Which Countries Will See Increased Outsourcing Investment Because Of Global Instability?
The Russian invasion of Ukraine is turning into a humanitarian tragedy. Anyone who witnessed, or even vaguely remembers, the end of the Cold War knows that historians at that time called it the ‘End of History.’ The collapse of the Soviet Union and symbols of tyranny, such as the Berlin Wall, led to a general belief that liberal democracy and rights of the people had won. Now the world is in a very different place. In just over a decade, we have seen a meltdown of the international financial system, a global pandemic, and now a ground war in Europe – with tanks rumbling through city streets.
This post isn’t intended to offer an opinion one way or the other on the present state of geopolitical events; instead, what does this general instability means for companies that operate globally. Over the past twenty years, we have seen a dramatic increase in the globalisation of services. Contact centres engaged in outsourcing for local brands operate far from the location of the customers that are calling. IT professionals code systems for customers located on the other side of the world. All of this is now normalised.
What does a new era of geopolitical instability mean for any business with an international supply chain? The Harvard Business Review recently published a very useful summary that can function as a basic checklist of the conditions you need to establish for doing business in other countries. Of course, there are different types of companies and different kinds of risks. For example, suppose your company is focused on manufacturing, and you are sourcing parts or assembling products in any of the various nations that are starting to look unstable. In that case, a mitigation plan will probably involve withdrawing to a location that is closer to home.
Suppose you are engaged in purchasing a service from overseas, such as inside sales or customer service processes. In that case, it will be easier to switch location – compared to moving an assembly line – but may involve changing supplier if the incumbent cannot offer a safer alternative location.
To my mind, the uncertainty around Business Process Outsourcing and customer service processes is not restricted only to Russia and the immediate neighbours of Russia. There is a broader uncertainty taking place. Look at how the Philippines government insists that work-from-home is no longer allowed from the 1st of April. Customer service companies will have no choice but to send their employees back into contact centres – whether their hybrid system is working or not.
India appears to be supporting Russia in the present conflict. If one had significant investments in BPO or IT in India right now, then it’s worth considering what might happen if this conflict escalates further? Ryan Strategic Advisory recently warned that Eastern European nations that are not members of the European Union or NATO may find that investment dries up because executives want to focus on safer, more stable regions. Uncertainty is never helpful for any business investment.
Some locations, such as the Czech Republic, could do well from this current period of instability. With a skilled local workforce and membership of both NATO and the EU, cities such as Prague stand to benefit from investment earmarked for other locations in Eastern Europe or even some Asian locations that are starting to look less attractive.
The outcome of this conflict is uncertain, but there is one aspect of this crisis that truly is certain. Even if events de-escalated tomorrow, the instability will continue for many years. As a result, there is about to be a flight of capital and investment to regions and nations that offer a more stable business environment and that can ensure business continuity – no matter what happens in the coming weeks and months.
Please get in touch with me directly on LinkedIn here if you want to discuss these ideas further. Interested in learning more about the Czech Republic as an outsourcing location? Please contact ICON’s Mark Matthews.