Key Low-wage Offshore Locations: A Comparative Study

Key Low-wage Offshore Locations: A Comparative Study

This section attempts to analyze key offshore destinations that are likely to emerge as the hubs of the BPO and KPO sectors. A comparative assessment of key lowwage Low-Wage-BPO-KPO-Locations destinations, with respect to some critical parameters, is provided in Table 3.
The above-mentioned destinations offer both IT and non-IT BPO services. Among them, India offers the widest range of IT and non-IT BPO services; the Philippines currently offers mainly BPO services; and Israel and Russia offer niche services especially in the IT offshoring domain. The maximum benefits of offshoring are currently being realized in the Philippines and India. Moreover, China and India are geographically best located to provide 24x7 support although the Philippines is a close contender in this aspect. From the perspective of cultural compatibility and with respect to proficiency in written and spoken English, Canada, Ireland and the Philippines seem to score over other countries.

Investment and labor policies have been made ‘offshoring friendly’ by most governments in these countries. Countries such as India, Russia, and Israel have the requisite talent pool to move up the value chain and provide KPO services.

The major impediments faced by offshore destinations taken up in this study are their small talent pools (e.g., the Philippines, Ireland and Israel) and non-English speaking population (e.g., China and Russia).

Future Outlook

Globalization of services is in its nascent stage. In fact, even in the IT services sector, only 1.9 percent of the total jobs are being carried out in low-wage countries. By FY 2010, we expect the following scenario:

• Commoditization of low-end services is likely to occur because the potential barriers to entry are minimal.

• New business models will be created and older ones will cease to exist. The next level of productivity improvements may emanate from this ‘creative destruction’ of the current ‘supply chain of services’.

• Many new business models will rely on re-arranging the supply chain of a given ‘process’ and on using IT to enhance productivity. One such interesting new model of conducting research has been provided in the Appendix.

• By FY 2010, India and other such destinations might become too costly to provide low-end services at competitive costs. Therefore, low-end work may move to relatively cheaper countries such as Ukraine, Belarus, the Czech Republic, and Malaysia.

Offshoring is Likely to Restructure the Global Workforce

With the proliferation of global offshoring and distributed delivery models, the emergence of a strictly onshore services workforce (as part of Tertiary-A) and a global information and services workforce (as part of Tertiary-B) is expected, as depicted in Figure 3.

Appendix

Emerging KPO Sourcing Models – InnoCentive: A Case Study on Research and Development

Global sourcing is constantly evolving, as industries are exploring new avenues to increase the scope of their operations and become globally competitive. With increasing R&D costs, US firms are finding it difficult to train their employees to carry out research. Therefore, these firms are increasingly on the lookout to tap the available talent pool. This has led to the emergence of a new R&D model that is being called ‘open innovation’.

Large corporations are reducing their internal spending on R&D and are increasingly tapping external resources to solve their problems. A case in point is InnoCentive, an independent venture launched by Eli Lilly and Co., which enables firms to tap into the global scientific community. Figure 4 illustrates the sourcing model used by InnoCentive to leverage the globally distributed scientific talent pool.

InnoCentive is an interface between corporations beset by unsolved R&D problems and the global scientific community. The scientific community assists corporations to solve their problems by submitting solutions via the Internet. InnoCentive already has over 30,000 scientists from more than 125 countries around the world. Table 4 provides the geographic split of the scientific talent pool that is registered with Innocentive:

Large chemical companies such as Proctor and Gamble (P&G), Dow Chemical Co. and BASF regularly post their problems by using the services offered by InnoCentive, and are realizing quick and cost-effective solutions to their problems. These companies usually pay between USD 5,000 and USD 100,000 per problem, in return for the Intellectual Property provided by the external scientists in solving their problems.

According to a study conducted by the Technology Review magazine of the Massachusetts Institute of Technology, most leading companies in struggling industries, including aerospace, computers, semiconductors, and telecommunications have trimmed their R&D budgets over the last few years. However, the pace of innovation has not really slowed down because many of these companies are now offshoring their R&D work to captive centers or third parties located in low-wage countries.