Q: What is new with the offshore providers?

BT: The providers are beginning to move from a regional capability to a global delivery model that can serve clients with a variety of language and skill needs. As a result, the choices in providers for specialized capabilities in industry verticals (e.g., elements of mortgage processing or airline support services) are becoming increasingly important. Further, the buyers’ options have increased not decreased over time with the number of good choices becoming less apparent without an accurate and fully vetted database.

Q: Which providers have shown the greatest increase in capability that a buyer might find interesting?

BT: Tough question since the providers have all added to their capabilities and/or opened new centers. There are so many interesting changes. Some of the many notable ones we are tracking include: PerotSystems’ new Bucharest, Romania center; Accenture with plans to double its staff in India, China and the Philippines to over 50,000 and TCS, which acquired one of the largest systems integrators in Latin America and now has a very significant capability across Latin America.

Q: It’s often said that the labor pool in India is drying up and salary inflation is so high that all the work will be coming back to the US within a few years. Your thoughts?

BT: We strongly believe that opinion is simply unsubstantiated by fact. The data has never supported that conclusion and conversely points to an immense labor pool in India, the Philippines and Eastern Europe that – barring certain unlikely occurrences – will continue to be attractive. Our most recent report on these regions concludes there are only two material (and unlikely) drivers that could alter the attractive labor market. The first being dramatic changes in our Gross Domestic Product/Per Capita, and the second being the rapid devaluation of the Pound and the Dollar against the currencies in the low cost countries.

Q: Tell us about your most recent trip to India and Eastern Europe?

BT: In our semi-annual tour of the market to update our capability and resource knowledge base it became clear that we are heading into yet a new and exciting phase of the Outsourcing Market that is a hybrid of the traditional BPO and IT Outsourcing capability. We have begun referring to this change internally as the Capability Sourcing Model. We see this new delivery model growing in response to client needs for a mix of BPO and IT Outsourcing combined with strong vertical industry process skills.

Q: How would you describe the Capability Sourcing Model?

This is our view of what appears to be increasing client demand for hybrid BPO and IT Outsourcing relationships backed by industry-specific support capabilities. The provider market is responding to those needs and developing what we refer to as the Capability Sourcing Model. This is yet another dimension along with location/language, functional expertise, etc. that advisors must constantly stay abreast of and track in their deal databases as the viable providers seek to differentiate themselves one from the other. Clearly, it adds heavily to the intricacy of an already-complex field of characteristics and capabilities to consider when selecting a provider. Nevertheless, we believe that, if done correctly, pursuing a Capability Sourcing Model can dramatically increase the value that buyers are able to reap from an outsourcing endeavor.