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  January 10th, 2016 | Written by

Automation Identified as New Outsourcing Disruptor

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  • New research from A.T. Kearney identifies tectonic shifts in outsourced IT due to changes in the nature of the work.
  • Emerging outsourcing trends could displace India and China as the leading locations for back-office operations.
  • Business Process as a Service uses a standardized process across multiple customers to quickly deliver outcomes.
  • India, China, and Malaysia remain the top three offshoring destinations.
  • Six of the top 10 offshoring destinations and eight in the top 20 are in Asia.

The automation of business processes and the offering of business processes as a service may soon upend outsourcing and offshoring as we know if today and displace India and China as a the leading locations for back-office operations.

Those were the leading conclusions from A.T. Kearney’s 2016 Global Services Location Index (GSLI), which was released today.

The study projects that Robotic Process Automation (RPA) will continue to ripple through the service economy over the next decade, as the rules-based, repetitive tasks that most back-office employees perform are the easiest to automate. However, a disruptor has emerged in the form of Business Process as a Service (BPaaS). While in RPA robots are taught to emulate what humans do using the company’s own user interfaces, in BPaaS service providers use a standardized interface and process across multiple customers—with varying degrees of automation—to quickly deliver outcomes at any scale.

The A.T. Kearney research paper also analyzes and ranks the top 55 countries for outsourcing worldwide based on metrics in three categories: financial attractiveness, people skills and availability, and business environment.

This year’s study, the seventh edition, identifies new disruptions and threats to the outsourcing market, an outcome that presents a bigger departure from past norms than any shifts in the country rankings themselves. The top-ranking countries have undergone little material change in position since the prior index, released in the fall of 2014.

While this year’s GSLI examines the trajectory of offshoring cost arbitrage to low-cost developing countries, and the rise of some new locations, the real story lies in the disruption being felt throughout this already disruptive industry in levels of automation of business processes.

“Even though the top six or seven countries are landing in the same order this year as 2014, looking forward, this could all change radically because the very nature of what’s being outsourced is changing,” notes Arjun Sethi, global leader of A.T. Kearney’s Strategic IT practice and principal author of the study. “For the first time, we have a trend—automation—that could displace the leadership of the likes of India and China in outsourcing. Technology’s relentless progress continues to transform in unanticipated and fundamentally different ways not only where work is moving to, but how and by whom—or by what—it is being done. The new business model associated with this automation threatens established concepts of offshoring, while expanding the market.”

“The implications on accessibility of services and employment in these countries are massive,” said Johan Gott, A.T. Kearney principal and a co-author of the study. “On the client or receiver end, BPaaS dramatically lowers the entry barriers to business data management, opening the floodgates to smaller and newer companies. Simultaneously, we’re seeing a shift in required job skills that will play to those countries with the most adaptable educational systems—as standardization and automation come to dominate the simpler processes, offshorers will demand skills of a more analytic nature.”

Among other findings in the report, India, China, and Malaysia remain the top three offshoring destinations, and Asia continues to dominate, with six of its countries among the top 10 and eight in the top 20. Latin America and Eastern Europe both place five countries among the top 20 in the 2016 GSLI, with the former region showing a spike in people skills and availability and the latter in business environment. Helped by currency depreciation, Brazil has risen four places in this edition of the GSLI to number four on the list. Indonesia, Thailand, the Philippines, Mexico, Chile, and Poland round out the top ten outsourcing locations.

The study also takes a deeper dive into optimal cities for offshoring within the ranked countries. “While India and the Philippines are still top of mind when it comes to offshoring, the hunt for new talent is now taking companies beyond these countries’ capitals and major cites to tier three locations such as Surat, Nagpur, and Lucknow in India and Bacolod and Iloilo City in the Philippines,” said Sethi.

A.T. Kearney also identified a sustainability phenomenon among some big companies, called social impact sourcing. Impact workers include people from disadvantaged groups and lower-income backgrounds. “There is even an emergence of impact sourcing service providers that focus on simpler processes and flexible work arrangements operating in frontier markets such as Kenya and Nepal,” said Sethi. “These emerging trends are good news for these countries’ social and financial platforms, and for business as a whole.”