Gartner, Inc., a world reference in research and advice for companies, warns that geopolitical instability could affect the global market for offshore services (activities and deliveries carried out by companies outside the country of origin of the contractors), as executives procurement, procurement and supplier management begin to review their strategies to mitigate the risks around these operations.
The offshore outsourcing market has been relatively stable in recent years, with organizations using a mix of local and multinational resources with well-defined demand and supply patterns. However, recent events such as the Sri Lankan terrorist attacks, the US-China trade dispute and political tensions in Hong Kong are raising fears of disruptions in the delivery of globalized services.
"Political and economic stability is an important factor in outsourcing agreements that bring together deliveries made by companies from different countries," says Jim Longwood, Vice President of Research at Gartner. “Gartner has been receiving more and more questions from customers with questions about how to handle these scenarios. They question whether it is better to stop providing services from a specific country, move services to another country, or bring them back to their local environments. Each option is quite expensive and can interrupt service delivery in the short to medium term.”
For example, Gartner estimates that China exports about US$ 10 billion worth of IT applications and business process services, primarily to North America, Western Europe, Asia/Pacific, and Japan. Indian outsourcing companies generated more than US$ 45 billion in global services in 2018.
"In light of this, how can the progress of trade negotiations jeopardize China's ability to provide IT services?" says Longwood. "Concerns include potential disruption or instability in service delivery, increased taxes added to export labor rates, and reduced quality of services due to 'patriotic' discussions by local staff. However, instability is not limited to to the situation in the United States and China. All organizations should review their outsourcing agreements abroad and even in neighboring countries.”
Gartner predicts that by 2023, 65% of the largest organizations using service delivery centers abroad or in neighboring countries will have adopted a multinational delivery strategy for these services.
Undertake proactive risk management to address geopolitical events – Organizations often follow a good risk management process as part of their due diligence when they first select a provider and/or country for service delivery, but often do not follow through on it. Organizations should monitor the industry press, government trade websites, immigration websites and local feedback for signs of impending trouble.
Split risks across multiple countries – Gartner recommends that organizations build a roadmap to split risk across multiple countries and/or local low-cost centers, including automating service delivery. Gartner analysts predict that, by 2022, the potential for geopolitical disruptions will accelerate the adoption of intelligent automation of managed services at more than 25% and spur the movement of these services to more mature on-premises options. Organizations should proactively assess key risks within their own country and short-term options for anticipated scenarios, identifying key signals when significant action is required.
Create contingency plans – When using a large regional or global delivery provider to provide services from that country only, contingency plans often do not adequately assess geopolitical instability scenarios or need to be updated. Gartner recommends proactively addressing these scenarios with the incumbent provider. "While you can't control a sudden interruption in service delivery due to unexpected events, you can be prepared for it," says Longwood. “Check with service providers to determine what disaster recovery programs they have for customers and work with them to create a viable business continuity plan.”
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