Outsourcing providers diversify to survive protectionism

Once seem­ing­ly unstop­pable forces of glob­al­i­sa­tion and free trade are being chal­lenged by the rise of pro­tec­tion­ist poli­cies in many West­ern coun­tries. In turn, the future of off­shore out­sourc­ing is grow­ing increas­ing­ly uncer­tain, espe­cial­ly as US Pres­i­dent Don­ald Trump makes over­tures to with­draw from major trade agree­ments and the pop­ulist upheaval in Europe puts pres­sure on com­pa­nies to reshore their oper­a­tions.

Over­seas com­pa­nies are acute­ly aware of the dis­rup­tive mar­ket they find them­selves in, with the lev­el of con­cern vary­ing from region to region, accord­ing to Dave Heck­er, an off­shore soft­ware out­sourc­ing spe­cial­ist who has advised For­tune 500 com­pa­nies.

“Many large soft­ware firms in India express real con­cern about pro­tec­tion­ist poli­cies in the Unit­ed States because they rely heav­i­ly on US out­sourc­ing and are the biggest par­tic­i­pants in the H‑1B visa [exten­sion] pro­gramme. Mean­while, East­ern Euro­pean soft­ware ven­dors seem to have lit­tle con­cern over pro­tec­tion­ism in the US, as they have easy access to the Euro­pean mar­ket, which is small­er than the US, clos­er and very lucra­tive,” says Mr Heck­er.

Even before Brex­it and Trump, restric­tive trade poli­cies were being imple­ment­ed by gov­ern­ments across the globe

Even before Brex­it and Trump, restric­tive trade poli­cies were being imple­ment­ed by gov­ern­ments across the globe. Accord­ing to research by law firm Gowl­ing WLG, from 2009 to 2016, 5,657 Euro­pean Union direc­tives and mea­sures harm­ful to trade were enact­ed. While these poli­cies will obvi­ous­ly not have a pos­i­tive impact on out­sourc­ing-reliant com­pa­nies and economies, the urgent need for the effi­cien­cies and exper­tise offered by out­sourc­ing remains unde­ni­able.

There are few signs that the back­lash against glob­al­i­sa­tion is set to tail off any­time soon, but at the same time large cor­po­ra­tions still require employ­ees with spe­cif­ic skills and knowl­edge that can some­times be best locat­ed over­seas. A cen­tral issue crit­ics have of off­shore out­sourc­ing is the appar­ent job loss­es caused by it at home, although a recent study from Pro­fes­sor Nigel Driffield at War­wick Busi­ness School goes some way towards dis­pelling this claim.

Pro­fes­sor Driffield and his col­leagues inves­ti­gat­ed the impact that off­shore out­sourc­ing had on home-coun­try employ­ment over an almost 20-year peri­od and found “there is no evi­dence to sup­port the asser­tion that off­shoring will have a neg­a­tive effect on employ­ment at home’. Multi­na­tion­al com­pa­nies would be quite rea­son­ably con­cerned about off­shore out­sourc­ing, if they fear adverse pop­ulist reac­tions, but the true impact of off­shoring is more com­plex than a sim­ple sound­bite.

“Pol­i­tics and cul­ture aside, we sim­ply don’t have enough tru­ly qual­i­fied soft­ware pro­fes­sion­als in the US, so the idea that for­eign­ers are ‘tak­ing our jobs’ sim­ply isn’t true. It’s hard to imag­ine any admin­is­tra­tion enact­ing pol­i­cy that would have a huge neg­a­tive impact on the soft­ware indus­try and Sil­i­con Val­ley,” says Tom Quigley, chief exec­u­tive of think-tank Emerg­ing Europe Alliance.

Mr Quigley explains how a num­ber of Cen­tral and East­ern Euro­pean (CEE) out­sourc­ing ser­vice providers are start­ing to put boots on the ground in the UK, giv­ing them the abil­i­ty to con­duct reg­u­lar face-to-face meet­ings at an account man­age­ment lev­el. In the CEE region itself, there are calls for the cre­ation of new part­ner­ships and col­lab­o­ra­tions to improve its val­ue propo­si­tion.

“At mar­ket lev­el, busi­ness­es in Poland are part­ner­ing with busi­ness­es in Ukraine, and trade asso­ci­a­tions are shar­ing knowl­edge and data, co-host­ing events and col­lab­o­rat­ing more active­ly,” says Mr Quigley. “Busi­ness­es in the region are increas­ing­ly focus­ing on inno­va­tion and val­ue cre­ation, lever­ag­ing new tech­nolo­gies and talk­ing up their part­ner­ship method­olo­gies like trans­paren­cy, share of risk, access to future skills and emerg­ing tech­nolo­gies.”

The recent launch of the Emerg­ing Europe Alliance for Busi­ness Ser­vices, Inno­va­tion and Tech­nol­o­gy, which sets out to raise the pro­file of the region in glob­al mar­kets, is one exam­ple of the organ­i­sa­tions being cre­at­ed in response to threats of reshoring and polit­i­cal risks that chal­lenge the out­sourc­ing sta­tus quo.

This alliance will work to cre­ate a new ecosys­tem of ser­vice providers, advi­sories, star­tups and incu­ba­tors. “Because this is a plat­form at a scale which has nev­er exist­ed before, it will open up all sorts of pos­si­bil­i­ties for part­ner­ships, col­lab­o­ra­tion and fur­ther inno­va­tion, which we pre­dict will con­tribute to eco­nom­ic growth,” says Mr Quigley.

In a bid to stay com­pet­i­tive in an era of anti-glob­al­i­sa­tion, for­ward-think­ing out­sourcers are embrac­ing new ways of doing busi­ness. Sukand Ramachan­dran, part­ner at the Boston Con­sult­ing Group in Lon­don, believes that as the use of robot­ic process automa­tion and arti­fi­cial intel­li­gence tech­nolo­gies increas­es at com­pa­nies of all sizes, out­sourcers are chang­ing their ser­vice offer­ing.

“Out­sourcers are look­ing to har­ness the digi­ti­sa­tion wave and move pro­gres­sive­ly from being a provider of ‘smart labour’ at a ‘cost-effec­tive’ price to a provider of digi­tised activ­i­ties, charg­ing for out­comes and dig­i­tal activ­i­ties, or har­ness­ing dig­i­tal tech­nolo­gies to pro­vide val­ue-added ser­vices,” he says.