Critical Factors to Consider Before Selecting a Nearshore Location, Part 4: Service Specialization

Critical Factors to Consider Before Selecting a Nearshore Location, Part 4: Service Specialization

A nearshore location’s talent pool is second category analyzed in the TTIFC whitepaper “7 Critical Factors to Consider Before Selecting a Location in the Booming Nearshore Market.” In the weeks to come, we will publish more sections in an ongoing series that will further break down the aspects that go into the nearshore decision-making process. You can also read the introduction and other sections here:

Service Specialization

What smaller countries lack in breadth, they can make up in depth. Finding an area of specialization can help countries that might otherwise get lost in the pack, stand out from other locations that have a larger population from which to draw or longer track record of which to boast.

Johan Gott, an analyst at Chicago-based global consultancy AT Kearney, points to non-nearshore countries that have developed a specific reputation: Hong Kong for customer service and voice work, Sri Lanka for accounting, and Egypt for engineering-related services.

Unless the country has a billion people, he says, it’s usually well served by putting its resources into one area. “When you’re not India, with the breadth of talent that India has, then you have to really start prioritizing,” says Gott. “Especially if you’re going to invest from the government perspective, in terms of support, you really need to think about, ‘How is the niche that we are playing in better than anyone else’s?’”

Increasingly, this means higher-level services and industry-specific expertise. That’s because the bare bones work is getting to a point that it can be done anywhere. It is becoming a commodity — and that is generally when price wins out over everything else.

In a way, this is what has helped drive the overall nearshore trend. Lower-level work can still be done in India at a larger scale, and generally at a lower cost than anywhere else. But the reason that the nearshore is often now more appealing is that companies are looking for a provider that can become more of a partner rather than simply a task fulfiller.

This is especially pronounced in some areas of software development, particularly when the “Agile” method is deployed. Because this requires more real-time interaction, it simply makes more sense to have partners that are in a similar time zone. While many Indian shops alter their business hours to work through the night and always have personnel available for live communication, most acknowledge that this isn’t an ideal solution. (Some analysts have suggested that this method of dealing with the time-zone challenge sometimes means the company isn’t getting cream-of-the-crop developers since those with more clout in their company may refuse to work the night shift.)

Moreover, it doesn’t solve the travel problem. Executives may not actually make a site visit that often after operations begin, but spending a few hours on a plane to stay two nights in the Dominican Republic, or even Colombia, can be accomplished relatively easily a few times a year without suffering a major schedule disruption. But going to India is a whole other can of worms, requiring two full days in the air alone and the unavoidable jetlag nightmare.

The same concepts apply to the nearshore. When the work is low-level — and it can be set up to essentially run independently with minimal need for ongoing collaboration — then price matters more. But if the work being done is something that more resembles a partnership, then the cost becomes less important relative to proficiency.

“If the need is about fulfilling a pretty basic transactional customer-care service or sales campaign, maybe they will be more willing to look at emerging countries,” says Sebastian Menutti, an industry analyst at San Antonio-based consulting and research firm Frost & Sullivan. “But if they’re looking to fulfill a more complex service — maybe a tier three or four high-tech service or maybe an advanced back-office service — then they will be looking for a more mature market.”

Costa Rica is a standout in this regard. It made its name in customer service and contact centers, attracting interest from US companies for its proximity, good educational track record, and low crime rates compared to regional peers. But it didn’t rest on its laurels. It used this early success as a stepping stone to start offering more complex

services. And now, the contact centers — while still abundant — are being superseded by IT outsourcing services, software development, and KPO services. “It’s not so focused on contact center services right now,” says Menutti.

IBM is one of many companies that has found a regional home in Costa Rica. In 2011, it doubled down and expanded its already substantial presence in the country with a $300 million investment in a new customer support center and announced plans to hire an additional 1,000 workers.

“We chose Costa Rica for our newest center for the strong working alliance which exists between the public and private sectors, for the quality of the city of San José, its competitive business model, and the talent and skills offered by the Costa Rican people,” said Patt Cronin, general manager of global technology delivery at IBM, at the time.

Salil Dani, a vice president in the global sourcing service line for the Dallas-based consulting and research company Everest Group, says that the country still has a ways to go to compete with the tech-specially giants but that it is on the right path.

“Costa Rica doesn’t have a large, talented IT pool like a Brazil or a China or an India,” says Dani. “But still, even if they are able to train some talent for ITO skills, that will really strengthen the proposition of Costa Rica even further. Because then people can look at it not just as a location for voice and Business Processing Outsourcing (BPO) but also doing some IT work.”

For some locations looking to gain a foothold, this model — starting out broadly with lower-level offerings then moving up the value chain — may be the way to go. Jamaica and Peru are two examples of countries that are making some headway with this approach and have developed somewhat mature sectors that are beginning to attract some BPO work.

“Emerging countries usually have high risks and they usually offer a lower price point,” says Dani. “So they usually start with attracting contact-centre services and more basic services — meaning customer care, transactional customer care, sales — and then they start to move up the chain.”

Others, however, may be better served by looking to delve into their niche fully rather than trying to compete on price in what is increasingly becoming a commodity of low-end services. Trinidad and Tobago, with a push toward financial services, is embracing this strategy and has convinced the likes of Canadian banking giant Scotiabank to invest substantially.

“In Trinidad, the finance sector and the oil and gas sector have created an ecosystem of accountants and finance analysts that you can repurpose for similar work going offshore,” says Gott. “So there’s also a trained labour force there.”

(Photo credit: Bilder_meines_Lebens / Pixabay)

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