Consider the Source

Checklist for Multi-Provider, Multi-Country Sourcing Initiatives

By James Lofton, Director, TPI

Implementing a multi-provider sourcing strategy across multiple countries requires tight coordination between business units, finance, legal and internal contract management. Success depends on an appropriate commercial structure, well-managed multiple-provider service delivery, smooth invoicing and allocation processes, and optimal service levels.

Note these TPI Top 5 questions and their answers, which will be unique to your organization, when considering a multi-provider, multi-country sourcing strategy:

1. How do we create a suitable commercial structure? Cross-border taxes and cross-subsidization are key factors in determining a commercial structure that best serves your multi-provider initiative. Whether you use a central agreement that covers all countries or a Master Services Agreement (MSA) with local agreements for each country, your commercial structure should allow for service delivery and legal and finance implications that work in your favor.
   
   
2. Is the provider capable of delivering services in multiple countries? Service providers need to deliver services under a flexible commercial structure that can handle local, in-country invoicing and billing in local currencies. Be sure your providers have managerial and legal entities to assure appropriate and legally sound agreements with multiple countries.
   
   
3. What is the optimal multi-provider management approach? The provider management approach for any multi-provider initiative should be based on the culture of your organization, your internal capabilities and your availability of skilled staff. There is no “one size fits all” solution nor a formula that will provide this answer. Whether you manage providers internally, through an outsourced service integrator (SI), or using Governance-as-a-Service from a third party, be sure your management strategy contributes to your sourcing goals.
   
   
4. How do we invoice in multiple countries? The most favorable invoicing approach will depend on your commercial structure. Invoicing may be centralized, invoiced by country to a single legal entity, invoiced by country to multiple legal entities, or a combination. The main consideration in deciding the best approach is the cost of local invoicing and allocations versus the financial impact of cross- border taxes and cross subsidization. Depending on the amount of the invoice and the scope of services delivered within a country it may be more beneficial to invoice centrally and not by country.
   
   
5. What is the best way to ensure service levels? Whether service levels are equivalent across varying countries or each country has independent service levels, the best strategy will define service levels as end-to-end across multiple providers. In-country service levels can be managed locally, while service levels that are comparable across multiple countries may be managed globally, keeping in mind the particulars of in-country service defaults and service credits. A combination of global and local service levels may provide the most flexibility.

For more information on multi-provider in multi-country sourcing initiatives, e-mail James Lofton or call +1 775 250 2933.

China's Golden Sourcing Opportunity

By: Michael Rehkopf, Partner & Director, TPI North Asia

A decade ago, the sourcing market share of Indian-heritage service providers was a puny 1 percent. Today, it is approaching 20 percent. Will an emerging group of Chinese service providers achieve similar growth and reshape global competition in the process?

TPI has been working with the Chinese Ministry of Commerce (MOC) and the China Council on International Investment Promotion (CCIIP) since 2009 to accelerate development of the sourcing market and establish protocols designed to make the country more attractive to multi-national corporations seeking to diversify their global sourcing footprints.

The China Sourcing Summit we organized last summer with the MOC and CCIIP, aimed at promoting development of the domestic outsourcing industry, not only identified the challenges for clients and service providers wanting to capitalize on these opportunities, but also shared ideas on how they can overcome them.

While rapid growth is a possibility for this group, the outsourcing environment today is different in four important ways:

1. Global service delivery is the new normal. Today, two thirds of all transactions include offshore delivery.
2. More contracts are multi-sourcing arrangements instead of large, exclusive contracts with one provider. This increases opportunities for providers as more companies were multi-sourcing at a higher volume in 2010 than any company was sourcing at all in 2000.
3. Today there are more providers with more capabilities in more locations. With a greater number of providers competing for a share of the global market, service providers are standing out by touting their geographical locations, specializations and better costs.
4. Outsourcing clients are saving more money (about 33 percent more than seven years ago).

Traditional concerns about the Chinese market (IP and data privacy issues as well as language) could be constraints. But so far, opportunities in the outsized domestic market and the strong support of the national government have been too enticing for global service providers, large captive centers and organizations looking to expand their China business to pass up.

Those that do not consider China in their long-term strategies risk losing the opportunity to take part in the growth that will accompany the shift from an early adopter phase to an expansion phase in China.

Debunking the Myths Surrounding Sourcing Services in China

By Scott Furlong, Partner, TPI

Sourcing manufacturing from China is very commonplace today and has been a solid sourcing alternative for a number of years. Sourcing services (IT, Finance & Accounting, etc.) from China is a much more recent trend that is picking up momentum very quickly. This summer, the Chinese central government hosted a sourcing summit in Hangzhou that attracted hundreds of interested clients and service providers. 

While participants learned a great deal over four days, we noted these TPI Top 5 myths about services sourcing from China that should be debunked:

1.  “China is an embryonic, less mature delivery location for services.” China is home to more than 9,000 service providers delivering services from Chinese delivery centers. Large multi-national service providers are also present there, and the vast majority of the China-based providers are small, rapidly growing companies.

2.  “Chinese service providers are simply trying to emulate their peer companies in India.” This couldn’t be further from the truth. Speaking with dozens of Chinese service providers made it evident that the choice for many is to serve the domestic market — not to provide services to global companies with business in Asia. Most of the providers do not want more than 40 percent of their business mix to derive from foreign clients.

3.  “Data privacy violations are rampant in China.” In private conversations most service providers acknowledged this perception. While they struggled to identify any instances that they were aware of in recent years with their own companies or their competitors, many acknowledge that data privacy laws still lack some “teeth” — notably in enforcement — so the industry sees a need to police the data privacy issue itself.

4.  “The Chinese government is a barrier to setting up delivery centers.” This is another myth where the truth is completely opposite. The Chinese central government and regional governments are actively setting up and promoting 20 model cities to attract service delivery centers. This includes building the infrastructure ahead of the curve and creating incentives for foreign academic institutions to set up campuses in China. The incentives can be extremely enticing.

5.  “Software and technology companies are the only major vertical industries engaged in sourcing in China.” The Offshoring Research Network at Duke University has reported that software and technology verticals make up only 38 percent of the current market and that Chinese service providers project the largest growth to come from Finance and Insurance, Healthcare, Education, and Automotive verticals during the next several years.

The enthusiasm and optimism in China at this time for sourcing services is contagious. Many more myths are waiting to be debunked in the coming years. Will you be a participant or a spectator?

TPI specialists can guide you through evaluating your China sourcing options, whether simple or complex. For more information e-mail Scott Furlong, Partner, TPI or phone him at +1 330 721 2940.

Globalization and Signs of Optimism

By Dinesh Goel, Partner, TPI

Economists may call it a “V” shaped, “W” shaped or any other shaped recovery of economic growth, but the reality is most providers have expressed signs of optimism recently about the business scenario going forward. Further, there seems to be a consensus that the downturn has hit bottom and that there is no looking further downward. While it might be arguable whether these signs of hope are misplaced just yet, there is one lesson the leading service providers have clearly learnt – the market for their services is not just in the western or developed economies.

Service providers have taken action and improved their focus on markets outside their traditional markets of demand during the last few quarters. These actions not only reflect their sales targets in new regions and economies, but also their new, more globalized delivery network. I am talking about markets such as Latin America, Asia Pacific (other than Australia), Central, Eastern and Northern Europe etc.  In my view, this was going to happen anyway, but the recessionary conditions over the last 12 months have added pace to this impending change. We, at TPI now notice Tier I providers competing neck-and-neck for business in more and more regions and countries

The day is not far when the Tier I providers will be serving the needs of industries, consumers and governments across the entire globe and rise to become true global service corporations.

 

Tips for Making IT Service Management & Governance (SM&G) Work

By Andrea Spiegelhoff, Director & Head, SM&G Competency, EMEA, TPI 

If you are planning to establish, re-design or improve your IT service management and governance (SM&G) operations, here are five key considerations for making it function most effectively:

1.  Align the organisation to the business environment. IT organisations have become more sophisticated in managing their service providers; but on the other hand, effective service provider management is tied inextricably to the buy-in and cooperation of the business. To this end, establish IT operations with one face to the customer and service provider. Today’s sourcing models provide end-to-end services from multiple internal and external service providers, covering an integrated service catalogue, demand management, chargeback, etc.

2.  Plan for change. SM&G organisations should be as flexible as the businesses they serve. Create yours in a flexible way from the outset so that it can keep pace with change in the overall enterprise. Because organisations often have difficulty initiating change, use an impartial third party to provide insight and methodology for issue identification and remediation. Apply change management practices throughout the sourcing life cycle to make the necessary adjustments in philosophy and business execution to institutionalise the needed changes and enable effective SM&G. The mantra is “communicate, communicate, communicate!”            

3.  Find the right balance between centralised and local IT decision making. Take a close look at the drivers for centralisation versus decentralisation. The balance of decision-making power between centralised and local IT functions will have a major impact on the sizing — and therefore the cost — of the SM&G organisation. Most organisations have experienced organic growth in their SM&G function as the services matured, with attendant cost ramifications. External benchmarks can provide a useful tool to help evaluate the sizing of the SM&G organisation against market best practices.

4.  Retain the right skills within your organisation. An organisation is only as good as its people. Even if you are confident that your employees have the right skills to deliver excellence, continuously benchmark these skills by asking these questions:

  1. What are the considerations, skills and capabilities necessary for effective SM&G?

  2. How can we assess available resource capability and skills?

  3. What can we do to maintain these skills in the long run?

At each stage in the life cycle, the issues to be managed are different, and that often drives an evolutionary approach to organisation, sizing and required skills.

5.  Create transparency in value creation and costs. Implement a central “gateway” process for all IT expenditures and projects to give a clearer view of customer demand and to help control decisions and costs across IT. Alongside this, establish a formal SM&G operating model and processes. These approaches will help to realise value and reduce any strife and conflict in the service provider and internal customer relationship.

The establishment of a strong and supported SM&G operating model will bring the organisational capability to its highest level. Interested in establishing IT SM&G operations or improving the process you have? TPI’s SM&G specialists can help you achieve your organisational goals through objective advice, knowledge of your industry and experience with SM&G arrangements from simple to complex.
Contact us today to learn more.

Read TPI’s new research report on SM&G in Europe.

New Mecca of Outsourcing – Middle Eastern Region

By Dinesh Goel, Partner, TPI

As the outsourcing industry globalizes, new regions and countries are joining the bandwagon both as markets of demand for outsourced services as well as to supply talent for servicing the demand.

With the onset of 2009, TPI has targeted a few countries/regions as new geographies for offering sourcing advisory services. The selection criteria, apart from other factors, obviously included the current volume of outsourcing activity and the medium term potential of these markets. The mid-east region is one example.

In discussions with prospects, service providers and market influencers, we find that this is an interesting and encouraging market for multiple reasons.

• Firstly, we find that in places such as Dubai, businesses are going through a severe downturn due to current economic pressures – a phenomenon that is fueling interest and potential demand for outsourced, or even off shored, services.
• Secondly, in general the consulting industry is well established for important initiatives which are complex, transformational, unprecedented or potentially risky. That seems to be the trend with both the public and private sectors.
• Thirdly, there is considerable demand for implementing contemporary IT solutions and infrastructure with large spends as organizations want to become more competitive and prepare for growth in countries such as Saudi Arabia.

An important indicator of the growing interest in outsourcing: Arab Outsourcing Conference is being held for the first time ever this year in Dubai. The organizers are bullish about senior level participation in this conference.

However, outsourcing of services – other than AMC or break fix support contracts – is not an established and mature model for the most part across the region. Hence all interested market participants should expect, as in any other such market, to spend cycles educating the buyers of these services on the benefits and risks involved.

I am very interested in learning from your experiences and thoughts on this region.

 

Globalization of Outsourced Services Industry

By Dinesh Goel, Partner, TPI

The outsourced services industry is morphing into a truly globalized industry – and sooner than later. This acceleration is fueled by the current recessionary conditions in the traditional markets of demand for outsourced services. I believe this is a desirable by-product of the current downturn.

Large service providers – both of multinational and Indian heritage – are challenged to achieve growth and profitability in their current large markets. However, if you carefully review the results of Accenture and IBM vs other (read: Indian heritage) providers, you will find that there is a much higher degree of resilience reflected in their results despite the current gloom and doom environment. What is that attributable to – clearly the good old principle of diversification of their books of business. Not all economies are reeling under the same degree of pressure, and on top of that, the emerging economies are highly under-penetrated (read: immature) in their services outsourcing. All in, it makes perfect sense for providers to look elsewhere when faced with challenges in the more developed markets hence their focus on markets such as India, Brazil, the Middle East, Central Europe, China etc.

Additional flavor of this globalization trend is that it is bringing home the point – one size doesn’t fit all – very emphatically to the providers. Each market has different nuances, and it’s not just a cost arbitrage (off-shoring) play. Markets are at different points of maturity in their trajectory of services outsourcing, not to mention very different economic growth rates, cultural and linguistic factors, regulatory scenario etc., thus requiring differing winning themes in creating healthy outsourcing demand. The value propositions range from variable capacity on demand, investments from providers for supporting high business growth needs, specific service delivery capabilities to increase speed to market or service delivery performance, innovative solutions, commitments to allow predictability of cost and performance over time, releasing management bandwidth to focus on core business, transferring the headache to service provider for delivering competitive services on a contemporary infrastructure, multi tenancy platform based solutions, etc or any combination of the above.

I believe this trend will compel the service providers to enhance the maturity of their service offerings and capabilities, thereby contributing to the overall higher level of industry maturity and globalization. Who said everything related to the current business environment is gloomy?

Sharing the Pain

Today's blog comes from Peter Allen, Partner and Managing Director, TPI.

I spent last week in India, meeting with leaders of several prominent India-based IT/BPO services companies.  I also met with a few reporters.  You can only imagine the number of times the same question was asked:  What’s the likely impact of the U.S. financial services crisis on the IT/BPO ecosystem in India?

Financial services firms have been among the most prolific employers of the India technical populace.  While their loss to bankruptcies and acquisition over the recent weeks doesn’t directly translate into job impact in India, the fact of the matter is that pain will be shared across the globe.

Without any specific attribution, I will tell you that there is a decidedly alarmed tone among the corporate leadership in India.  Forget about particular client relationships, such as amounts owed by Lehman Brothers to its service providers.  Rather, the concern is as much social as it is corporate.