1. Department of Human Resource Management Offshoring, Onshoring, Nearshoring, Rightshoring? The Changing Landscape of Global Delivery Professor Phil Taylor University of Strathclyde, Scotland International Association of Outsourcing Professionals New York, 26 June 2012

2. Department of Human Resource Management Introduction and Background Change and continuity in BPO and voice offshoring Continuity - expansion in volume and value of services offshored to ‘remote’ locations Growth in what is termed the ‘addressable’ market Macro- & micro-economic drivers of cost-reduction Dot.com crash propelled first big wave of offshoring Post-2008 cost cutting - offshoring is one solution Change – shifts in the global sourcing landscape – country destinations and cities within them e,g. Philippines overtaking India for call centres

3. Department of Human Resource Management The Call Centre and Beyond Distinction between ‘voice’ and non-customer BPO But both important from a spatial perspective Integration of computer and telephonic technologies Centralisation of dispersed servicing sites and the severing of the physical link with customers - ACD Digitilisation of business services Identifiable ‘clusters’ within the global ‘north’ - cost- reducing, efficiency-maximising drivers Globalising this dynamic – from the national to the transnational scale Re-engineering, re-configuration and re-location

4. Department of Human Resource Management Reasons for Location – What, Where and Why? Two contradictory tendencies in this relocation  sufficient geographical mobility to discover and realise investment opportunities and  the need for sufficient geographical fixity The ‘globalisation’ paradox– heightens the importance of place and labour in place What are the reasons for location? Why do firms choose to locate where they do? What are the characteristics of place that matter? What are the attributes of labour that matter?

5. Department of Human Resource Management Costs and cost reduction – the ‘no brainer’ Labour cost as the most important component Skill sets....and availability Depth of labour pool and ‘trainability’ needs Government support – financial, regulatory, political Industry support – e.g. BPAP, Nasscom, ITIDA, SDI Industry maturity – experience/quality of vendors Political stability Risk in all senses – from data security to reputation Accommodation availability and costs Technological and telecoms connectivity and costs Levels of attrition – agents and management Exchange rate fluctuations – India and Canada e.g.

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7. How Inter-Place Comparison Has Evolved Labour cost arbitrage  early days of tactical outsourcing  cost per FTE important Talent arbitrage  ‘mid-period’ of strategic offshoring  cost important but skills and talent higher priorities Efficiency Arbitrage  latter period, post-2008, transformational sourcing  process excellence, lean, performance management

8. Department of Human Resource Management Global Service Delivery Combinations of onshore, offshore and nearshore = RIGHTshoring Increasingly multi-locational, multi-site strategies Corporates capitalise on mixes of skills and resources A firm seeking lower-cost solutions may simultaneously source English voice from India or Philippines, Spanish from Latin America, IT-tech help from E. Europe etc. Cluster footprints – primary and secondary locations Functional mixes, time zones, risk mitigation Best fit = horses for courses = but the ‘going’ changes Sourcing world is not flat (a la Tom Friedman) but bumpy, uneven, lumpy

9. Department of Human Resource Management India Historically the most important destination for globalised business services Share of global IT-BPO grew to 58% 2102 (55% 2010) Indian co.s expanding overseas ‘footprint’ 560 global centres in 70 countries TCS and Infosys employ 14,500 & 9,000 non-Indians in N. America, Europe, China and Asia 4 Indian companies in Scotland ‘Business is better than the mood’ – Nasscom 2012 Continued modest growth in BPO but a legacy Reduced differentials in context of rising labour costs and tight labour markets

10. Department of Human Resource Management Year Employment in BPO % rate of growth 2002107,000n/a 2003171,00058.8 2004216,00026.3 2005316,00046.3 2006409,00029.4 2007553,00035.2 2008704,00027.3 2009738,0004.6 2010770,0004.1 2011835,0008.4 2012876,0003.7

11. Department of Human Resource Management ‘Off-shoring does reduce the headcount cost, there’s no question about it…but what happens to the process, the function? An interesting benchmark aggregate for North America. we looked at a mechanism called cost per trade…We profiled 24 banks. From this data there’s no conclusive proof to say that offshoring has actually systematically reduced the cost per trade. Startling!... How is that possible? We did reduce the cost [when offshored] but we dropped productivity as well. In fact faster than the cost of the import’. (Noshir Kaka, Director of McKinsey and Co., India, Nasscom Leadership Forum, Mumbai, 9 February 2011)

12. Department of Human Resource Management Despite movement to Tier 2 or 3 cities, 90% of services still delivered from 7 Tier 1 cities Labour pool relatively shallow = linguistic ability 3-5% of graduate applicants are hired Attrition often has been at extraordinary levels Agents and managers moving for ‘a few dollars more’ Impact of 2008 crisis slowed growth – Indian firms believed that HR problems had been solved Modest recovery in 2009-2010 – return of attrition – the single most important problem in Indian centres Indian Chamber of Commerce Report (2011)

13. Department of Human Resource Management The Philippines For voice – now the premier offshore location BPAP - 544,000 employed in contact centres Growth incomparably faster than India 21% increase in voice employment since 2010 Engages overwhelming with US market due to historical and cultural legacy Increasing amounts of UK work – Barclays, T-Mobile Global service providers and Indian companies Call quality and C-SATs better than Indian centres Accent and linguistic congruence with N. America Perceived lower ‘risk’ than India

14. Department of Human Resource Management Operating costs comparable with Delhi/NCR Depends upon efficiency arbitrage However...75 per cent of IT-BPO located in Manila Questions regarding ‘absorbtive’ capacity To what extent does Philippines have difficulties of labour supply and attrition? BIG QUESTION Replicating the challenges of India’s rapid growth Rising up the value chain and diversification? Rising labour costs (10% p.a.) offset by falling telephony – how long can this continue?

15. Department of Human Resource Management Other Global Locations Beyond the Philippines and India – many locations are cited in consultant reports Many important as niche or specialist locations or complementary servicing sites No hugely scalable locations No magic bullet, no secret geography that can provide a ‘one size fits all’ global sourcing solution South Africa has major strengths, but the promise remains unfulfilled – 2011 ~10,000 offshore roles Egypt cost and language advantages~13,000 roles

16. Department of Human Resource Management Latin America has emerged as a significant BPO location, but much of it domestic focused Eastern Europe is not homogenous – different geographies different capabilities and scale issues Caution against simplistic consultants’ reports A.T. Kearney’s Global Services Location Index – accessible but misleading 2011– Philippines ranked 9, Vietnam 8 and Thailand 7 Aggregates IT, contact centre and back office Financial attractiveness, skills, business environment

17. Department of Human Resource Management Index does not show relative importance of size, scalability, maturity, complexity and nuance of language, soft skills etc. Some highly rated destinations are very small – Baltic states ~ 3,000 employees in each Countries appearing as potential champions disappear shortly afterwards BPO cannot be located simply anywhere Resilience of onshore and attraction of nearshore

18. Department of Human Resource Management Nearshore Locations Sense of perspective Bulk of services delivered onshore or nearshore United States to Canada albeit diminished Scotland can be regarded as nearshore and onshore Symbiotic relationship between offshore and onshore/nearshore sourcing geographies e.g. growth in Scotland – from 46,000 (2000) to 86,000 (2008) to 90,000 (2012) 38 centres owned by orgs. with HQs abroad 55 centres provide dedicated foreign languages Access high quality skills at relatively lower cost

19. Department of Human Resource Management 30+ per cent lower than London and SE England plus technical ability, tacit knowledge, emotional intelligence, empathy, linguistic sensibility etc. Efficiency arbitrage Bifurcation in calls – offshore standardised calls - retain onshore the complex calls ‘Offshoring may be good for mundane calls, but as soon as calls require greater complexity beyond the script there are problems. I use the Guinness analogy of the white head and the black body. Agents in India can deal with the froth but cannot go deep into the body of the call’. (Centre manager, Telecoms company)

20. Department of Human Resource Management ‘Reshoring’ Evidence Reshoring – 2006-7 scattered examples Previously quality and customer preference, costs now more part of the equation now New Call Telecom moving call centre back to Burnley after three years in Mumbai ‘Employees (in the UK) are loyal, unemployment rates are quite high. In contrast, in India jobs are plentiful and we suffer a lot from attrition. A similar call centre down the road may offer a more lucrative salary and pull staff away and we have to keep going out there for retraining’. (Nigel Eastwood, Chief Executive) http://www.bbc.co.uk/news/uk-england-lancashire-14025904

21. Department of Human Resource Management ‘This is what our customers have told us is the most important factor in terms of customer with the bank and we have listened to them and decided to bring all our retail call centres back from India’. (Ana Botin,UK Head of Santander 2011) http://ww.bbc.co.uk/news/business1403889 British Telecom Royal and Sun Alliance Powergen BSkyB Some countervailing trends in voice

22. Department of Human Resource Management Employers’ Cost Reduction Strategies OutsourcingOffshoringAutomation Work Intensification, Lean, Performance Management

23. Department of Human Resource Management Lean and Performance Management 2011 – Scottish Contact Centre Audit Most frequently reported response to crisis –  introduction or spread of lean working  operational excellence and drives for efficiency  call volumes remain the same = fewer agents  call volumes increased = same or fewer agents  rationalisation of facilities – creative synergies ‘Doing more with less’ Growth in automation (77%) and self-service Removing some of most ‘routinised’ voice roles but some upskilling and growing segmentation

24. Department of Human Resource Management Conclusion ‘The new normal’ – cost reduction, productivity gains plus continuous quality improvement Kaizen of C.Sat. scores and quantitative metrics Clients demanding and vendors offering both plus a portfolio of sourcing options Self-service, web chat, ‘doing more with less’ Efficiency arbitrage is ever more important Globalisation actually heightens the importance of differences between places and people Still at the very beginnings of rightshoring = with different combinations of location Macro-economic factors increasingly important