By guest author Tony Scott
Tony: What do you think are going to be the big changes? Obviously, the pure labor arbitrage model is not going to go away entirely; it is going to continue to move to whatever locale is the lowest cost. The fact is that the “flattening” of the world means I can put people anywhere. From a pure labor arbitrage point, it doesn’t matter where the people are located as long as you can manage the process.
Shami: I can manage it if I have the right resources.
Tony: I was in Kenya a couple of years ago, and they had just put in this new high-speed cable around the Indian Ocean and the Arabian Sea. Now, this is the place where BPO outsourcing ought to be happening, because you have an educated populace who is looking for any kind of work whatsoever. While that may not be a big percentage of the populace in Kenya, they are educated and they speak English arguably with less of an accent than do many Indians or Pakistanis, and the time zone works well for Europe. So, if you consider that as an alternative, you realize that you can keep moving further and further down the price curve, because there is always going to be somebody else who is going to be working for a lower cost.
Shami: The thing is, the cost picture will never go away. The fact of the matter is that this recent financial crisis has made cost much more of a critical factor in the decision making of companies. But if you look at the macro trends in outsourcing, what has happened is that the services have changed. For example, we are very much into promoting infrastructure management. That was about 10% of our market, and it has now become 20% of our market. The vertical mix has changed tremendously; there are publishing and entertainment companies that are now with us because they have problems because their business models have changed so significantly. The mix is changing, and you have to be prepared for it.
For many industries, their entire business model has taken a dramatic shift. In the music industry, digitization and devices like the iPad have come along, and they have changed everything. These changes have a significant impact, and we have to figure out how to address them. Similarly, if you take energy and utilities, they are going through dramatic changes.
The other thing I think is becoming a big factor in driving how outsourcing is changing is the concept of client intimacy.
Tony: Tell me a little about what you mean by that.
Shami: The thing is, today clients want you to take risks, and there is a lot of talk about value. It is no longer just providing services; it’s adding value. Everybody talks about it. But what does it really mean? How do you create it? The only way to do it is to have intimacy with your clients. If your strategic interests can be so closely linked that honestly you can’t figure out who is the client and who is the provider, if you can do that and you do it more profitably than you would be able to do independently, that is the ultimate goal.
The entire market is becoming much more complex, business paradigms are changing, and there is a no longer even “financial services” as such. You are servicing in so many different ways that you would never have thought of earlier, so everything is becoming complex. This complexity is making it such that almost no company can say, “I can do it all by myself.” That is why you need to be able to partner with somebody.