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Offshoring Opportunities Amid Economic Turbulence-GSLI 2011
Offshoring Opportunities Amid Economic Turbulence-GSLI 2011
In terms of the industrys broader macroeconomic environment, the world in 2003 was
similar to todays, emerging from an economic
slowdown that had begun two years earlier.
At the time, the economy soon returned to health.
Likewise, the hope today is for renewed growth,
but the situation is still fragile. The International
Monetary Fund (IMF) projects gross domestic
product (GDP) growth of 2.3 percent in the
United States in 2011 hardly the kind of dynamism that would propel the global economy. The
IMFs latest projections for global economic
growth an estimated 4.8 percent in 2010 and
4.2 percent in 2011 come with the warning
that global recovery remains fragile, because
strong policies to foster internal rebalancing of
demand from public to private sources and external
The first report was named the A.T. Kearney Offshore Location Attractiveness Index.
A.T. Kearney
Figure 1
The A.T. Kearney Global Services Location IndexTM, 2011
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
Country
India
China
Malaysia
Egypt
Indonesia
Mexico
Thailand
Vietnam
Philippines
Chile
Estonia
Brazil
Latvia
Lithuania
United Arab Emirates
United Kingdom
Bulgaria
United States
Costa Rica
Russia
Sri Lanka
Jordan
Tunisia
Poland
Romania
Germany
Ghana
Pakistan
Senegal
Argentina
Hungary
Singapore
Jamaica
Panama
Czech Republic
Mauritius
Morocco
Ukraine
Canada
Slovakia
Uruguay
Spain
Colombia
France
South Africa
Australia
Israel
Turkey
Ireland
Portugal
Financial
attractiveness
People skills
and availability
Business
environment
Total score
3.11
2.62
2.78
3.10
3.24
2.68
3.05
3.27
3.18
2.44
2.31
2.02
2.56
2.48
2.41
0.91
2.82
0.45
2.84
2.48
3.20
2.97
3.05
2.14
2.54
0.76
3.21
3.23
3.23
2.45
2.05
1.00
2.81
2.77
1.81
2.41
2.83
2.86
0.56
2.33
2.42
0.81
2.34
0.38
2.27
0.51
1.45
1.87
0.42
1.21
2.76
2.55
1.38
1.36
1.53
1.60
1.38
1.19
1.31
1.27
0.95
2.07
0.93
0.93
0.94
2.26
0.88
2.88
0.94
1.79
0.95
0.77
0.81
1.27
1.03
2.17
0.69
1.16
0.78
1.58
1.24
1.66
0.86
0.72
1.14
0.87
0.87
1.07
2.14
0.93
0.91
2.06
1.20
2.12
0.93
1.80
1.35
1.29
1.74
1.09
1.14
1.31
1.83
1.35
1.01
1.44
1.29
1.24
1.16
1.82
2.24
1.38
1.96
2.02
2.05
2.23
1.67
2.01
1.56
1.07
1.11
1.49
1.37
1.81
1.65
2.27
1.28
0.76
1.11
1.09
1.82
2.40
1.34
1.49
2.03
1.70
1.26
1.02
2.25
1.65
1.42
1.88
1.18
2.11
1.37
2.13
1.64
1.17
2.08
1.85
7.01
6.49
5.99
5.81
5.78
5.72
5.72
5.69
5.65
5.52
5.51
5.48
5.46
5.43
5.41
5.41
5.37
5.35
5.34
5.34
5.26
5.23
5.23
5.23
5.21
5.20
5.18
5.15
5.12
5.12
5.11
5.06
5.01
4.98
4.98
4.98
4.96
4.95
4.95
4.91
4.75
4.75
4.72
4.61
4.57
4.44
4.44
4.33
4.24
4.15
Note: The weight distribution for the three categories is 40:30:30. Financial attractiveness is rated on a scale of 0 to 4, and the categories for people skills and availability, and
business environment are on a scale of 0 to 3.
Source: A.T. Kearney Global Services Location IndexTM, 2011
A.T. Kearney
Industry in Transition
After the 2008 financial crisis hit, we predicted
an immediate and significant impact for global
services outsourcing, considering that financial
services firms were the biggest customers of services outsourcing and the United States was the
worlds economic center of gravity. Today, we look
back at an industry that has certainly endured two
lean years.
The reality is that the global business environment has been in profound flux for a variety of
reasons: contrastingand conflictingrecovery
and post-recovery strategies (especially among
IMF, World Economic Outlook: Recovery, Risk, and Rebalancing, Washington, D.C.: October 2010.
IMF, Global Financial Stability Report: Sovereigns, Funding, and Systemic Liquidity, Washington, D.C.: October 2010.
4
IMF, World Economic Outlook: Recovery, Risk, and Rebalancing, Washington, D.C.: October 2010.
5
See Software Demand Management at www.atkearney.com.
6
For more information about the 2009 Index, see The Shifting Geography of Offshoring at www.atkearney.com.
2
3
A.T. Kearney
A World of Risks
With a global business environment
in flux and economies continually
shifting, the picture in the global services industry is growing more complex. The following trends have significant implications for the industry:
Countries are pursuing different
fiscal strategies. The differences in
how countries are adjusting following the Great Recession could not
be more pronounced. Consider, for
example, the stark contrast between
the hard-line fiscal austerity program
pursued in the United Kingdom
and the quantitative easing under
way in the United States. The polaropposite policies underline substan-
A.T. Kearney
computing; new service capabilities; and commercial strength to move from a long-term contract
model to a flexible, pay-as-you-go approach.
These are the preliminary steps toward what will
end up being a revolution in the BPO and ITO
marketplace.8
Globalization of services has tremendous
untapped potential. Regardless of changes in the
outsourcing industry business model and other
temporary setbacks, we believe the era of globalization of services production has only just begun.
The untapped potential is enormous. IT and
BPO offshoring are early manifestations of a larger
trend that, in the long run, means that more functions can and will be located outside the countries
where end-customers reside.
We have already witnessed a shift in the footprint of manufacturing across the globe to the
point at which emerging markets have become
8
See Outsourcing (But Not as We Know It) in Executive Agenda, Vol. XIII, No. 2, 2010, at www.atkearney.com.
A.T. Kearney
Figure 2
Fallout from the financial crisis shook up the rankings, as once-expensive countries moved up
India
China
Malaysia
Egypt
Indonesia
Mexico
Thailand
Vietnam
Philippines
Chile
Estonia
Brazil
Latvia
Lithuania
United Arab Emirates
United Kingdom
Bulgaria
United States
Costa Rica
Russia
Sri Lanka
Jordan
13
Tunisia
Poland
Romania
0
0
0
2
0
5
3
2
2
2
5
0
14
5
13
15
4
4
3
13
4
5
15
4
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
Germany
Ghana
Pakistan
Senegal
Argentina
Hungary
Singapore
Jamaica
Panama
Czech Republic
Mauritius
Morocco
Ukraine
Canada
Slovakia
Uruguay
Spain
Colombia
France
South Africa
Australia
Israel
Turkey
Ireland
Portugal
8
12
8
5
5
6
3
10
9
3
6
8
4
13
2
5
3
0
3
5
1
2
4
1
0
Source: A.T. Kearney Global Services Location IndexTM, 2011
A.T. Kearney
Currency Woes
Fluctuating currencies cause volatility for corporate planners, and
currency concerns will likely remain
a central feature of international
business and policy into the future.
China is currently under attack for
its undervalued currency, which has
been propped up by $2.5 trillion in
reserves. Meanwhile, the United
States has angered some countries
because of its quantitative easing.
Government interventions
throughout the world are prompting worries about destructive currency wars. A full-scale currency
war would indeed put the brakes
on the worlds economic growth
prospects and would injure the
global offshoring industry. In such
a scenario, economic relations
between countries could devolve
into tit-for-tat duels about currencies one country erecting tariffs
to counter the effects of anothers
devaluation. Economic uncertainty
would reign and companies would
find global service supply chains
costly and difficult to maintain.
The rankings were made before the recent political unrest in Egypt and Tunisia began. As a result, the political uncertainty and country risk associated with
both countries have dramatically increased. The situations need to be monitored closely to gauge whether the long-term risk profiles will change.
10
International Data Corporation, Worldwide and U.S. Offshore IT Services 2010-2014 Forecast, May 2010.
9
A.T. Kearney
Figure 3
The United States leads in people skills and availability
4.37
2.22
1.34
1.67 9.60
4.34
2.22
1.39
1.25 9.20
3.90
2.22
1.33
1.06 8.51
3.94
0.55
1.39
1.67 7.55
1.33 7.23
3.92
0.58
1.40
3.69 0.31
1.47
1.67 7.14
1.22 7.05
3.93 0.53
1.37
2.89
1.75
1.07
1.19 6.90
3.91 0.40
1.32
1.22 6.85
2.65
1.44
1.67 6.00
1.82
1.69
1.29
1.18 5.98
2.67
1.41
1.67 5.79
1.38 5.54
2.61
1.52
2.11
0.89
1.14
1.19 5.33
2.41 0.48
1.06
1.31 5.26
1.10 5.09
1.18
1.72
1.09
1.91
1.24
1.22 4.60
1.03 4.59
1.77
1.16
0.63
1.65
0.72
1.04
1.11 4.53
1.87
1.24
1.31 4.49
1.22 4.38
1.38
1.94
0.83
1.07 4.31
1.33
0.72
1.20
1.18 0.46
1.39
1.22 4.25
1.15 4.22
1.70
1.20
1.42
1.37
1.26 4.15
1.13 3.99
1.46 0.41
1.00
1.08
0.68
1.22
0.97 3.96
1.22 3.85
0.71
0.97
0.94
1.39
1.26 3.79
1.04
1.33 3.63
0.90
1.31
1.24
1.17 3.58
0.60
0.58
1.29 3.42
0.75
1.14
1.43
1.33 3.18
0.40
1.13 3.16
1.28
0.62
1.42
0.80
0.89 3.15
1.29 3.14
1.19
0.62
1.21 3.11
1.35
0.53
1.21 3.10
1.34
0.51
Relevant experience
1.22 3.10
0.48
1.34
1.35 3.09
0.81 0.35 0.58
Size and availability of labor force
0.54
1.17
1.29 3.04
Education
0.51
1.16
1.21 2.94
Language capabilities
0.48
1.11
1.31 2.91
1.03
1.07 2.90
0.59
1.67 2.85
0.30
0.86
0.48
1.05
1.07 2.70
0.36
1.25
0.90 2.59
1.06 2.58
0.34
1.12
0.83
1.13 2.41
0.42
Note: Values below 0.20 not shown due to space constraints.
0.32
0.80
1.06 2.31
Source: A.T. Kearney Global Services Location IndexTM, 2011
A.T. Kearney
11
CMMI is a process-improvement program created by the Software Engineering Institute of Carnegie Mellon University.
A.T. Kearney
10
Monterrey
Santiago de
Queretaro
Hermosillo
Less expensive
location is an
aerospace hub
Tier 2 emerging
location is
close to the
U.S. West Coast
Mexico City
Culiacn
Guadalajara
Tier 2 location
features contact
centers and IT
Mexicos Silicon
Valley is home to HP,
IBM and Flextronics
A.T. Kearney
A.T. Kearney
11
A.T. Kearney
BPO
Voice
ITO
India
China
Malaysia
Egypt
Indonesia
Mexico
Thailand
Vietnam
Philippines
Chile
Note: BPO is business process outsourcing;
ITO is information technology outsourcing
Source: A.T. Kearney Global Services Location IndexTM, 2011
A.T. Kearney
13
A.T. Kearney
Figure 4
Vietnam leads in financial attractiveness
A.T. Kearney
15
16
BPO sector and generating $7.2 billion in revenues in 2009. Call centers make up the majority
of the countrys operations, at $5 billion in revenues, but growing BPO niches such as services
catering to the healthcare and pharmaceutical
industries help fuel overall growth. Amid fierce
competition from other regional players, the government has launched a plan to build a virtual
BPO university and extend training in call-center
skills to an additional 10,000 students to retain
its competitive edge. Meanwhile, Singapore is
32nd, as it once again is the global number one
in the business environment category but a
small labor force and high costs give it a relatively
lower ranking (see figure 5).
Chengdu woos Indian firms to invest in Chinas IT hub, Nearshore Journal, 1 March 2010.
A.T. Kearney
Figure 5
Singapore remains the leader in business environment
4.67
4.62
4.69
4.48
4.31
4.78
4.24
4.21
1.34
0.97
0.70 7.99
0.48
0.81 7.56
1.34
0.84
0.63 7.51
1.62
0.86
0.51 7.48
1.64
0.69
0.80 7.44
1.17 0.41
0.76 7.11
1.62
0.56
0.61 7.03
1.16
0.95
0.60 6.92
3.76
1.47
0.97
0.64 6.84
3.85
1.31
0.92
0.67 6.76
4.17
1.43
0.70 0.43 6.73
4.20
1.29 0.39
0.83 6.71
4.17
1.08
0.88 0.40 6.53
3.77
1.25
0.55
0.69 6.25
3.69
1.32
0.64
0.54 6.18
3.67
1.19
0.70
0.53 6.10
4.33
1.25
0.42 6.06
3.62
1.17
0.61
0.66 6.06
3.81
0.70
0.55 6.03
0.97
3.62
0.72 0.39 5.65
0.93
3.40
1.27
0.53 0.38 5.58
3.70
1.14
0.50 5.51
3.34
1.27 0.44 0.44 5.48
2.89
1.14
0.83
0.61 5.46
3.47
1.01 0.33 0.39 5.20
3.30
1.15
0.36 4.97
2.48
1.10
0.94 0.45 4.96
3.32
0.75 0.31 0.43 4.81
2.84
1.06
0.47 0.37 4.74
3.17
0.97
0.47 4.61
3.18
0.79
0.58 4.56
2.56
1.14
0.47 0.39 4.55
2.88
0.93 0.28 0.41 4.50
2.68
0.92
0.55 0.31 4.46
2.95
0.87
0.55 4.38
2.73
1.10
0.36 4.31
2.59
0.65
0.78 0.26 4.28
2.25
0.95
0.67 0.34 4.21
Country risk
2.62
0.98
0.30 4.13
2.36
1.03
0.41 3.94
Country infrastructure
2.54
0.95 0.41 3.90
Cultural exposure
1.97
0.71
0.80 0.38 3.86
Security of intellectual property
2.56
0.57
0.59 3.81
2.39
0.70 0.30 .032 3.71
2.02
0.84
0.52 0.32 3.71
2.35
0.96 0.29 3.63
2.16
0.99
0.34 3.56
2.00
0.90 0.25 0.26 3.41
2.40
0.66 0.32 3.38
Note: Values below 0.20 not shown due to space constraints.
0.53 0.36 0.29 2.52
Source: A.T. Kearney Global Services Location IndexTM, 2011
Glimmers of Hope
The headlines about persistent economic volatility may be here for some time. For the global services industry, the short term will remain rocky as
worries about sovereign debt, currencies and job-
1.64
1.64
A.T. Kearney
17
Authors
Erik Peterson is managing director of the firms Global Business Policy Council. Based
in the Washington, D.C., office, he can be reached at erik.peterson@atkearney.com.
Johan Gott is a manager in the Washington, D.C., office. He can be reached
at johan.gott@atkearney.com.
Samantha King is a consultant in the Washington, D.C., office. She can be reached
at samantha.king@atkearney.com.
The authors wish to acknowledge the contributions of their colleague Rodrigo Slelatt,
principal in the organization and transformation practice, and Nora Patio, a consultant
in the Mexico City office, in developing this report.
18
A.T. Kearney
Subcategories
Metrics
Financial attractiveness
(40%)
Compensation costs
Average wages
Median compensation costs for relevant positions (call-center
representatives, BPO analysts, IT programmers and local operations managers)
Infrastructure costs
Total workforce
University-educated workforce
Workforce flexibility
Attrition risk
Country environment
Infrastructure
Cultural exposure
Security of intellectual
property (IP)
Business environment
(30%)
Rental costs
Commercial electricity rates
International telecom costs
Travel to major customer destinations (New York, London and Tokyo)
A.T. Kearney
19
AMERICAS
EUROPE
MIDDLE EAST
& AFRICA
Abu Dhabi
Dubai
Johannesburg
Manama
Riyadh
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