How Is Nearshoring Changing?

IBA Group
Mark Hillary

The British technology magazine Computer Weekly recently published analysis by Professor Ilan Oshri of Loughborough university on how the European nearshoring market is adjusting to a more mature environment. In particular how different markets are aiming to distinguish themselves from the pack.

I wrote about this research from Loughborough university last month, but the constant push to regionalisation rather than globalisation – as I mentioned in my last blog – made me find this research again. In the context of the political activity in Europe and the USA, this is worth visiting again as it is taking on increased importance.

Anyone who has attended a nearshoring or outsourcing conference in Europe knows how the various regions promote themselves. PowerPoint slides are loaded full of statistics demonstrating government support, a steady flow of graduates, great local companies, and a low cost of doing business. In most cases though, the consistently positive messages from one presentation could be used by another country without anyone noticing that the message had changed – because the message in each pitch is largely the same.

Professor Oshri suggests that we should take it as read on the basic measure. Most European countries have good airports and a supply of graduates, so anyone considering nearshoring will be looking at other factors – the companies and trade bodies in those regions should appeal to these factors:

– Higher Value; what higher value can working in your region offer? What sets your companies or country apart? Are there particular industries you excel in or skills that are hard to find?

– Ability to partner; suppliers today need to move on from the traditional client-supplier relationship and become a part of the value chain. They need to be true partners, not just hired help.

– Innovation; many companies today are looking to their suppliers for advice on innovation. Innovating throughout the supply chain is becoming much more common – are you able to innovate for your clients?

In short, Professor Oshri is suggesting that when companies look to nearshoring regions they are looking for much more than just a low cost place to do business. If you are still marketing your region as low cost with a great airport then you might be losing business just because you are not looking ahead to the type of relationship companies really want.

In an environment where managers are thinking in detail about how to ensure processes are closer to home, this is more important than ever.

Try thinking of how your location is different. What differentiates you from the others? Focus on this, even if it is a niche difference. It will make all the difference in a nearshoring market that is growing fast as companies focus more on developing regional partners rather than long distance offshoring.

Regionalisation Beats Globalisation After Election Surprises

IBA Group
Mark Hillary

There was an interesting analysis of the trend towards regionalisation published in business magazine Forbes just before the recent holiday season. It explored how the Brexit vote in the UK and the election of Donald Trump as the US president might change business behaviour.

Politics went through something of a shock in 2016 and 2017 may hold further surprises in Europe with elections in the Netherlands, France, Norway, the Czech Republic, and Germany all coming soon…

But what does Forbes mean about a change in business attitudes and how does it affect those in the IT business?

The answer lies in the growing nationalism seen in the USA and many European countries. There is a growing desire to show that jobs are being created and managed close to home, or at least closer to home than before.

In European technology circles this is likely to manifest itself with less trust in technology suppliers from Asia – particularly China and India. Many of these companies are highly professional leaders in their industry, but as consumers start becoming more wary of strategies such as outsourcing and offshoring, it is likely that managers buying IT services will look closer to home. As Forbes suggests, the trend will be towards European regionalisation, not globalisation.

It is unlikely that markets such as the UK or Germany will create enough new technology professionals to ensure all work can be performed locally – and the cost would be prohibitive for most organisations anyway – but these consumer attitudes will favour technology companies in Eastern Europe.

The Central and Eastern Europe (CEE) region has long marketed itself as a European alternative to China and India. Allowing European companies to work with partners that are close enough for a day trip to be possible. Now they will have an additional advantage, the growing political and social unrest about long distance offshoring.

It’s good news for European technology companies as Europe remains close – organisations in Europe buy 69% of their goods from other European companies. The USA may be a more complex scenario as President-elect Trump has already talked about scaling back drastically on the H1B visa that most foreign IT professionals use when working in the US.

Whatever happens with the politicians, the direction of travel is clearly towards nearshoring as a preferable solution. The era of the world being completely flat appears to be over. Welcome to an era of regionalisation.

Nearshoring Back On The European Outsourcing Agenda

IBA Group
Mark Hillary

The debate over nearshoring and more remote offshore outsourcing has rumbled on for years in Europe. The debate over voice contact centres was fairly conclusively resolved a while back, with it becoming clear that most clients prefer their contact centre to be closer to home, but the broader IT and IT services market has still embraced all kinds of outsourced model.

However in all the outsourcing predictions for 2016 I have seen the resurgence of the European offshoring model several times. For example, a recent report by the analyst Global Remote Services says:

“Nearshoring will continue to gain momentum in Eastern Europe – nearshoring is fast becoming an option which is seen as being more skill specific for businesses with a mixture of complex, high-end projects as they realise the value in keeping outsourced work close to where the business generally is. Nearshoring in Eastern Europe will continue to grow as it becomes attractive and competitive to the UK market, and also much ‘nearer-to-final-customer’ and ‘easier-to-manage’ versus far-shoring.”

We all know the typical arguments when comparing Eastern Europe to a more remote location, such as India, but I think it’s important than advisors are now focusing heavily on skills availability.

Outsourcing has long been considered a “lift and drop” business strategy, which is how it got the reputation for being all about saving cash. Let’s take a process, lift it out of the business and drop it completely into a supplier and get the same work done for less. That’s the old approach, but times have changed.

The boundary of organisations has become more blurred, particularly when expert skills are needed. Organisations are hired to provide those skills, but they work in the office of the client, with the client team. The client and supplier merge together to create a solution today, rather than the client firing an entire department and dropping those processes offshore.

Outsourcing has become a more mature business strategy and with a greater value placed today on skills and partnership, it’s no surprise that nearshoring is returning to the boardroom agenda.

Belarus: Old Masters of IT in Europe

Mark Hillary

Last month, I visited Minsk in Belarus. It’s not a place that too many Europeans visit because a visa is required to enter the country and at this time of year it is bitterly cold. But I wanted to see what was happening in the technology industry in Belarus so I went as a guest of IBA Group along with Peter Ryan, an analyst from Ovum.

My first impression on arriving in Minsk was astonishment. I have been to many countries in Eastern Europe and several that were behind the old Soviet Iron Curtain, so I had a preconception of what I might see, but the first thing I noticed was that the road from the airport into the city was so smooth and new, it would be a skateboarders dream surface.

I had expected to see an environment similar to that in Moscow, plenty of historic buildings and many examples of the old communist architecture – big concrete blocks in my non-architect view. However, my first thoughts on seeing the buildings in Minsk were that it resembles East Berlin. The city is felt very European and very modern.

Minsk Independence Square
A local described to me how Minsk has been completely renovated over the past twenty years. Naturally this is the period since the end of the Soviet Union. Many churches that are hundreds of years old, but fell into disrepair during the Soviet era, have been beautifully restored and there is an enormous resurgence in worship. The Orthodox and Catholic churches that I took a look at were all busy even during daytime in mid-week.

During our stay, Peter and I visited one of the development centres of IBA Group. This company was born in Belarus in 1993 and now has almost 3,000 people all over the world and customers in 40 countries. They are now headquartered in the Czech Republic, which means that they are based inside the EU, but they maintained a software development facility in Minsk – a team that is growing so fast they have commissioned an entirely new building that is under construction now.

IBA Group is an interesting company because they are focused on complete solutions, rather than software development alone. A good example is the public transport ticketing system they developed for use in Minsk – it’s very similar to the Oyster card system in London. However, they put together all the card readers, terminals, and software needed to make it work. They are also able to earn from the knowledge the system provides on how people move around the city – sometimes this data can be more valuable that the IT system itself.
Minsk Central Post Office

Minsk does have some distinct advantages for the technology industry that are not obvious unless you have explored Belarus in person. During the Soviet era, Belarus was the IT and technology hub for the entire USSR. Belarus supplied over 60% of all the IT and technology systems used in the Soviet Union meaning that there is a long heritage of technology knowledge as well as deep expertise in a variety of technologies.

This heritage of working with technology may also explain an important cultural difference with other technology hubs, such as India. When teams of techies are assigned to a project in Belarus they usually feature a range of ages, experience, and knowledge of many technologies. The culture of being an engineer or technician remains strong in Belarus, so an expert programmer doesn’t feel shame in remaining ‘just’ a programmer and not pushing for promotion to systems analyst or project manager.

This is a big difference in my opinion. I have worked with many software development teams and trying to maintain some stability was always a challenge with people quitting for a few bucks extra at a competitor down the road or angling for promotion just because their family believe it’s time they had a ‘better’ job title.

The autocratic nature of the Belarus government counts against the international image of the country – this cannot be denied. However, I asked several people about the reality of living there and everyone I talked to dismissed the ‘last dictatorship of Europe’ mantra as a cliché.

The government doesn’t like political opposition very much, but is extremely supportive of international business and it struck me that it would be hard to criticise Belarus and then feel comfortable doing business in China, Singapore, or Vietnam. All countries where the government is far more controlling than Western Europeans are used to and yet it cannot be argued that the regular man on the street is oppressed in any way in Belarus.

I went to Belarus to learn more about the IT industry there, and I learned far more than I expected to. It is certainly a place worth considering for any organisation that needs expertise with a few knowledgeable “grey beards” on the same team as the young technology wizards.

I also reinforced the experience I have had in the past of prejudice and preconception about places. Places that I have worked in the past include Bangladesh, Nigeria, and Sri Lanka. Countries that often suffer negative stereotyping and yet were ready for business when I visited.

Belarus is the same. I’d love to return and perhaps take the train from Minsk to Moscow. I believe that anyone involved in IT, or the services supported by technology, should take a look. But maybe go and visit in the summer because that cold wind doesn’t care how many jackets you are wearing!
Minsk Yakub Kolas Monument
Minsk, November 25, 2014

Will a Skills Shortage Threaten the Future of Big Data?

IBA Group
Mark Hillary

As the economy develops, old jobs vanish and new ones are created. This process has always taken place as technology creates new needs and old skills are replaced. Just consider how important the blacksmith used to be before cars were commonly used and if someone described themselves as a blogger or flash developer in 1985 it would have made no sense – times change.

Big Data is another of these major changes. Not just in the sense that we are becoming able to analyse larger sets of data thanks to the technology becoming faster and more powerful – especially with more memory being available, but because the ability to do this work is now a skill itself. Understanding Big Data and being able to manipulate and analyse large sets of data is a popular skill to be exploring now as every analyst predicts that Big Data use is set to explode in the coming years.

The analyst firm IDC wrote a study in 2012 that predicted the amount of data available to analyse would increase 50 times by 2020. This prediction remains true – if anything it may be even more by 2020 as new applications that create data are launched all the time – from smart watches to other wearable technologies.

All this has led to a fear that there will not be enough people available to work on Big Data projects. McKinsey believes that the US will need almost 200,000 new data scientists by 2018 and the British Royal Academy of Engineering has predicted a need for 1.25 million graduates in science and technology subjects by 2020.

A recent column in the British ‘Daily Telegraph’ claimed that this shortfall in data scientists might even be a threat to the future of business. But what all these concerns in the UK and US often fail to acknowledge is that there are many other countries with an abundance of data scientists.
Offshore outsourcing has been long proven as a strategy for software development and other IT requirements. It will be exactly the same once data science becomes a mainstream part of every business. And companies like IBA Group are already doing it today.

Is Reshoring the Future?

IBA Group
Mark Hillary

Earlier this year at the World Economic Forum in Davos British Prime Minister David Cameron gave a speech that highlighted reshoring as a key objective of his government. In his speech Cameron said:

“In recent years there has been a practice of offshoring where companies move production facilities to low cost countries. We’ve all seen it. We all know it’s true. And it will continue.

But there is now an opportunity for the reverse: there is now an opportunity for some of those jobs to come back.”

Cameron focused mainly on the manufacturing sector. He cited examples such as the Horby model company bring production back from India to the UK and Raspberry Pi computers moving production to Wales.

What he said makes sense for these companies. By reducing the complexity in a manufacturing supply chain there is the opportunity for these companies to react faster to the market than if their products needed to be ordered many months before delivery.

Cameron went on to acknowledge that this is not a simple argument. He is not describing an ‘us’ v ‘them’ world:

“…I’m not saying there is a finite number of jobs in the world and that our success depends on some kind of tug of war to win them back at the expense of the East.”

But Cameron’s concept of reshoring is very focused on companies and processes that require a physical product delivery. He talked about call centre jobs moving closer to home, but the change in call centre strategy over the past decade has been well documented – people prefer to have their calls answered closer to home.

For many other professional services there is effectively now a global market. Graphic designers, advertising, accounting, and IT professionals are now operating within a global community of expertise and with instant delivery of products via the Internet there is no supply chain difficulty.

So it doesn’t seem like the UK government focus on reshoring will affect those companies or individuals supplying technology expertise. These services are usually sold based on the expertise required, not simply on a low price alone – allowing a global search for the best possible skills wherever they may be found.

Offshore Outsourcing is About Finding the Best Talent

IBA Group
Mark Kobayashi-Hillary

Offshore outsourcing (often called offshoring) often gets a bad press. Many people assume that offshoring must be all about finding the lowest cost service and therefore the world is engaged in an endless race to the bottom, searching for lower and lower costs.

It’s not like that at all. An interesting article in the business magazine Forbes challenges the conventional wisdom on outsourcing. For instance, even though the US and Europe account for about half the economic activity of the entire world, only about 10% of the global population lives in these two regions.

This means that there are an enormous number of highly skilled people outside the wealthiest nations on earth. Working with this talent is essential because of the difficulties involved in finding these people locally.

And many companies are more globally oriented today. If you wanted a new logo designed in the past then it would be done by a local designer, now it’s done anywhere in the world based on finding a designer you like. Any intellectual task can now be performed anywhere in the world so the issue today for companies of all sizes is that if you are not working globally then how are you finding enough skilled resource to keep you ahead of the game?

And finding the right talent to support your team back in headquarters is only half the story. If you want to expand to new markets, what could be better than working with a team of people in those new markets to give you a footprint and a first step into the new region?

Offshoring has often been misrepresented, but it is now an essential part of corporate strategy that aims at making the skills of the entire world available to clients, wherever they are located.

Is Offshoring Now Moving to Nearshoring?

IBA Group

Mark Kobayashi-Hillary

It’s interesting to see the Indian press recently reporting research from the Wharton School in the USA on the offshore outsourcing climate in India. The Wharton data reports that many companies are exploring how to reduce their offshore outsourcing strategy – now preferring to find ways they can reshore or nearshore the processes.

This makes sense. Outsourcing for an enormous cost reduction may have been a driver a decade ago, but it’s not possible in the India or China of today. Service quality has become far more important as supply chains have become more complex and this does mean that many companies now want to keep their team closer.

This general shift in strategy does lend itself to technology experts positioned in central and Eastern Europe. The Indian technology boom of the 2000s will not persist into this decade if the more general business strategy is to start keeping valuable assets closer to home.

It is not always possible or desirable to undertake every technical task in the immediate vicinity of the head office of an organization, but the nearshoring option does allow companies in Europe to work across the rest of the continent.

In the past the nearshoring versus offshoring debate was always nuanced by the difference in cost, but now that many companies are actively trying to find a way to keep their team closer together, it seems the value of remote offshoring is declining.

CEE Countries Included in Gartner’s Top 30

IBA Group

Mark Kobayashi-Hillary

The analyst firm Gartner has just published new research on the top locations for offshore services in 2010, based on their analysis of the past year watching the offshoring market. The top thirty countries for offshore services were rated according to 10 criteria that will help determine which locations are right for individual organisations. The 10 criteria were: language, government support, labour pool, infrastructure, educational system, cost, political and economic environment, cultural compatibility, global and legal maturity, and data and intellectual property security and privacy. The rating scale was “poor”, “fair”, “good”, “very good” and “excellent”.

So, with five possible scores across ten criteria the results are fairly comprehensive, and so it’s interesting to note that only fast-growing developing economies feature in the top thirty:

Americas: Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico, Panama and Peru.

Asia/Pacific: Bangladesh, China, India, Indonesia, Malaysia, the Philippines, Sri Lanka, Thailand and Vietnam.

Europe, the Middle East and Africa (EMEA): Bulgaria, the Czech Republic, Egypt, Hungary, Mauritius, Morocco, Poland, Romania, Russia, Slovakia, South Africa, Turkey and Ukraine.

Seven highly developed countries have moved out of the top thirty this year – Australia, Canada, Ireland, Israel, New Zealand, Singapore and Spain. Clearly these locations remain important as nearshoring destinations, but their value compared to other regions is fast declining.

Another interesting fact is that almost a third of all the top thirty countries in the Gartner list are from the Central and Eastern European region – demonstrating that this region is not only important as a nearshoring destination, but is also developing the expertise to sell services to the world.

Additional information is available in the report entitled “Gartner’s 30 Leading Locations for Offshore Services, 2010-2011”.