Global Sourcing – Impacts on Socio-Economics of Developing Countries

By: Bobby Varanasi, COP, Chairman & CEO, Matryzel Consulting Inc.; Asia Ambassador – International Association of Outsourcing Professionals

Increasing pressure on Boards to defer or reduce capital expenditure, coupled by a lack of internal capabilities is pushing organizations to farm out complex and core services to third-party service providers. Sourcing methods are increasingly incorporating core services as inherent targets for sourcing, with the caveat that service providers need to take on more risks than they are either ready to, or have the experience with. Do such risk-sharing approaches align with national imperatives of provider nations?

Standard fee-for-service based business models are increasingly being seen as low value resulting in the demand that service providers put their “skin-in-the-game” through price entrenchment and ownership for the pass-through impact of such services. This is an inherently fundamental shift in the nature of global sourcing. While it is appreciable that customers are beginning to trust their global service providers more than they have done so before, it is also putting increased responsibility on service providers as they are taking on more business risk than ever. The focus on co-creation of solutions is putting the pressure on providers to transform the view of their businesses.

THE DAYS OF “VALUE-SCALE” HAVE ARRIVED AND ARE HERE TO STAY

While access to skills and talent has been touted for long in the industry, cost arbitrage still held the highest attention and focus in the minds of customers. It looks like the death of the mile-wide inch-deep outsourcing deals. Too many times has scale been touted as the biggest lever for winning in a fiercely competitive marketplace.  Not too much emphasis was placed on depth of capabilities. I think the days of “value-scale” are here now and here to stay. Providers are being forced to create value at the business layer within chosen industry verticals, either through technology or business solutions, and add scale to such value through a concerted spread of such value across industries.

Client organizations are pushing their products and services into new markets. Leveraging local partnerships, typically through sourcing models has become a key route that guarantees a fair amount of success with market penetration. In addition, borderless trading environments within various trading blocks – Asia, Latin America, and Europe – have created the ability of organizations to focus on their consumers’ real needs without having to deploy a one-size-fits-all model.

The underlying technologies that in the hitherto days provided the core support to offering services from a centralized location no longer hold true. The distinction between technology and technology-enabled services is becoming less important than the distinction between “values for end-consumer” vs. “low cost destination for non-core activities”.

Today in order to provide utility-based services it has become critically important for organizations to set up “centers of excellence” that focus either on creating a core competence with services for the entire global marketplace, or for a regional marketplace with localized specificities. These COEs are being created by companies through leveraging local expertise either in form of resources or corporations. Such is the nature of the demand that most developing and emerging nations are being evaluated on their ability to be perceived as “centers of excellence” and not just as nations with the base requirements to conduct business. This trend is true of most large multinationals and mid-sized players who are scouting for local capabilities that are aimed at “creating utility based services” for their end-consumers, regardless of the function or industry they are a part of.

The marketplace always engaged in the mainstay conversation surrounding core and non-core services. Today the tenor of such discussions is changing as there is a trend for companies to locate or distribute services from a utility standpoint, and not just a functional or technological standpoint. Hence companies are bundling back core and non-core so long as such services – in a combined manner – are considered key utility for a segment within a chosen marketplace. In such contexts, destinations and providers need to clearly morph their business models that address client organizations’ needs for bundled service capabilities. Here the distinction is not around technology or business processes, rather it is utility-driven.

One needs to only look at the telecommunications industry in Africa to realize the forward-thinking “utility” approach citizens from various nations have adopted. This goes to show that the continent, though quite behind other continents / nations in terms of the development index, is quite ready to create the value client organizations are looking for, so long as such value includes them as recipients. Nations like India, Philippines, Brazil and Chile have many success stories where ICT and services have enabled a deprived citizenry. Whether it is providing financing for non-muster poor Brazilians, or it is providing poor Indian farmers with technological access to identify which markets to sell their crops to, ICT solutions have been created and deployed because of a socio-economic need.

Along the way commercial imperatives have been addressed successfully as well. One needs to only read CK Prahlad’s thoughts on the large opportunity available at The Bottom of the Pyramid to realize the value that can be co-created via global sourcing when the drivers include “socio-economic needs” consistently. In this context it is heartwarming to note the work Leila Chariyath Janah from Samasource does to promote social sourcing in Africa or what Greg Branish does in offering sourcing services through NISH in the US. Unfortunately we don’t have too many such examples.

The Supply Side Conundrum

At the end of the year 2000 India, Philippines, Czech Republic, Canada and Ireland were the key sourcing destinations. Today, the composition has grown to more than 25 countries. The marketplace today has more choices than the ability to analyze such choices coherently. Brazil, Chile, Nicaragua, Jordan, Egypt, Singapore, Vietnam, Malaysia, Malta, Macedonia, El Salvador, Columbia, Sri Lanka, Barbados, Russia, Pakistan, Costa Rica, China, Jamaica, UAE, Romania, Slovakia, Kenya, Ghana, Mauritius, Uganda, and South Africa are all speaking the same language that only a few countries were hitherto well versed with. I would like to think this is a reflection of a maturing industry where many developing and emerging countries would benefit by creating much needed jobs and providing their economies with significant thrusts to move forward. I am also inclined to think whether the opportunity that these nations – and their industries – perceive is really available for them to tap into.

While the demand for global sourcing has grown at a healthy rate over the past decade, making available over $240 Billion in opportunity, is the nature of the opportunity understood well enough by the supply side? Is the demand side clearly articulating their needs appropriately?

I see a serious “supply clutter” around replicable, highly commoditized and cost-chasing services. With the plethora of location choices that client organizations today have, their expectations have transcended the need to look at a location or region “inclusively” – a term I use loosely here to encompass not just client needs but the needs of the supply companies and locations/ nations. Such lack of inclusivity is perhaps the key reason for the large clutter we see in the marketplace today.

THERE HAS NEVER BEEN A BETTER TIME
TO EMBARK ON CREATING ENABLING ENVIRONMENTS

Given almost zero entry barriers to creating service provider entities, and given the positive view governments are taking of the latent opportunity, there has never been a better time than now for many emerging and developing nations to embark on creating enabling environments that can attract investors and deals, and consequently create thousands of service jobs.

So is this positive view sustainable? Has it helped supply destinations realize their small goals so far? Is the view of the industry still positive? I don’t think so. We are not investing enough in understanding the key drivers of policies, and resultant  industries within these nations. We are also not spending sufficient time in thinking about the economic and social impact that nations desire to create, when they invest in specific industries.

The Socio-Economics Sourcing Playbook

Over recent years American consumers have grown more socially responsible and also reflects the fact that there are significant profits to be made in conjunction with such social imperatives. Similar stories exist across developing nations.

Today’s conversations around the attractiveness of global sourcing locations is largely a one-sided conversation – that of the client. I have been a witness to a host of conversations where clients compare the catalysts available in a developing and forward-looking service-oriented nation with another emerging nation that has a debt-burdened economy and flailing old industries. How reasonable is such a comparison?

It is commonplace for client recommendations to be centered around how a nation should focus on creating a highly qualified workforce when the existing citizenry is suffering from lack of basic jobs. Further these recommendations often touch upon how an emerging nation can benefit from offering high-value services – where the education system was barely sufficient to create a base level workforce.

The moot point of my argument here is the lack of readiness – and whether we see it. Taking expectations of demand and translating them into imperatives cannot be done using a “one-size-fits-all” approach.

In Bridging the Gap

Governments and trade promotion agencies are quite active in the global sourcing space. However, they don’t get the much needed attention they deserve. They have a story to tell – it is compelling, it is real, it has a base in co-creation of value, it incorporates significant flexibility at the highest levels of government, it has an impact that is collective, and it requires a commitment that is mutual.

Most nations have signed the Millennium Development Goals of the UN and are keen on investing in industries that can enhance the quality of life of their citizenry. Industries within such nations have the core responsibility to make it happen. The importance of ICT and its ability to create these positive impacts cannot be underscored enough. Likewise the amount of access global sourcing provides industries and companies cannot be underscored enough either.

It is time for the sourcing industry to rise to the challenge to create socio-economic value for its participants. The days when we only discussed client objective needs to be replaced by a set of collective goals – such inclusivity can only happen with industries that span borders and cultures. The global sourcing industry surely is one such industry where these expectations can be translated into reality.

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