How to choose large enterprise software: location

KPMG Advisory has identified 31 cities which are rapidly emerging as the
leading pretenders to the business process outsourcing (BPO) crown held by
traditional powerhouses such as Bangalore, Chennai or Shanghai. These include:

  • Buenos Aires, Campinas, Curitiba, Calgary, Winnipeg, Santiago, Guadalajara,
    Queretaro, Boise and Indianapolis in the Americas;
  • Brisbane, Changsha, Hangshou, Ahmedabad, Jaipur, Nagpur, Penang, Davao City,
    Iloilo City and Ho Chi Minh City in the Asia-Pacific region;
  • Sofia, Zagreb, Cairo, Port Louis, Belfast, Gdansk, Cluj-Napoca,
    Rostov-on-Don, Belgrade, Tunis and Lviv in Europe, the Middle East and Africa.

The 31 locations range from well-known cities in developed countries to
lesser-known places in the emerging markets, well off the tourist track. Buenos
Aires, with its population of nearly 13 million, thus features alongside tiny
Port Louis, in Mauritius, with its population of a mere 130,000.

Despite the difference in size, both are emerging as important future
outsourcing centres, with the latter rapidly developing an international
reputation as a disaster recovery centre.

Rakesh Majithia is associate partner in the sourcing
advisory practice at KPMG.

What to look for when locating business process services

The location for IT-BPO services is a key driver for cost and service quality
and therefore finding the right location is critical.

There are few ‘short-cuts’ to finding the right location and, although all
eventualities cannot always be considered in advance, a basic location analysis
should adhere to the following basic principles in order to increase the
probability of yielding the optimal result.

1. Business needs

Requirements should be accurately defined and articulated in a manner that
reflects the company’s needs.

What skills do we need? How can our requirements be measured to some degree
of accuracy? Are we considering all the important aspects of our business? How
can we choose location criteria that anticipate changing conditions in the
investment environment or our own business?

2. Priorities

Defined needs should be weighted to reflect the specific preferences of the
company. This requires a process that is both methodologically sound while
generating consensus from key stakeholders regarding project priorities. Simply
scoring criteria on a scale of one to ten or using ‘off-the-shelf’ weightings
that reflect the preferences of other companies do not adequately capture an
individual project’s specific situation and requirements.

3. Compromise

Expectations regarding project deliverables should be realistic. Companies
tend to want the ‘perfect’ location – skilled workforce, low costs, state-of-the
art infrastructure and an accommodating government and business environment.

The bad news is that the perfect location does not exist – there are always
trade offs and companies must be clear about how much of ‘factor A’ (eg. costs)
they are willing to give up for a little more of ‘factor B’ (say, ease of doing
business). Expectations regarding timing should also be realistic.

4. Site visits

In the age of online databases and freely available country rankings, it is
easy to underestimate the difficulty of obtaining reliable and accurate data.
There are no online databases comparing the graduate output of various
universities across India. Neither is there a reliable source of labour cost
information for IT programmers in central and eastern European cities.

Information of this type can only be obtained through thorough primary
research, which involves gathering accurate data through conversations with
people on the ground that are familiar with the relevant investment conditions.

Do not underestimate the value of a site visit and conversations with other
experienced business people conducting business in that location. For example,
local business groups, professional associations and chambers of commerce

5. Location specific data

Finally, the analysis should always focus on cities and not countries.
Although country level information may be helpful with respect to factors such
as business regulations, tax and overall industry size, the real factors
affecting the ability to set up and operate a business varies significantly at
the city level.

Using country level data to compare countries such as India or Russia is
unrealistic and blurs the often immense differences in costs and conditions
between cities. Even within countries as seemingly small or homogenous as the
Philippines, labour costs can vary significantly across cities. One reason why
so many studies tend to compare countries rather than cities is that accurate
information on cities is simply more difficult to find.

To outsource or not?

What are the factors companies should consider when deciding whether to
1. Cost reduction. IT upgrades, standardise common business processes.
2. Management information quality. Improve decision making, optimise working
3. Organisational flexibility. Strong signal for change, base for future
off-shoring or on-shoring, provide focus for continuous improvements.
4. Technology implementation
5. Service quality
6. Controls. Reduce governance burden, consistent controls, process visibility.

Ups and downs

Key risks to consider when outsourcing include:

  • Delay, drop or loss of services or deliverables.
  • Work-force and managerial attrition may affect quality, cost, and timeline
    of services.
  • Sub-contractors or third party vendors may stop delivering to an outsourced
    provider due to fear of payment defaults impacting the provider’s ability to
    deliver services.
  • Likely impact on costs and the organisation itself.
  • Security and compliance exposure.

Potential benefits include:

  • Overcoming an impediment to growth.
  • Processing requires too much management attention.
  • Turn fixed costs into variable costs to better manage volume swings.
  • Access to specialised skills.
  • Improve geographic coverage.
  • Improve or maintain regulatory compliance.

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