While it is common to talk of Brazil, Russia, India, and China as the BRIC inheritors of globalisation, by 2009 there were over 120 other active offshore locations offering IT and business process services or captive locations for these. All this raises the question: to what extent are non-BRIC countries also potential inheritors of globalisation?
The global offshore outsourcing market for IT and business services exceeded $55 billion USD in 2008 and some estimates suggest an annual growth rate of 20% over the next five years. In 2008, India posted some 65% of the ITO and 43% of the BPO market.
Indeed, in 2008 India exported $40 billion of such services, while China, Russia, and Brazil managed $5 billion, $3.65 billion, and $800 million respectively. Although the BRIC countries are still maintaining a leading position, they are not without their problems, with Brazil and China hardly leveraging their potential and Russia lacking governmental support. India and China may even be seen turning to non-BRIC locations for some of the solutions; for example, to secure low cost and labour availability. The global market for Information Technology Outsourcing (ITO) has increased each year since 1992. Back in 1989, global ITO was a $9–$12 billion market. In 2008, the global ITO market was estimated to be worth between $220 and $250 billion. The BPO market in 2008 was less than the ITO market, but grew at a faster rate. Based on the evidence, the estimate for the ITO market, over the next five years, is that it will grow by 6–9% per annum while mainstream BPO expenditure is likely to row worldwide by 10% to 15% a year, from $140 billion in 2005 to potentially $230 billion plus by 2013. BPO expenditure will be in areas such as the human resource function, procurement, back-office administration, call centres, legal, finance and accounting, customer-facing operations, and asset management. Offshoring and outsourcing will retain their criticality through recessionary as well as growth periods. A highly competitive global services market presents opportunities and revenues for those able to offer the right mix of strong cost, reliable service, and secure location(s).
MULTI-SOURCING
Multi-sourcing has always been the dominant practice and the overall growth is driven by client organisations signing more contracts with more suppliers. However, while multi-sourcing helps clients to access best-of-breed suppliers and mitigates the risks of reliance on a single supplier, it also increases transaction costs for managing more suppliers. Multi-sourcing strategies and shorter contracts offer regular opportunities for offshore locations and services to establish footholds with clients. Where clients move to a primary contractor model, the leading supplier may well draw upon attractive offshore locations and services in a way that the client might not choose to do if directly responsible for all suppliers.
BRIC WITH NEW CHALLENGES
India, and to a lesser extent China, Brazil and Russia are already experiencing upward pressure on wages, combined with rising, sometimes high, labour turnover rates; what has been called the ‘war for talent’ is escalating in BRIC countries. For example, both India and China are increasing their own offshoring of IT and BPO work to other countries. This trend opens up the market for non-BRIC lower-cost services as a stepping stone to evolving into highervalue work.
NEARSHORING – A STRONG TREND
‘Nearshoring’ is defined as outsourcing work to a supplier located in a lowerwage foreign country close in distance and/or time zone. Compared with offshore outsourcing, the benefits of nearshoring include less travel costs, less time zone differences, and closer cultural compatibility. Non-BRIC locations can profit from nearshoring advantages in their specific regional cluster, differentiating themselves from farshore suppliers on proximity criteria, while differentiating themselves from other nearshore contenders on a suitable mix of superior cost, skill availability, quality of infrastructure, government support, and risk profile. At the same time non- BRIC providers of services and location need to be alert to bestshoring strategies of foreign clients and suppliers alike.
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