How is The European Nearshoring Market Changing?

IBA Group
Mark Hillary

Is there a new world of nearshoring emerging in Europe? A recent feature by Ilan Oshri of Loughborough University in Computer Weekly has suggested that the market is changing fast, in particular as a reaction to every country sounding the same when making their sales pitch.

We have all been to those conferences where one country representative is talking about the advantages of their region over others, but when several regions do the same type of talk they do all sound the same. We have great people, we have universities, we have great companies. The same check-box of advantages is always ticked for every presentation about outsourcing to a particular region – so what is changing?

First, there is a big wave of repatriation taking place. Projects that were outsourced to far off locations are coming much closer to home so nearshoring is becoming a much more important strategy for European companies.

Second, a wider array of services can be delivered by suppliers today and this is especially true when the supplier is relatively close to the customer, so the range of services offered through nearshoring deals is becoming more diverse.

Third, companies are increasing their expectation on suppliers. A supplier is no longer just the lowest cost way to get a job done. Many suppliers are the expert in their field and are delivering a service that the client simply could not perform internally anyway. The clients are now expecting suppliers to offer ideas and new innovations. Nobody is talking about innovation as a nice to have function these days, it is becoming an expectation of nearshoring that the supplier can come up with ideas on how to do business better.

Professor Oshri raises some very interesting points in his article. He believes that nearshoring locations still attempting to compete on labour price are thinking with a very short term view of the world. The ability to offer expertise and advice to clients will become the single biggest advantage and this may also require clusters of expertise to develop. He cites some examples of regions where competing firms are operating in the same physical location, so even if it does not sound logical, it does mean that for each specialist activity there are areas where clients can go and confidently find the expertise they need.

I believe that we are seeing a new type of nearshoring emerging and all three of the points raised by the professor are playing out across Europe today. The final point is the most important though. Clients used to be so powerful that they could pick and choose and drop suppliers at will. Now the suppliers have some very detailed knowledge that the clients cannot manage without. Real partnerships are developing and that will lead to genuine innovation.

What do you think about the ongoing development of nearshoring in Europe? Please leave a comment here.

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”.