EquaSiis Brief, Time to Move Offshore Onshore, Final, Mar 2009 (E1003)

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EquaSiis Brief Analysis and Commentary on the Global Business and IT Services Markets

Time to Move Offshore Onshore? www.equasiis.com | 1

The Situation: Time to Move Offshore Onshore?

Stan Lepeak , Managing Director, EquaSiis Global Research

There is a growing sentiment among some business and information technology (IT) services

market pundits that the offshore tide has begun to ebb and buyers are shifting their interest back

toward locally delivered or onshore services. They believe that negative events like December’s

terrorist attacks in India and the financial implosion of Satyam – as well as the growing

protectionist attitude in global markets espoused by the new administration in the United States –

are dulling customers’ appetite for offshore services. Additionally, they feelthat the business case

for offshore services is eroding as a result of flat to declining wage rates and a growing pool ofavailable talent in local markets, which make looking offshore for reasonably-priced labor

unnecessary.

It is more common today for customers to bring work closer to home that was previously done

offshore and locally source new efforts that would typically have gone offshore in the past.

However, are these scenarios the exception or the norm? EquaSiis sees them as the exception.

Sourcing efforts depend on a buyer’s situation, the scope of the services required, the goals of its

business case and the service providers involved. Outsourcers should reassess their onshore,

nearshore and offshore offerings and update the processes that they use to determine the optimal

service delivery combination for different buyers in different situations. But a big push to switch

their focus onshore is not advisable for most providers today.

The Context

Outsourcing market delivery will continue to globalize and evolve away from point-to-point

models like the one that exists between the United States and India. While this provides more

opportunities for both buyers and service providers, it also creates more complicated and fluid

sourcing models.

Buyers of third-party business and IT services are becoming more sophisticated and

uncompromising in the models they employ for global sourcing and putting an increasingly wider

array of functions and processes on the table. Customers demand cost reductions but also seek

innovation in how services are delivered, such as more process automation and improved

functionality. In addition, they are deploying a broader range of service delivery options, including

local shared services and offshore captive operations, third-party Software as a Service (SaaS),and IT and business process outsourcing (ITO/BPO) services. Finally, buyers are looking to

diversify their service delivery locations to mitigate risk, source services closer to those who use

them, and take advantage of the cost levels, skills and capabilities available in different markets.

They are gaining a better understanding of what type of work is best performed on-site (high-touch

and interactive), locally (collaborative and requiring local domain knowledge), and remotely

(repetitive, self-contained and rote).

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Service providers must strategically build out their global delivery footprint to respond to these

evolving customer and prospect requirements. This involves more than simply supplying thelargest number of services from the most locations. Merely having a local and global presence is

table stakes; optimally putting it to use provides the competitive advantage. Increasingly, the

outsourcers that win business are those that can effectively articulate why their delivery model

best meets a buyer’s needs and help customers navigate through the decision making process of

where to source services from and why.

The Advice

Business and IT service providers need to move beyond touting their global delivery prowess

and focus on developing the best point-in-time models to meet specific buyer needs.

There are several things that business and IT service providers must do to ensure they are

prepared to adapt to changing buyer preferences and needs, including interest in or demand for

sourcing options closer to home or onshore.

Evaluate and reevaluate the service delivery mix in light of current market conditions.

While it depends on a customer’s situation, EquaSiis is seeing more demand for on-site or

onshore work to move off-site or offshore. The obvious reason behind this trend is a desire to

increase and maximize cost savings. In addition, experienced buyers are now more

comfortable with certain work being performed offshore or off-site that was previously done

on-site or locally, thanks to improved service provider capabilities.

Providers should reassess their optimal delivery mix across all services provided and present

their updated model to customers and prospects. It is important to keep in mind that certain

work – such as highly sensitive, regulated tasks and those that require better language skillsand cultural affinity – is more appropriately sourced locally or on-site even as the total volume

of off-site or offshore work continues to grow.

Map and prioritize clients and prospects to the preferred service delivery mix. Service

providers must tailor their offerings to meet specific customer needs and target buyers whose

delivery model preference maps to their “sweet spot.” Even if they have done this well in the

past, providers should reassess their model and adjust to changing customer circumstances.

However, there is no need for random or excessive customization. While there is a difference

between standardized functional, process and IT models for service delivery and the global

sourcing model employed, the two are interconnected. Homogeneous offerings delivered via a

standard set of global models benefit both outsourcers and buyers through lower costs, more

consistency and the adoption of standard best practices. Customers within predefined profilescan select a model that best ties in with their wants and desires. If they do not find an

appropriate fit, a provider can choose to approach them as an exception or deprioritize the

opportunity.

Proactively address the onshore question where it exists. Once outsourcers are

comfortable with their current global sourcing strategy and model, they should proactively




reach out to customers and prospects. If buyers express an interest in onshore services,

providers should work with them to determine if this change will ultimately help them moreeffectively achieve their goals and, if it will, decide whether to support this shift or move on.

Clearly articulate the benefits of a specific service delivery mix. Many providers struggle

to articulate why their global delivery model is a good or the best fit for a buyer’s business

case. It was easier to address this point when the primary goal of global sourcing was finding

the cheapest option. Price, however, is no longer a strategic differentiator, especially as

buyers increase their expectations regarding the benefits they should receive from global

sourcing. Providers must map their capabilities to customer requirements and also help

buyers discover additional needs that their organizations can fulfill.

Build in flexibility, recognizing that the optimal service delivery mix will change over

time. The “best” global service delivery model is a point-in-time concept. What’s consideredcutting edge today may not be feasible tomorrow given changing buyer needs, global

economic conditions and service provider capabilities. This is a constant challenge in

multiyear contractual outsourcing arrangements.

Improving capabilities involves crafting more flexible customer relationships, implementing

proactive processes to identify and adapt to evolving needs, and developing the ability to

continuously transform a global sourcing model based on changing market conditions.

Assess the regulatory wild card. New and emerging regulatory mandates will impact the

sourcing decisions of some customers, particular those in the public sector and those

receiving bailouts through government initiatives such as the Troubled Asset Relief Program

(TARP) in the United States. In some cases, more onerous regulations – or strings attached tofunding – might specifically mandate how buyers can source services. More typically,

however, these factors will either indirectly impact the decision making process or have no

material impact on it at all. It is very difficult to explicitly prohibit outsourcing, offshore or

otherwise, especially with a determined buyer. EquaSiis does not expect these regulations to

significantly influence sourcing decisions in most organizations, especially given buyers’

overarching need to reduce costs and overhaul operating models.

What’s Next?

“Going global” is just the first step in becoming or remaining a competitive business and IT

service provider. The next phase of market evolution will focus on how to best define, map

and deliver services that address specific client needs by employing an integrated onshore,

nearshore and offshore delivery model.

Business and IT service providers working with Global 2000 organizations must rethink their

global service delivery offerings and models in light of current market conditions. A variety of

economic, regulatory and personal preference factors will drive some buyers to source more third-

party services locally or onshore, but overall the volume of global and offshore services sourcing

will continue to grow.




This presents two key challenges for service providers. They must identify how the preferred mix

of onshore, nearshore and offshore services is changing across functional areas in their customerand prospect accounts. They must also help buyers fully understand the options available and

how their specific capabilities will meet the buyers’ needs. The increasing breadth and complexity

of global sourcing is creating more complications and difficulties for outsourcers, but in these

challenges lay opportunities for competitive differentiation and gain.

Related Research

The Top Ten Things Outsourcing Service Providers Should Do in Tough Economic Times

http://www.equasiis.com/white-papers-podcasts-and-resources/briefs/registration-required/the-top-ten-things-outsourcing-service-providers-should-do-in-tough-economic-times






About EquaSiisEquaSiis, an EquaTerra company, provides software and services that

improve the business support services lifestyle for shared services,

outsourcing practitioners and service providers. The software,

EquaSiis Workbench and EquaSiis Enterprise, is a framework for

collaboration used during the service delivery assessment and

sourcing process to assist in analysis and decision making for shared

services or outsourcing. EquaSiis provides intelligence and

optimization for the delivery of business support services across the

entire organization. The company also offers service providers market

intelligence, research, customer satisfaction and trending data through

its Insights group. For more details about EquaSiis’ research offerings,

please contact Stan Lepeak, [email protected].

www.equasiis.com

Media ContactsRon Walker, EquaSiis

+1.858.486.6035

[email protected]

Lee Ann Moore, EquaTerra

+1.713.669.9292

[email protected]

Copyright © EquaTerra 2009. All rights reserved. The prior written permission of EquaTerra is required to reproduce

all or any part of this document, in any form whether physical or electronic, for any purpose.


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EquaSiis Brief, Time to Move Offshore Onshore, Final, Mar 2009 (E1003)