Near- and offshoring in a world of change - Jens Brinksten, CEO of See Beyond
Jens Brinksten, CEO of See Beyond, former CEO of KMD Poland and former MD of SimCorp Ukraine shares his thoughts on near - and offshoring, engagement models and the future of international business.
It is important, given recent events as well as the current state of the world, to reflect on the “new” ways of engagement, such as the changes to what used to be the ”normal working day”, when people worked predominantly out of a corporate office. Most people during the Covid-19 crisis have, obviously, worked remotely from home. It has opened the eyes of many employers and buried some, although not all, myths about low productivity and inefficiency, if/when people would be based in a different location. In most Western countries, however, productivity has remained almost the same (for white-collar workers). Of course, this is predominantly thanks to the availability of the well-functioning infrastructure: access to internet, power, and decent workspaces.
But it also meant that most office workers have had to use online communication media and tools to a very large extent, such as Skype, Teams, Zoom etc. Many meetings were conducted faster and more efficiently via online media. This disruption, I believe, will also change the future travel patterns of many firms. We have learnt that we could function OK with increased use online media. Hence, there are fewer reasons (and good arguments) for traveling as much as many firms did in the past.
There will be fundamental changes in the corporate workspace. They will be designed and organized in close alignment with the health authorities’ recommendations such as min. 2-meter distance between the desks, limitations on physical meetings and events etc, until such time when normality returns.
It also means, that the work schedules will change and a modified version of the “activity-based workplace” will be implemented. Employees do not necessarily meet in the office every day but will be working from home part of the time. From a management perspective: An employer never has all its employees in the office at the same time.
These changes are likely to stay in a post-Covid 19 environment.
I also believe that many firms will invest in better IT and work equipment for their employees, because it will secure better home office facilities. Some employers may even start offering these as benefits: upgraded home-work structures, optimal desks, office chairs, internet (VPN), docking stations, extra screens, high quality headsets, etc. We are likely to see the employers using these benefits as a way of attracting and retaining the best talent.
In my crystal ball, I see three key areas employers need to focus on in the future, and those are:
Governance and information security
Firms that before the crisis have relied on only one low-cost supplier especially in the Far East, have learnt, that you need a plan B – i.e. a fail-over supplier, which will not be impacted in the same way as the low-cost supplier. Onwards to:
Insourcing versus outsourcing:
I anticipate that many firms will look at alternatives to offshore outsourcing (offshore in this context means far away, e.g. the Far East (India, Philippines, Vietnam, etc.)) and that rather nearshoring and/or in-sourcing will be subjects on the agenda.
Personally, I expect an increase in nearshoring, where you either enter a partnership with a supplier in a nearshore / low-cost country or set-up your own nearshore captive operation.
Which model you select, will often be a question about temperament, desire and wish for control. Today, there are many highly qualified firms in e.g. Eastern- and Central Europe that can deliver resources and services of the same quality (or even of a higher quality and efficiency) at marginally higher prices, than their peers in Far East. But upon reflection who would not want to pay a higher price for better quality and security of the deliveries? That said, is the price really higher?
When talking about expenses, several studies show, that if you add together all costs, including communication, change requests, training and knowledge sharing, domain training and understanding, travel and waste time, etc. the price per effective delivered hour is more or less the same, and often lower in Eastern- and Central Europe compared to the Far East.
Finally, if you enter a partnership contra a captive setup, it will cost you approximately the same price, as if you have established a captive nearshore unit with minimum 60 to 70 people or more. Food for thought.
Location – location – location:
When I look at different geographical locations, I see that people (and here I only talk about IT-development) in Eastern- and Central Europe were very fast to change from their normal work patterns (i.e. corporate office) to remote work patterns (i.e. home offices).
I spoke with firms operating in e.g. Bulgaria, Ukraine, and Poland, where the longest time to change was 48 hours including getting VPN up and running (or increasing capacity) to cover all employees working from home. Most firms were up and running in less than 24 hours. Impressive.
Most of the firms also had emergency plans ready and tested, with focus on governance, security, and communication procedures. And due to most of the countries having adequate infrastructures in place, the full productivity was established quite fast and even faster, than I had expected.
But in the Far East, we have seen huge problems. Many firms in e.g. in India operate in special compounds/clusters, where the infrastructure is OK; but due to the enforced lock-down, people were supposed (and expected) to work from home. Many workers do not have laptops and only access to internet via their mobile phones. This posed huge challenges and led to overloaded network and increased costs. Finally, their homes were not prepared for working, because of limited space, too many people living in the same apartments, noise etc.
Already now several American and European IT-firms have started investigating the opportunities to place alternative IT-development and Shared Service Centres in Eastern- and Central Europe, which is why I am sure, we shall see changes in the IT-outsourcing industry in the future. The price/cost factors will likely become of secondary importance, while delivery reliability will receive higher attention, including the other two factors I have mentioned – “digital/cyber security” and “governance and information security”.
Covid-19 didn’t create but accelerated a journey towards remote/outsourced work.