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8/14/2019 Q&A with Peter Allen from TPI
http://slidepdf.com/reader/full/qa-with-peter-allen-from-tpi 1/5
Q&A: Peter Allen, TPI
Assessing TPI's Q1 2008 index: the state of outsourcing today, and where now in
the face of recession?
By: Jamie Liddell
(Issue Details:May 2008).
In April TPI , the world's largest sourcing data and advisory firm, announced the
findings from its quarterly analysis of the global commercial outsourcing industry
for the first quarter of 2008 and the previous six months. Worldwide it was the
second-best first-quarter performance ever for annualised contract value, with
most "new scope" contracts every for a single quarter.
Now SSON has caught up with TPI partner and managing director, Peter Allen ,
to discuss the significance of the report's findings and to get Allen's perspective
on the state of the industry - and it's clear that the R-word is dominating industry
thinking...
SSON: Can you start by giving us a quick overview of the index and what
it’s saying about the industry at the moment?
Peter Allen: I think to give that stance we have to put it in the context of the
world’s economic climate, and it’s clear certainly in the US and among most
Western economies there’s a current slowdown or drag in economic growth if not
an outright recession. So the prevailing question we hear is, what role does
outsourcing play in the survival and competitive strategies of major corporations
in the face of an economic downturn. And that’s really the question we tried toanswer in our Q1 report which covered the commercial outsourcing contract
awards that were let in the first quarter of 2008, and for contrast we put those in
the context of prior periods as well.
And what we saw was the rather healthy record of outsourcing awards in Q1 and
when taken together with Q4 to form a most recent 6-month view it is an
unprecedented volume of contract awards. And most of it represented what we
call “new scope”, so it’s not renegotiating or realigning existing agreements: it’s
truly incremental demand coming to the marketplace.
SSON: Now you’ve highlighted the regional differences here: for
example, “EMEA’s percentage of the global contract TCV [total contract
value] and ACV [annualized contract value] is more of an indication of
softness in the Americas than any absolute increase in EMEA”. Do you
think that’s something that’s going to trend for a while and is indicative
of America leading the economic way, whether up or down?
PA: Well, what that says is that on an absolute basis EMEA is holding its own; its
record was neither significantly higher nor lower than its historical level. It’s the
Americas that really had fallen off in terms of award-values, and our sense here
speaking from an American-economy participant’s point of view is that especially
in the more mature outsourcing sectors such as banking or manufacturing therehas been a pause in the most recent quarters as corporate executives took stock
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of just how deep the recession was likely to be, how deeply they needed to
restructure their operations, to cut their costs, and what role their existing
outsourcing relationships were likely to play in their sourcing strategies.
So the thing to keep in mind here is, the TPI index generally reports on new
contract awards. And by our account there are well over 2,900 active outsourcing
agreements in place among corporations and service providers today in themarket. And when you need to pull the trigger fast, and you need to get costs
down fast, and restructure operations fast, often the first place to turn is your
existing service provider relationship, not go through the laborious time-
consuming process of structuring a new relationship. So what we are showing
here is that in the Americas, where there seems to be perhaps a more acute and
instantaneous reaction to the recessionary impact corporate executives have
either deferred decisions to start new initiatives, or they are leveraging more
actively their existing outsourcing relationships.
SSON: Is there any relationship between that and the fact that this is an
election year in the US and people are uncertain as to what the outcome
is going to be?
PA: No, I really don’t. Having been in this industry for longer than I care to
remember we’ve gone through several election-year periods in which occasionally
the outsourcing and offshoring words are used by either the media or the
candidates to strike a hot iron. We find that it has very little play in the corporate
boardrooms; whether we have a Democratic or a Republican president might
matter to some level of financial planning but in terms of structure of companies
to succeed in global markets it’s trivial.
SSON: There has been a little bit of anti-outsourcing rhetoric coming
from both Democrat contenders at the moment…
PA: You know, it’s a popular topic to appeal to the masses. Our dialogues are
among the senior-most executives among global firms, and they recognize that
their survival and their ability to win in their markets depends upon having the
right products at the right prices in the right markets. So they’re really not
concerned about which party the US president is affiliated with.
SSON: Let’s move away from the outgoing side and look at some of the
countries receiving the deals that you’re measuring. Have you noticed
any change in target destination: is India still holding its own, is China
finally moving ahead?
PA: India has a very strong lead here in terms of existing award-worth: I’ll tell
you that many companies are now looking to second-tier cities in India and
getting away from the historical top-tier locations like Bangalore.
SSON: Why do you think that is?
PA: The two reasons that we hear most often are: access to a less competitiveworkforce – it’s not a workforce that’s being fought over by so many other
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potential hiring companies – and the relaxation of the demands upon the
infrastructure of those top-tier cities. We’re seeing the government in India
strongly encourage the corporations to go to the smaller cities because the
infrastructure within the top-tier cities is simply not able to sustain continued
growth.
SSON: And what about China?
PA: In China we’re actually seeing the first real sign of tangible expansion into
China principally being led by the corporations that are the buyers of outsourcing.
So there’s been a lot of talk about China for many many years and certainly in
aspects of software development China has a place. But when you get into the
BPO domains -especially those that may have complex transactions and/or voice-
related processes -China has not been very prominent. We’re now seeing many
companies engage the outsourcing industry because those buyers have
aspirations to be participants in the Chinese economy, and they want to establish
operations there so they’re looking at outsourcing as a way to get in.
SSON: That almost sounds like – if you want to talk in traditional terms –
a “loss-leader” to get into a new market; like they’re prepared to deal
with the slightly less advantageous situation of being in China for the
benefits that a presence in China can convey.
PA: That’s a very good observation. We look at sourcing strategies through three
lenses: cost, capability and capacity, and the rationale for going to China has to
be built around the dimensions of capacity and capability – because getting there
takes some real effort in terms of cost and work to establish operations. Thereshould be some cost savings but it may not be as immediate as going to India.
SSON: OK. What about smaller destinations like the Philippines, or maybe
Egypt: have you seen any serious moves towards those?
PA: The Philippines, absolutely – especially for voice-based processes, and there’s
been a bit of a resurgence in the Philippines as a destination for not only contact-
centre operations but other BPO processes that demand voice interaction. And the
voice may be with consumers, and external party, or just simply internal
operations. So I think that the social and cultural affiliation between the
Philippines and the West in terms of products, in terms of lifestyle, really is
boding well for the increased demand for operations in the Philippines.
SSON: What about any other notable locations?
PA: We’ve seen some rather notable traction in Guatemala, Costa Rica, and
Mexico, in addition to Brazil. To us the southern Western Hemisphere nations
have always appealed intellectually because of the time-zone factor, but it’s taken
a while for those countries to really get organized. The case is the governments
are strongly encouraging the tax holidays, the favorable relationships with
universities and the like, to draw the jobs to those destinations.
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SSON: Is that more nearshoring from the States than offshoring from
Europe and other destinations?
PA: Yes. The exception might be in banking, in which there are many global
banks especially in the capital markets world that have operations in South
America, although they may be headquartered in the Netherlands or the UK, orGermany or Switzerland for that matter, and those organizations may very well
be driving Latin American operations as well.
SSON: Finally, and moving away from locations towards sectors: do you
still see BPO being the dominant outsourcing model or is there a rise in
KPO, LPO and the like? And has there been any shift in the type of
industry that’s outsourcing, from traditional big markets like banking and
pharma to less prominent outsourcing industries?
PA: We had a surprising dip in financial services in Q1, and we think that’s largely
because of the [global economic] situation that’s distracting senior management
from really making long-term commitments. We sense that we’re coming out of
that. It’s interesting that we’re perceiving an interest among many companies
that have established offshore operations of their own, captive centers, in either
expanding or divesting those operations. And that’s true across manufacturing,
financial services, insurance, pharmaceuticals and the like. It’s an interesting
point that your readership might care about that most companies of size have
some captive offshore operations and what we’re seeing is a question being
posed: should we expand those operations drastically, or should we divest them?
It’s a bit of a fork in the road in this recessionary period.
SSON: Well certainly for a lot of shared services practitioners that would
suggest some sort of crunch time: do we outsource or do we bring even
more stuff in-house?
PA: Exactly. In the shared service side of the world – and most shared service
organizations have some flavor of offshore operations, maybe not in India but
some place with lower-cost geography for service delivery - what we’re seeing is
many of those organizations, those shared services leaders, asking themselves
how fast and how big can they expand those operations, and if the answer isn’t
fast enough or big enough then we need to divest it. It’s a stranded asset that we
need to release, and not so much monetize but leverage a third party to help
expand it.
SSON: That answer’s going to give a few people a few sleepless nights…
PA: Well, it’s happening in companies across industries.
Copyright © 2008 SSON. All Rights Reserved.
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