Romolo Tavani - stock.adobe.com
Half of small offshore captive IT centres owned by western multinationals could be mopped up by large suppliers or brought home as they struggle to cope with life with Covid-19.
A combination of business volumes dropping, challenges setting up staff to work from home and the increasing draw of automation could create the right conditions for businesses to sell off their offshore operations or integrate them with other operations.
There are thousands of IT delivery centres in locations where costs are low and IT skills are abundant. These are mainly in India and are often fully owned, or co-owned with local suppliers, by large global companies as well as mid-sized western businesses.
According to outsourcing advisory ISG, about 40% of these centres are categorised as small, with fewer than 500 people.
ISG said a lack of scale and logistical capabilities meant these centres had not been able to respond quickly to the challenges brought by the Covid-19 coronavirus, which has forced staff to stay at home.
The Indian government put its 1.3 billion population in lockdown on 24 March, meaning everyone was to stay at home. It has since relaxed this for certain types of companies, including IT service providers, which are now permitted to have 50% of staff in work.
Large suppliers in India, such as Tata Consultancy Services, have used their expertise to scale up home working in response. In Tata’s case, it has gone from having about 40% set up to work securely from home before the pandemic, to 90% today.
Smaller centres are struggling, however, according to ISG. “Smaller providers and smaller captive centres have struggled with the global work-from-home orders,” said Stanton Jones, director and principal analyst at ISG.
“We are seeing backlogs develop at many of our clients in critical areas that are often run out of centres – like mortgage processing for banks,” he added.
Stanton Jones, ISG
Jones said this would create the right environment for businesses to sell off their offshore centres. “We believe we will soon see an increased focus on monetisation of these centres as a way to beef up operational resiliency and to infuse much-needed cash,” he added.
The large IT service providers looking to expand their portfolios are likely to be the potential acquirers. “We anticipate…possibly half of all global captives with fewer than 500 people being repatriated or acquired,” said Jones.
The use of artificial intelligence (AI) and robotic process automation (RPA) technology, to replace full-time equivalent staff offshore, could accelerate this consolidation, according to ISG. We will likely see a switch from labour arbitrage strategies to microservices, artificial intelligence and RPA solutions to address the business resilience challenges, it said.
According to a study by EY, over a third of businesses accelerated their automation strategies when the extend of the disruption, caused by the Covid-19 pandemic, became clear.
“The sudden and unexpected nature of Covid-19 has compelled executives to re-evaluate operating models. While building agility and resilience have been dominant themes for much of the past decade, the unique nature of the current situation has left many companies unprepared.” According to EY, 36% of businesses are accelerating investment in automation, while 41% are re-evaluating their automation plans.
Read more about coping with the coronavirus lockdown
- UK businesses receiving business process outsourcing and IT services from India will face disruption, but IT services from large IT suppliers less so.
- Video consultation service aims to reduce face-to-face contact to protect patients and reduce infection, as well as caring for people who are mostly staying at home.
- As the lockdown continues, businesses are having to make use of remote working technologies. We investigate.
- When the current Covid-19 pandemic is over, businesses will start to invest in their operations, with an acceleration of digital transformation to support new operating models and boost resilience in the post-crisis world top of the priority list.