An overview of global sourcing Risks & Opportunities in India, Malaysia & Vietnam.
“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.” – Sun Tzu.
Why do some offshore programs succeed and others fail?
We often hear this question from clients who seek to achieve a smooth and successful transition of certain tasks or projects to an offshore location.
Some of the critical components of a successful globalization project take place long before the work is sent offshore. Building an optimal strategy that aligns with overall corporate objectives, choosing the appropriate global location and business model; selecting suitable third-party service provider(s) are some of the oft-discussed ones. One of the most important determining factors of the success of a globalization project takes place during the last crucial stage of the globalization journey: transition/offshore program management.
Global transition projects can be long and require consistent monitoring and tracking, which opens the door to certain common challenges. Small timeline lapses in critical-path processes can lead to major financial losses. Overlooking cultural nuances can lead to communication difficulties and strained professional relationships. Underestimating the complexity and breadth of change in business processes and communication models can have a severe impact on business operations.
The following seven simple steps go a long way in maintaining project discipline and ensuring project success:
1. Create and Abide by a Project Plan
A transition project plan is more than a list of goals and dates and timelines; it must detail the required steps to achieve key objectives and to move from one stage to another. A detailed project plan is a roadmap to success – it provides turn-by-turn instructions on how to reach a state of effective offshore program management.
2. Develop Detailed Roles and Responsibilities of Each Stakeholder
Most transition processes take time to execute and require an extensive level of detail. Establishing clarity around roles and responsibilities for each stakeholder, and obtaining buy-in from each of them, ensures transparency -and promotes accountability in executing on deliverables and meeting deadlines.
3. Set Up a Transition Program Management Office
A common challenge in large transitions is balancing transition activities with day-to-day activities for the transition managers. Often, day-to-day activities take priority over transition work, causing a lapse in transition project responsibilities. Setting up a formal Transition Program Management Office (TPMO) with regularly scheduled meetings is helpful in preventing these lapses.
4. Establish Appropriate Reporting Structure
A strict reporting structure is key to informing stakeholders of the status of the transition, and to resolve problems as and when they occur. Equally important is ensuring that the right stakeholders receive the right reports.
5. Stakeholder Education on Globalization
Incorporating an offshore project within an organization can have a big impact on business organization and processes. It also introduces cultural nuances as the onshore and offshore teams may have differing cultural norms and personal and professional etiquettes. It is important to address both the aspect of business transformation and cultural nuances to stakeholders in all global locations.
6. Foster Executive Support
An active and committed executive team promotes strong support at all levels of the organization. Leaders who are performance-oriented, take initiative and are consensus builders serve as the binding agent to a globalization project. They not only ensure proper oversight and intervene when necessary to resolve disputes in a timely manner, but also ensure that the transition process stays aligned with an effective long-term offshore strategy.
7. Build a Proactive Governance Model
A proactive governance model is critical to ensuring overall success of a globalization project, and must include an effective vendor management program as well as real-time risk monitoring. Important vendor performance metrics include those that measure leading indicators, key performance indicators, processes and learning, market data and industry trends. When establishing a monitoring program, it’s important to monitor not just SLAs but also location factors like labor pool, graduation rate, and entry of new players, as well as supplier metrics like attrition, negative news and acquisitions.
An overview of global sourcing Risks & Opportunities in Kenya, Russia & Egypt.
Change and transformation are becoming common phenomena across industries and around the world. From Media and Entertainment to Financial Services; onshore, nearshore or offshore, seems there’s nowhere to hide from evolving business models and processes. Despite some truly revolutionary developments, there is one business need that continues to be the main business driver for most offshoring decisions: reducing operational costs.
A recent study by Global Industry Analysts, Inc (GIA) suggests that businesses are increasingly turning to Business Process Outsourcing (BPO) to help them achieve key business objectives, including reducing operational costs. According to the study, the global market for BPO is projected to reach US$250 Billion by the end of 2020.
Why BPO? More than cost arbitrage, outsourcing certain business processes and activities to third-party providers has other tantalizing benefits such as leveraging economies of scale, standardized processes and specialized, low-cost talent.
To help capture the most value from your BPO operations, keep these three objectives in mind as you review your sourcing strategy.
1.Promote a culture of learning and awareness in your leadership team.
Encourage your leaders to maintain an intimate understanding of the sourcing landscape and stay current on state of market opportunities.
2. Maximize value from vendor relationships.
Review scope and scale of engagements, pricing model and delivery model across vendors to ensure that sourcing strategy is in line with business goals.
3. Ensure continuous improvement.
Invest in human capital, tools and technology, and ensure proper measurement and monitoring processes are created and implemented.
We find that clients that review their portfolio and vendor relationships at an annual cycle have better outcomes. Even if your sourcing portfolio and vendor relationships are optimal today, changes in the global sourcing landscape as well as in your internal requirements require frequent analysis and assessment to ensure continued competitiveness.
Visit the News & Knowledge section of www.neogroup.com to access additional thought leadership articles and see how others are leveraging globalization.
Filed Under: Trends
An overview of global sourcing Risks & Opportunities in Brazil, Colombia & Mexico.
The war for talent with digital skills is on.
In today’s digital world, technology talent is no longer reserved for IT firms. With industries across the world revolutionizing their business strategies in order to reach the increasingly more mobile and social consumer, competition for digital talent is at an all time high. How can you rise above the competition and bridge your talent gap?
Consider global talent. With burgeoning technology hubs throughout Latin America, and well-established destinations throughout Asia Pacific, the challenge may not be in finding digital talent but rather in knowing where to look. This phenomenon of going global to seek out digital talent is not without precedence; companies such as Amazon, Facebook and Thomson Reuters have explored the global digital support system with a great amount of success, especially in India and China.
For today’s digital leaders and Chief Digital Officers, effectively leveraging global talent enables organizations to take advantage of not only lower labor costs but also diverse intellectual capabilities, growth and quality enhancement opportunities, as well as the ability to get products to market more quickly. Successful CDO’s and global talent managers embrace a global and flexible mentality and constantly look for opportunities to improve—whether those opportunities present themselves in Michigan, Mexico, Malaysia, or anywhere in between. Much more than bottom-line labor costs and longer workdays, tapping into global talent can mean a more successful business, period.
Not surprisingly, the companies and leaders that are successful at managing a global workforce engage in similar practices—key practices that other companies, regardless of size, can emulate. Based on observations, trends and patterns identified over years of advising and working with global leaders, we have identified seven best practices of successful global leaders:
• Embrace Globalization
• Welcome Globalization as a Transformation Lever
• Adopt a Lifecycle Approach
• Align Business and Globalization Objectives
• Assign the Best People
• Implement a Strong Governance Model
• Embrace a Continuous Improvement Mindset
These 7 best practices are explored in detail in Atul’s second book, Globalization Wisdom: The 7 Secrets of Successful Global Sourcing], as well as in white papers www.neogroup.com
Contact a Neo Advisor to learn how global talent can be leveraged to meet your key digital objectives and address your business challenges in today’s rapidly evolving technology landscape.
An overview of global sourcing Risks & Opportunities in India, China & the Philippines.
An overview of global sourcing Risks & Opportunities in Kenya, Russia & Egypt.
An overview of global sourcing Risks & Opportunities in El Salvador, Nicaragua & Peru.
The following summarizes some of Q2’s more interesting developments from around the world as extracted from Neo Group’s Global Supply Risk Monitor℠ (GSRM℠), which tracks hundreds of the world’s leading Countries, Cities and Suppliers in the global services and sourcing realm. From thousands of observations, we’ve filtered a number of key highlights from Q2 with potential impact in the periods ahead.
Here’s what to watch:
1. The Rupee x Three? Perhaps the biggest ongoing news was the continued currency slide in the world’s largest offshore destination as the Indian Rupee hit lows of 60.76 per US Dollar. Paired with a high fiscal deficit and continued heavy capital outflows, the trend points to 2013 becoming the third straight year of net Rupee/USD depreciation with the accrued 2013 slide fast approaching 2011′s 18.8% overall decline. In the short run, the trend helps boost some suppliers’ results, but in the long run it may lead to buy-side clients seeking contract concessions. To read more, check out this recent article by CIO Magazine, How IT Outsourcing Customers Can Benefit from Weak Rupee.
2. Shanghai Goes Free. In China meanwhile, the State Council approved Shanghai’s newest Free Trade Zone. Don’t hold your breath for instant action, though – the new zone won’t be completed for another 10 years. Once finished, it could prove an alternative to the Hong Kong Free Trade Zone; although the latter has been highly desirable due to its sound legal system and market openness. In any case, a new Free Trade Zone is always an attractive option for opening new supplier delivery- or company-owned centers. Not content to stand still on the SEZ front, the Indian Government did away with the minimum land requirements for SEZs and has agreed to exempt service tax charges on developers and units operating within the country’s special economic zones (SEZs). The moves should benefit India’s IT industry.
3. Philippines Uptick. Over in the Philippines, strong government stability compelled rating agency Fitch to upgrade the country’s debt ratings from a ‘BBB-’ to ‘BBB’. That move should help prompt more investors to enter or enlarge their presence in the market. Over time, this will lead to a more mature outsourcing market.
4. Visas Down Under. During the quarter, Australia proved that the US is not the only buy-side location exhibiting anti-sourcing sentiments on the Visa legislation front. On June 28th the Australian Government passed changes to its ’457′ temporary work visa programs. These changes include a requirement that companies must hire Australian workers before considering immigrant workers for open positions, and they must pay Australian market salary rates to any foreign workers they do employ on a 457 visa. This could invariably increase supplier rates, as suppliers will end up spending more on offshore personnel traveling to Australia on 457 Visas, similar to the current US situation.
5. Split City. Country risk alone never accounted for all location risk, and India’s Hyderabad provided perfect evidence this past quarter. Political uncertainties again rose towards the end of the quarter, as the Telangana issue gained momentum ultimately leading to the bifurcation of the current state of Andhra Pradesh. Hyderabad is likely to serve as the joint capital. Tax revisions may be on the horizon. Hyderabad may adopt the VAT rate of either Telangana or AP. For a kicker, the city also faced increased power outages and an overall power deficit. While investors will explore coming back to the state, there remains much uncertainty around distribution of revenues, natural resources (power, water), tax rates, etc.
6. Mind Thy Neighbor. Q2 also offered us a reminder that Location Risk may not be a function of only the offshoring country in question. Pollution hit a peak in Malaysia, caused by smoke fog from Indonesian forest fires (??). That’s right, Indonesia. Malaysia had to declare a state of emergency in Johor. Schools and colleges were closed as the air pollution index in two districts exceeded 750 points, versus an acceptable level of 350 points. This is likely to bring down the Quality of Life rating in the country, always closely watched by ex-pats.
7. Vietnamese Boost. Vietnam’s software development industry posted strong growth in Q2 2013. The primary driver was Japan shifting from Chinese to Vietnamese providers (maybe they couldn’t wait around for that Shanghai Free Trade Zone). Moreover, economic recovery in the US, France and Germany also had a positive impact on the Vietnamese outsourcing industry. Despite these advances, the industry still faces difficulty in identifying new markets; evident in the fact that 70% of the total software export is attributable to Japan.
8. Enter Mother Nature. Geo-political risk was seemingly everywhere in Q2. India witnessed devastating floods in Uttarakhand in mid-June with over 6,000 feared dead, while Mumbai experienced monsoon rainfalls that disrupted trains, planes, automobiles and busses, stranding thousands of industry commuters. A major earthquake in the Sichuan Province of China killed 194 people and injured more than 12,000; while metro-Manila experienced massive June floods that paralyzed parts of the city. As if to again prove Geo-Political Risk is not limited to developing nations, torrential rains and severe flooding tormented Western Canada, and severe thunderstorms and snowstorms affected other parts of the country including Newfoundland, Saskatchewan, Manitoba, Ontario and Alberta, all leading to massive power outages. In Brazil, people proved as disruptive as Mother Nature herself as nationwide strikes brought millions of people to the streets over several weeks in a fight against corruption.
9. Bigger Pay Days. In Supplier news, no fewer than three Tier-I provider companies – Infosys, Wipro and TCS – announced wage hikes in the range of 6% to 8% for offshore employees and 2% to 3% for on-site employees. Meanwhile attrition rates ranged from 11% to 17% across GSRM covered suppliers. The equation means more stability, but perhaps some forward margin pressures, too. We’ll have to wait and see.
10. Inorganic Growth. Acquisition activity was significant during Q2, with Accenture agreeing to acquire Mortgage Cadence, closing on the acquisition of Acquity Group and Fjord, while IBM closed acquisition of SoftLayer Technologies and CSL International. Not to be outdone, TCS completed the acquisition of French enterprise solutions provider Alti SA. Perhaps more interesting than these acquisitions is WIPRO’s minority investment in Opera Solutions as well as its investment of $5 million in Leading M2M Platform Axeda. Investments in Big Data Analytics and cloud-based machine-to-machine companies may speak volumes about where the industry is heading.
11. The Tax Man Cometh? (Why stop at 10 when there’s an incident with potential impact to the industry’s future dealings?) On the heels of Vodafone, Nokia and Shell, industry provider WNS is the latest multinational that has come under the microscope of tax authorities on the subject of transfer pricing practices. Tax authorities in India are seeking an additional $101.9 MM, stemming from WNS’s acquisition of the UK-based Aviva’s BPO services. The company, however, has challenged the Income Tax (I-T) notices in the courts of law. Stand by for more.
These, and many other developments in the second quarter ending on June 30, remind us that the countries, cities and suppliers we turn to for effective global delivery are ripe with constantly changing risks – and constantly changing opportunities – that require proactive monitoring in order to achieve program success.
Global Supply Risk Monitor (GSRM) is the leading cloud-based supply data, analytics and monitoring subscription tool. GSRM monitors location and supplier risks and opportunities on more than 350 parameters across 50+ Countries, 100+ Cities, and 200+ Suppliers. To learn more about GSRM visit us at http://www.GlobalSupplyRiskMonitor.com or contact us at firstname.lastname@example.org.
Authors: Neo GSRM Team
Filed Under: Trends