BenefitsEngaged Workforce

Embracing the World’s Offerings

GS is increasingly a valuable tool for getting BPO cost savings, and HRO buyers, long holdouts against offshoring, will finally start to give in to its alluring value.

by Monica Barron, Rajesh Ranjan

Recent times have seen increased adoption of global sourcing across multiple business outsourcing functions. Global sourcing (GS) refers to a strategy in which services are sourced from a country (or countries) different from where the services are received. The concept of global sourcing includes both offshoring and near-shoring, terms with which most buyers are already familiar.

Outsourcing buyers (and suppliers) look at GS not only from a labor arbitrage and cost-savings perspective, but also as a strategic enabler in terms of getting access to specialized skill sets and language capabilities.

Compared with some other BPO functions such as call centers and finance and accounting (F&A), HR has lagged in its adoption of GS. There are a number of reasons for this, including an inherent resistance to receiving services from an offshore (and often far-flung) location; some initial implementation failures due to overly aggressive offshoring approaches; nonstandardized processes; lack of context-based knowledge; and data privacy restrictions and regulations. However, suppliers have been successfully addressing these challenges, and the outlook for GS in HRO is improving.

Some of the factors that positively influence GS within HRO include more streamlined and standardized processes; phasing the transition to GS; increased maturity of offshore delivery locations; and increasing buyer comfort with the concept of GS.

Global sourcing has become a critical factor in most outsourcing decisions, primarily driven by the need for labor arbitrage to enable cost savings. But companies also realize the other benefits that GS provides, such as access to specialized workforces and cross-client scalability. These drivers resulted in the GS market growing at a CAGR of 31 percent in the past three years; we expect it will reach approximately $75 billion in 2007, with the offshore IT market accounting for 60 percent and BPO accounting for the remaining 40 percent.

GS adoption has been muted in HR, especially compared with other back-office areas. However, GS is leveraged much more in the large market, defined as deals with 15,000 or more employees. There are several reasons for this divide, including:

• Many if not most of the large market suppliers are struggling with profitability issues and must leverage GS to reduce operational costs;
• Many suppliers in the large market already have a presence in key offshore locations for other functional services that they can use for HRO work;
• Large market suppliers are targeting global buyers that often want in-region or near-shore service delivery;
• Increased experience and maturity within the large market segment are resulting in moving more work offshore, even in existing deals.

The HRO mid-market, in contrast, has been lagging even more in terms of GS, but we expect increased adoption as suppliers look for savings while increasingly serving these buyers with global operations.

Many regions around the world offer significant and sustainable labor arbitrage opportunities for HRO.  However, cost should not be the only consideration when choosing an offshore delivery location; buyers should select locations based on a holistic evaluation of both savings potential and maturity as well as language capabilities, cultural fit, real-time support, skills, and risk.

Risk, including financial, operational, organizational, legal, and environmental, can never be totally eliminated, but it can be managed and mitigated to lessen the likelihood and/or its impact. A robust risk-mitigation strategy, tied closely to the governance framework, will help to ensure that risks are assessed, rated, and managed with the proper mechanisms.

For many global organizations, depending on the specific HR processes being considered for offshoring, a multiple-location delivery model with built-in
redundancies may be the optimal solution. HRO suppliers continue to invest in and build their global delivery networks to leverage capacity, improve operational capabilities, increase people competencies, and offer competitive pricing. They are demonstrating an increased sophistication in their ability to deliver services from offshore locations.

For buyers, GS is not only a cost-saving opportunity, but also a strategic enabler for accessing skilled talent. While buyers must carefully evaluate their GS options and work closely with their suppliers to understand their capabilities, GS is and will continue to be a critical success factor for HRO, and buyers must learn to embrace it to the fullest extent possible.  

Tags: Benefits, Engaged Workforce

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