AT Kearney highlights the impact of automation on outsourcing

September 15, 2014 | News, Technology, Uncategorized

A.T. Kearney released its Global Services Location Index (GSLI) today, which analyzes and ranks the top 51 countries worldwide based on metrics in three categories: financial attractiveness, business environment, and people skills and availability.

But tellingly it’s a new entrant that is most noticable in the report – that of “no location” outsourcing using Robotic Process Automation.

The GSLI brings rigor to companies’ location decisions in the globalized services labor market, in particular for back-office functions, such as IT and business process outsourcing.

The study examines the trajectory of offshoring cost arbitrage to low-cost developing countries, the rise of new locations, and the fact that there’s ample room for growth.

“Technology’s relentless progress continues to transform in unanticipated and fundamentally different ways, not only where work is moving to, but how it is done,” notes Paul Laudicina, A.T. Kearney’s chairman emeritus and co-author of the study.

Following are the key findings:

• India, China, and Malaysia are the top-ranked offshoring destinations.
• Bangladesh enters the GSLI ranking for the first time, at number 26.
• Despite expectations regarding second-ranked China, India maintains, and even increases, its lead against China.
• Automation, using robots to perform for even less than low-cost labor, is becoming increasingly accessible.

In the 2014 GSLI ranking, India, China, and Malaysia remain the top three offshoring destinations, and Asia continues to dominate, with six of its countries among the top 10. Central Europe offers mature industry and highly skilled players at around 50 percent of the cost of Western Europe, and that cost advantage increases in Southeast Europe. However, the advantage has to be balanced against a more immature industry and regulatory landscape. The Middle East and North Africa benefit from their proximity to Europe and a large pool of talent. Meanwhile, North America continues to offer attractive opportunities outside of its tier 1 metropolitan areas.
Course correction starts: new countertrend brings work back in-house.

According to the 2014 GSLI, after aggressively outsourcing back-office operations in the mid-2000s, multinationals are reassessing their outsourcing strategies. The research identified a course correction wherein some functions are being repatriated from vendors back to the use of companies’ own service centers and employees (captive centers). This is particularly true of IT, whose strategic importance has vastly increased over the past decade with the advance of digitization.

Observes Erik Peterson, study co-author, partner, and managing director of A.T. Kearney’s Global Business Policy Council think tank: “What was once a decision based primarily on cost-effectiveness has now started to incorporate other considerations, for example, whether the function is core to the business and therefore needs to be brought back in-house, as well as external regulatory factors impacting business relationships, accountability, and the ability to protect intellectual property and customer privacy.”

Is no location the next location?

The index also points to a future of “no location,” as greater automation and freelance outsourcers make physical location less relevant. “Over the past several decades, we’ve gone from a world where organizations that once had just one location now have dozens. In the future, however, as quick and easy deployment makes automation feasible for whole new categories of jobs, we may move to a world of ‘no location,’ ” says Peterson.
Johan Gott, co-author and senior manager at the GBPC, adds, “With the rise of ‘no location,’ countries in the low-value-add niche may see their opportunities erode, so they’ll need a strategy to aggressively move up the value chain to stay relevant.”

 

 

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