News of economic slowdown in US and all other news pertaining to economy in US and elsewhere is an indicator that wealth creation is not going to be limited to some pockets of the world but will happen in many other parts of the world like China, India, Brazil eastern European countries and erstwhile socialist/communist states which were in past shackled by inward economic policies. Growth of internet and internet economy will also spawn net-economy.
Though all businesses needs to take cognizance of the these changes but I will like to restrict this post to what these changes imply for IT/BPO companies who have till now focused on North America and to a lesser extent on Europe as their primary market.
Past to current
- All the IT/BPO companies based their business model on typical "american" customer and created delivery models and offerings around it. Ascent was given to cost reduction by leveraging labor arbitrage and taking traditional outsourcing models to offshore delivery models. Some even called this model "Global delivery model", which I believe is a flawed definition as the model was created with "American" enterprise in picture and with American labor cost as a major driver
Emerging World
- This model restricts competitiveness of traditional IT/BPO companies to provide differentiated services in emerging economies like China and India where labor arbitrage cannot be a driver. Over and above the service lines and areas of competencies of incumbent IT/BPO service firms may find very few customers in these regions
- Many other industries like automobiles and consumer and electronic products are quick to realize the market potential in these economies and have aligned their supply chain, marketing and value chain to tap the potential in these markets. Some of them have successfully realized the differences and have setup shops here. IT/BPO companies are still grappling with fundamental question of what value proposition to offer to customers in this region and have either adopted a cookie cutter approach or have completely ignored these markets, I should say at their own peril.
- It will be a challenge for these companies to de-construct their existing business framework to come up with a viable value proposition. The current model is about large campuses housing thousands of people to operate huge back offices. Labor arbitrage (even now) provides enough margin for these players to invest on expensive infrastructure and huge salaries for people doing simple tasks. This model will never offer a viable service option to businesses in emerging economies and they are better off keeping their value chain in-sourced
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Interesting post Ashish... I agree with you.. In fact, recently I read an article published by Knowledge@wharton which mentioned
ReplyDeletethat the Indian BPO sector is set to grow to a $50BN market by 2011/2012. There is a tremendous potential out
there which the IT/BPO companies can tap into. But, they would need to change their business model and look for different skill
sets in customer service rep to tap into this market..Some of these are - a) training costs might come down (accent training no longer required),
the ability of the customer service rep to speak multiple languages and other skills would be more crucial..
b) To reduce costs, companies would invariably have to move to tier 2/3 cities..
Thanks for the post and keep them coming..
-Aravind