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Outsource magazine: thought-leadership and outsourcing strategy | September 22, 2017

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Q&A: Professor Philip Taylor, University of Strathclyde

Q&A: Professor Philip Taylor, University of Strathclyde
OUTSOURCEXPLORES THE FUTURE OF SHORING WITH SCOTTISH DEVELOPMENT INTERNATIONAL

Philip Taylor is a Professor at the University of Strathclyde, Scotland, and the author of numerous works on call centres, offshoring and business process outsourcing. To launch our Xplores series with Scottish Development International examining ‘The Future of Rightshoring’, we spoke with Professor Taylor about the trend towards rightshoring, the drivers behind location decisions, and what lies ahead in the way of challenges and opportunities…


Outsource: Professor Taylor, can we begin with your idea of what you consider to be the current state of rightshoring?

Philip Taylor: The starting point for what might be termed as rightshoring is to grasp a company’s position in global service delivery, or global sourcing. Remote locations – offshoring to developing countries (which classically has tended to be – at least in terms of publicity focus – around call centres or the back office from the UK or the US to India) tended to be conceived of a one-to-one relationship. So companies in developed countries, the UK and US, send call centre services to India and the centres there serve customers in these geographies. This kind of one-to-one relationship seemed to fit the early years of remote outsourcing or offshoring.

What has happened over the last half-decade or so has been a change in which buyer companies if they are larger, or suppliers if they’ve got greater capability, have tended to locate different facilities and different services in different locations. The suite of global locations has grown. Now it could be that an organisation might offshore English-speaking voice services to India or the Philippines, but might at the same time seek to utilise Eastern Europe for IT solutions or perhaps Latin America for a Spanish-speaking voice capability. So what have emerged have been multi-locational strategies as the scale and complexity of offshoring and outsourcing have grown.

Now within this global service delivery, the question of the most appropriate location for a particular type of service has arisen, which might be termed rightshoring. This formulation is essentially concerned with a mix of quality and cost. Cost is obviously a very important factor driving offshoring, the relocation of business services, but is by no means the only one. The questions of labour capability, labour skill, labour quality, infrastructure, supportive government policy, political stability and so on are factors that complement and probably qualify skill, so it’s within this decision-making scenario that organisations are trying to adjust the appropriate mix of ’shore’ locations.

There are three important strands. First of all, there is remote offshoring. India and the Philippines remain easily the most important destinations for business process outsourcing (BPO). In fact, there are now more call centre operators in the Philippines than there are in India servicing the international market. IT-related services and the different types of non-customer-facing BPO activity are still resourced to the greatest extent from India.

But the multiplicity of offshore destinations has also grown. Despite South Africa’s earlier promise, it has not grown to the extent that was anticipated. The Middle East – and for a period Egypt – grew significantly as well. There are a host of destinations servicing the English-speaking world, but none of them have the scalability or the importance in terms of value that India or the Philippines have.

The second strand is nearshoring which involves the relocation of a service or a process to a geography adjacent to the home geography. The classic example might be here Canada to the United States, where historically labour costs might be cheaper but they share a similar time, culture and so on. To an extent nearshoring has been chosen because it has less risk than remote sourcing albeit that it generally involved a higher level of cost than going to India or the Philippines.

Scotland might be considered to have a nearshore relationship to London and the South East of England: on a similar land mass, same time zone but the costs can be 25 to 30 per cent lower. Cultural complexity and linguistic congruence are advantages so for these reasons the ability to provide relatively complex services at a relatively lower cost does have an attraction over and above the pure labour cost arbitrage that is supposed to prevail in offshoring to remote countries.

The third element is onshoring. That essentially means keeping located onshore services that might otherwise be either nearshored or offshored.

With rightshoring, there are additional options including “homeshoring”, essentially homeworking. While this does not offer a scale solution, it certainly seems to fit and be appropriate for some organisations, where skilled people with the appropriate skills might be living in dispersed communities.

So rightshoring is adjustment, or a selection by an organisation of the appropriate skill sets, in the appropriate locations, at the appropriate costs to deliver services as part of a wider global service or global service delivery paradigm.

O: It does seem that it is very much a case of horses for courses, then, in that for each individual organisation there might be a very different shoring recipe. Do you find that the various capabilities of the different geographies provide for similar industries, similar sectors to be utilised in the same clusters for example?

PT: I think that’s an interesting question. One has to have a look at the overall profile of the services to have moved internationally and globally. We know that of offshored business services, historically, about 50 per cent or more have been in financial services. This includes big insurance companies doing standard insurance claims and policy processes, basic bank functions, all the main functions where a degree of standardisation occurs, so the vertical sector that has been responsible for most offshored activity has been financial services. This is followed largely by telecommunications and then by a diverse range of different industry verticals: IT/computer services, retail, hospitality, hotels, transport, tourism.

What is important to recognise is that what has tended to be moved offshore have been the most standardised and transactional of services in terms of call centres. This is not exclusively the case. Some computer help desk activity is of a greater complexity, but in the main in terms of voice services lower complexity workflows have tended to move. In terms of back-office services, span of complexity is greater: everything from routine data processing to relatively high-level, high-end analytical processes.

Now clearly these are going to find different location points in terms of the skill mix available for them. You wouldn’t, for example, find multi-lingual call centres being established in India. You have multi-skilled linguistic hubs in Eastern Europe but they do not tend to be of such large scale and you find there’s a locational factor. It’s similarly true of different types of back-office activity as well.

O: So turning to our topic of the future of rightshoring: how do you see this changing going forwards in terms of both new locations emerging and new capabilities emerging within existing locations such as Scotland?

PT: One overall trend that’s important is that when relocation takes place it tends to be accompanied by a business process re-engineering, that is to say a process – particularly if it’s a back-office process – is examined, reengineered, and then lifted and shifted to another location. And it might be reduced in complexity, if it is being delivered remotely.

One unanticipated consequence of offshoring has been that the labour markets that exist in the principal offshore locations of India have been shallower than people imagined them to be. Just because you have millions of graduates leaving university every year does not mean to say that they are all capable of immediately working in the BPO industry and interrelating with customers in the west. NASSCOM, the Indian industry organisation, has estimated that somewhere between three to five per cent of all of those who apply for a job in Indian BPO are actually going to get taken on.

So there are a lot of divergences if you like between potential capability and actual employability; the level of linguistic and cultural congruence, and tacit knowledge are important. And this has meant that the labour market has been tighter; the demand for labour has exceeded supply over many years leading to levels of job turnover, attrition, wage inflation, which have led in turn to a certain amount of overheating in some of the key locations in India. It seems to be the case that high attrition rates are also happening in the Philippines.

The consequence has been a general rise in labour costs. When this is combined with concerns over quality of customer interaction this can – and I’m using the conditional here – lead to the greater attractiveness of nearshore delivery, in the sense that you’ve probably got a higher guaranteed level of quality, less attrition. The cost gap between the remote location and the domestic location has possibly narrowed over time, so there’s been an important change. What appeared to be the unalloyed attractiveness of going abroad has been qualified by concerns over rising costs and quality.

The big decision last year was taken by Santander to make sure that its call centre activities were going to be all delivered onshore. Now, of course, these are voice services and the same constraints of customer interaction do not apply to the same extent to back-office activity. That is an important distinction. I think one thing that will happen going forward, is that there will be more of a segmentation between voice and other forms of non-customer-facing activity. There is clearly a trend to reshoring – i.e. contact centre services coming back to the UK.

O: So there could be obstacles ahead?

PT: Well I think political instability is a question here. As I said before, rising costs or tightening labour markets in remote locations can lead to a greater attractiveness of nearshoring or homeshoring. Protectionism may also be an issue in the United States especially where there has been a lot of rhetoric about the need to keep services onshore.

Each OutsourceXplores is a separate content series created in collaboration with a commercial partner. The Outsource editor retains final editorial control of course. For more information write to jamie.liddell@outsourcemagazine.co.uk

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