Are traditional offshoring locations exhausted?

One of the questions I get a lot when I talk to people these days is about my WHY. Why did I engage in yet another venture?

Well - I've always been told that the most successful companies create products or services that are borne out of people that have somehow gotten frustrated with something and are trying to find ways to address that.

Over the last few years, I was confronted on a near daily basis by structural issues in the IT Services market & with my new venture, we offer solutions for some of that.

Over the past 25 years, I have participated in projects within global organizations aimed at enhancing their operations while optimizing cost and efficiency. This has sometimes involved outsourcing, a process I've experienced from both the customer and supplier perspectives. In other cases, it meant establishing Shared Services, which I have helped develop in both in-house and outsourced forms.

For the past decade, I have successfully managed IT services in one of the most demanding markets in the world: South-East Asia. I've also worked in the US, Latin America, and Europe, each with its own unique challenges. However, I've become convinced that anyone who can deliver value in South-East Asia is likely to succeed globally.

In my experience, customers in South-East Asia place an almost unique emphasis on value being delivered at the lowest possible cost, making offshoring and labor arbitrage essential for financial success. The region is also highly detail-oriented and has extremely high expectations of excellence from suppliers, often to the extent that projects to stall when vendors can't provide sufficient detail (and thus assurances). Therefore, someone who can create value in South-East Asia can manage high customer expectations, address their concerns, and keep projects moving. If they can do this while making a living, they possess a unique combination of communication, negotiation, and technical skills, making them truly valuable.

But I digress; let me return to my main point. In recent years, I've primarily focused on regional delivery, with Singapore serving as my headquarters. Logically, I've worked with offshored teams, and I've observed that especially in the last 5 years or so in working with traditional offshoring locations like India, the Philippines, and Malaysia, certain patterns have emerged that, in my view, now significantly complicate successful delivery.

Now, what do we seek in an offshored location?

• Quality of people (education, mindset)
• Continuity (directly related to quality of service)
• Favourable financial context (cost)
• Favourable legal context and political stability

Over time, I have observed that traditional offshoring locations have evolved and, in a way, become exhausted, failing to meet one or more of these critical criteria.

Allow me to elaborate:

1. Economic Maturity: Many traditional offshoring locations, such as India, China, and the Philippines, have matured economically. This maturity has led to higher labor costs and reduced cost advantages compared to earlier years.
2. Talent Saturation: In the mature offshoring locations, there is increased competition for skilled labor, leading to talent shortages. This can impact the quality and availability of services and causes issues with continuity
3. Regulatory and Political Changes: As countries mature, their citizens expectations evolve, which leads to changes in local regulations, labor laws and political climates. This affects the attractiveness of traditional offshoring destinations.
4. Presence of the Big 4, Fortune 500 and even Joe Sixpack: In the early days, offshoring markets that are now mature, had limited footprint of foreign companies running operations there. Over time, every next company started operations - even the laggards have set-up shop in meanwhile.

So here's my observations:

1. Severe competition for resources in the established off-shoring locations leads to high attrition (50-60% in markets like India & Philippines)
2. Maturation of markets means new, younger generations come into the labour market, with a very different work ethic and expectation... read: less inclined to go the extra mile, "life over work" & work/life balance (whatever that is - isn't work part of life, really?) and much higher financial expectations, reducing or fully wiping out the cost benefit...
3. Loyalty & commitment to a higher cause is something that in any mature market wanes & this is no different in mature offshoring markets. People that are committed to a cause without exception deliver better outcomes - if people are just in it for the pay check, this is reflected in the outcomes, too. Finding those people that want to commit, is increasingly hard in the traditional off-shored locations.

All of the above results in extreme challenges to deliver quality, sustainably, over the long term. And this is where my frustration lies & which triggered me to start anew, combine my decades of learning experiences in setting up global service organisations with the ambition of emerging markets. Thanks to the specific & conducive context, we can create & deliver unparalleled value, at least for the next 15 to 20 years, as we once did from the now matured off-shore locations.

So what about those, then - are they really entirely exhausted? As with anything in the world, the answer is in the eye of the beholder - it all depends on what one seeks...

Maturing markets always shift their focus to more Value-Added Services: There is a shift towards offshoring more complex and value-added services rather than just cost-saving measures. Mature offshoring locations are evolving to offer higher value services such as research and development and innovation.

Today, it is every more clear that to deliver excellence, one needs to source in emerging Destinations: Newer offshoring destinations, such as Vietnam, are emerging as viable alternatives and allow creating the benefits of old: lower costs and a well educated, largely untapped ambitious talent pool that is willing to go the extra mile.

In summary, while traditional offshoring locations may be facing challenges and changes, they are not necessarily exhausted. Instead, they are evolving and there is a place for them in the global game.

Companies need to continually assess the benefits and drawbacks of their offshoring strategies, considering new emerging destinations, technological advancements, and broader economic trends.

The beauty of emerging markets is the fact they are malleable & we can build a future vision, incorporating the newest technologies while leveraging off the eagerness of a young and ambitious population. I look forward to a bright & exciting future.