore location.
In summary, the findings revealed that the best rated locations tend to be in Eastern and Central Europe, with a few exceptions being in Canada or Singapore. While Indian cities tend to rate quite highly, other sub-continental locations, such as in Pakistan or Bangladesh, are rated as some of the least favorable locations to offshore, based on our soft metrics. Latin American locations, particularly in Mexico and Colombia are also rated poorly, although Brazil scores very well.
Soft issues as important as the hard Our survey of offshore perceptions is a useful guide to the levels of comfort that clients of offshore services have in dealing with, and working in, different global locations. However, it is not the sole tool by which an enterprise should choose its offshore investments.
As we said in the beginning of this piece, offshore decisions are highly subjective. The client’s language, currency, geographic location, and scale of the work to be outsourced, all play a significant part in the costing of an offshore proposition. These “hard” factors are key – but they are no more key than the soft issues regarding trust and cultural compatibility – areas which can only really be measured in the realms of perception rather than hard and fast reality.
This balance of hard and soft factors is nothing new to business. But as more and more offshore locations try to establish themselves, offering the similar “hard” benefits, such as economic, legal, and labor policy, differentiation between each will increasingly be based on the perception of soft factors. Geo-politics, environment, perception of crime and corruption. These are the areas that will increasingly influence those companies looking at possible sourcing options.