By Dan Berthiaume
When selecting a location for BPO service delivery, there are some standard metrics most BPO buyers use to determine the best location. However, “standard” does not always mean “right.” Just as in so many other areas of business, sometimes the common wisdom in the BPO realm is outdated, distorted or just plain wrong. Following is a brief review – compiled from several different expert sources- of some popular myths:
1. Rankings are helpful to understand relative attractiveness of locations.
Despite heavy reliance on various “official” rankings of BPO locations, it is prudent to digest these reports with a heavy grain of salt. Factors such as an incrasingly large number of competing rankings, a lack of correlation between rankings and actual end outcomes, score differences that are not meaningful enough to denote relative attractiveness, and the inability of generic rankings to take company-specific considerations into account limit the usefulness of rankings.
Furthermore – as long-time followers of Nearshore Americas can recall – there are firms pretending to do analysis of markets, but when confronted to produce evidence of their findings, they are nowhere to be found. The classic example of this is the 2009 “Black Book” of Outsourcing’s unfair attack on Bogota, performed by the owners of “Black Book” which was later acquired by DataMonitor/ Ovum. The ‘authors’ never engaged with us when we requested they provide evidence of Bogota being the ‘riskiest place on earth’ to do outsourcing. (Ovum CEO’s actually wrote a letter to us about this topic – published here.)
2. Size = scalability.
While the “size of an overall talent pool is often assumed to indicate scalability, in reality, scalability is driven by multiple factors including quality of talent, competition, and companies’ unique requirements. The size of what appears to be an available talent pool can be significantly reduced by issues such as lack of quality of quality and propensity and competition, resulting in a much smaller net talent pool. In addition, Everest Group – among others – cautions that statistics on available talent pools of qualified college graduates can often be misleading, and that local college graduates are not always part of the available talent pool.
3. Wage increase directly leads to an increase in overall people costs.
Using the typical wages paid to ITO workers in India during the past few years as an example, Everest Group demonstrates that although wage inflation of 10-12% for senior programmers and 12-15% for junior programmers has often been reported, in actuality wages for these employees have actually risen 3-8%, with a net 4-6% impact on overall people costs. Everest Group attributes the disparity to lower levels of total inflation in salary bands than individual changes due to promotions and growth, as well as cost controls allowed by high rates of attrition among junior programmers.
Everest Group says high-cost locations can supplement a BPO portfolio by fulfilling unique needs, such as niche skills, customer proximity, and time zone overlap
4. Locations experiencing tight labor conditions are always unattractive.
Large cities in popular BPO locations often experience labor pool tightness due to competition for workers. However, Everest Group advises that BPO buyers can often supplement a “tight” labor pool in an urban BPO location with workers from adjoining areas, as well as the possible “additional” talent pool represented by employable high school graduates, part-time workers, and experienced professionals with similar skills from other industries. BPO buyers will need to implement the proper hiring and training models to implement and scale hiring of workers from the additional talent pool.
5. High-cost and low-cost locations are in competition with each other.
BPO buyers often assume they must select either a low-cost or a high-cost location, with an obvious bias toward the cheaper destination. In actuality, Everest Group says high-cost locations can supplement a BPO portfolio by fulfilling unique needs, such as niche skills, customer proximity, and time zone overlap. BPO buyers should also assess delivery risks, including stability and predictability and business continuity, as well as consider direct financial metrics such as labor arbitrage, operational costs and taxes and incentives.
(Editorial note: Much of our research for this report resulted from a webinar, the “5 Common Myths of Location Selection,” produced by Everest Group).