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The Global Landscape Evolves: Offshoring's Risks and Opportunities

The popularity and proliferation of offshoring will continue to grow as business becomes increasingly globalized. Balance the risks with opportunities for rewards.

Spring 2011
Offshoring remains attractive for companies seeking to reduce costs, access talent, or improve global delivery capabilities. In the coming years, more companies will seek to deploy business processes offshore. As competition in these locations mounts, the offshore landscape will evolve in terms of geographic options and complexity.

Evolution of Global Activities
Early in the evolution of offshoring, companies sought a select few global locations that achieved low cost with acceptable risk. Over time, as companies realized success in supporting business activities from distant locations, they began to consider offshoring higher-value and complex business processes. Today, organizations consider even their most sophisticated activities for deployment to markets around the world.

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Offshore Maturity: Concept and Location
Offshore maturity refers to the evolution of business activities in a given market from the initial investment phase to a state of maturity. When a business process is first introduced in a new offshore location, it is considered a pioneer activity, meaning there are relatively few comparable offshore activities in the market. But over time, as the number of companies deploying similar activities in the market grows, a trained and skilled labor force emerges. In certain instances, rapid expansion of like activities results in an oversubscription of the labor force that supports the activities, resulting in a saturated labor environment where demand for talent exceeds supply.

Labor conditions are a primary indicator of an offshore location's maturity at any stage. Since certain business activities require more than one labor profile, a single location may represent multiple phases of maturity. For example, in a given market, the labor supply no longer meets the demand for qualified call center employees; it is considered saturated. Yet the same market has only two companies supporting local engineering activities. That market is considered pioneering.

Expanding Global Options
As business activities reach saturation in legacy offshore locations, access to the right labor becomes more challenging. In response to these deteriorating labor conditions, companies have explored broader location options for investment, which governments have promoted. But as the list of emerging options grows, companies must note that the value propositions and labor profiles vary significantly among locations - especially depending on the activities being considered for deployment.

Aligning Business Requirements with Location
As available location options multiply, businesses must align their activities targeted for offshore deployment with the locale's ability to support those activities. The alignment between labor needs and market capabilities often determines "what" is supported "where." But determining where to deploy operations is easier said than done: The list of possible locations is lengthy and the qualitative nature of variables requires extensive research for even an initial high-level evaluation. Some critical considerations include cost, ability to source the right talent at the needed scale, quality of acquired talent, ability to retain new talent, labor regulations and their impact on operational flexibility, and the effect of collective bargaining on operations.

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