Opportunities and risks in 5 global outsourcing locations

A look at some of the key trends impacting IT and business process outsourcing locations around the globe—from U.S. veterans entering the IT outsourcing talent pool to currency fluctuations in China and Latin America to the geopolitical situation in Ukraine.

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The Indian government launched Digital India in 2015 to transform the nation into a digitally empowered society and knowledge economy. The initiative aims to integrate government departments and the people of India by making government services available electronically.

The initiative also includes connecting rural areas with high-speed Internet networks. This initiative has three core components, i.e., creating digital infrastructure, delivering services digitally, and increasing digital literacy. Each of these components can potentially create several opportunities for the global services industry, across India-based and multinationals firms. Digital India offers four key opportunity areas for companies:

1. Direct business opportunities: Digital India initiative has the potential to generate business opportunities worth $3-4 billion annually for the Indian IT-BPO industry. On the technology side, it is likely to provide opportunities ranging from infrastructure (e.g., network), to hardware support, to application development and maintenance. One of the key objectives of the initiative is to reduce paper work by increasing digitization. This is likely to create opportunities on the BPO front, especially in digitizing existing documents (e.g., data processing and document processing for BPO companies).

2. Access to “new” data: Digitization of existing and new records, usage of more digital devices and mobile applications, etc. will result in generation of huge volumes of data. It will provide opportunities for companies with analytics capabilities to help analyze this vast amount of data.

3. Increase in availability of talent: A core component of the initiative is to improve digital competency among the people of India. The government plans to provide training programs for imparting technical skills. This will likely create opportunities for companies providing trainings/competencies. At a broader level, this will result in improvement in employability of the talent pool. Consequently, companies will be required to spend less on training. An increase in availability of talent, especially in tier-2/3 locations, will provide companies with an expanded talent base.

4. Cost savings: The initiative envisages creation of a digital infrastructure, which also includes connecting rural India with high-speed optical fibers. An improvement in technology infrastructure would make it easier for players to leverage tier-3/rural locations for setting up delivery centers. This will result in additional cost savings of 25-35 percent over tier-1 cities in India, thereby making the Indian IT-BPO industry more cost-effective. 

5. How specifically will China's currency situation impact its future as a key IT or BPO location?

What should service providers understand about this? How about outsourcing buyers? Over the last year, the Renminbi has dropped ~4% compared to the U.S. dollar. This devaluation is largely seen as market-driven currency movement. It must be noted that while historically there has been policy interventions by China in governing the exchange rate viz. U.S. Dollar, the Chinese government appears to be making a cautious effort to make the currency fluctuation more transparent and market-based. This is also reflected in the inclusion of Renminbi in the SDR currency basket by the IMF.

Going forward, the Renminbi is expected to further devalue over the next few years. This currency depreciation coupled with low consumer price inflation and wage inflation is expected to present an attractive opportunity for both buyers and service providers operating in China. If currency movements remain in line with the current projections, the IT-BPO companies will likely benefit due to an increased cost arbitrage over the next two years.

Copyright © 2016 IDG Communications, Inc.

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