Exclusive Interview: How Colombia Made The Biggest Jump, 23 Spots, on A.T. Kearney’s 2016 Global Services Location Index
Last Sunday, global management consulting firm A.T. Kearney released its 2016 Global Services Location Index (GSLI), an annual report researched by the firm that 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. Colombia jumped an astonishing 23 positions on the scale between 2015 and 2016, now ranked at #20 overall. That places Colombia just one slot behind Costa Rica on the list, but ahead of destinations such as Germany and Great Britain.
The GSLI is designed to bring rigor to companies’ location decisions in the globalized services labor market, in particular for back-office functions such as IT and business process outsourcing. 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.
Finance Colombia’s executive editor Loren Moss was able to gather insights on Colombia’s performance from the study’s co-author, Johan Gott. Gott is a principal in A.T. Kearney’s private equity practice, and a senior manager in the firm’s Global Business Policy Council. This year’s report was a collaboration between Gott and Arjun Sethi, a partner with the firm and global leader of A.T. Kearney’s Strategic IT Practice.
Finance Colombia: Colombia took the greatest leap of your top 26 countries. What is the primary improvement in Colombia driving that jump?
Johan Gott: Colombia saw its score in Financial Attractiveness improve more than every country except Brazil, Chile, and the Ukraine. This was driven by score gains across the board in all Financial Attractiveness sub-categories, especially infrastructure costs, which dropped. Additionally, the quality of Colombia’s IT/BPO sector improved this year, which helped its People, Skills and Availability dimension improve slightly. Finally, Business Environment improved as well, again thanks to infrastructure improvements—especially in the quality of internet connectivity.
Finance Colombia: What is the biggest drag on Colombia as a destination? What still holds the country back as a Global Services Location? Is Colombia’s tax and regulatory environment a net positive or negative? All countries have room for reform, but is Colombia ahead or behind the curve in this respect?
Johan Gott: While Colombia’s scores improved in many ways from 2014, it still ranks comparatively low in other areas. In Tax and Regulatory costs, a component of Financial Attractiveness, Colombia ranks 48th (out of 55). Additionally, infrastructure quality and cost, while showing improvement over 2014, still holds Colombia back.
Finance Colombia: The government has a stated focus on growing the country as a global services destination. How important is government involvement in promoting the sector. Is it a help or a hindrance?
Johan Gott: Government support is a critical component of industry success, especially in countries which do not yet have a strong sector. However, the kind of support is not always intuitive. The support needed is largely in removing obstacles as opposed to building support. Examples of effective government actions:
- Simplifying the regulatory framework, change legislation that holds companies back, and facilitate resolution of problems facing investors as much, as expeditiously as possible. These interventions are “free” in that little money is needed to improve the industry’s chances for success. However, political capital is often needed to enact new legislation, which can be a hurdle.
- Improving the quality of higher education is critical for this industry, that solely relies on the minds of the people doing the work. Often curricula need to be updated to respond to industry needs and if job training programs are to be effective
- Targeted promotion efforts of the country to shape the perception of the country among investors and communicate the specific advantage that the country has
“Improving the quality of higher education is critical for this industry,”
—A.T. Kearney’s Johan Gott
Finance Colombia: How does Colombia’s talent pool stack up against its peer locations?
Johan Gott: Compared to its Latin America peers, Colombia stacks up fairly well in the People, Skills, and Availability category. This category serves as a proxy for human capital resources, and in it, Colombia ranks 21st overall and 4th in the region. Brazil ranks 7th overall, Mexico 13th, and Argentina 15th, largely separated from Colombia due to their availability of skilled labor. Colombia’s IT/BPO skills as well as overall education levels are on par with the regional average, although overall the region scores low in terms of educational preparedness.
Robotic Process Automation (RPA) & Business Process as a Service (BPaaS) are game-changers
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 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.
Observes Gott: “The implications on accessibility of services and employment in these countries are massive. On the client or receiver end, Business Process as a Service (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.”
2016 GSLI Rankings
- India, China, and Malaysia are once again the top-ranked offshoring destinations.
- Six of the top seven GSLI countries maintain their same rankings from 2014; Brazil and Mexico have switched places.
- The real news, which began to emerge in A.T. Kearney’s 2014 GSLI, is that RPA and BPaaS (or standardization) will continue to compete, and their effects will be felt throughout the service economy over the next decade.
2016 GSLI Rankings and Changes from 2014
In the 2016 GSLI ranking, 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.
The study also takes a deeper dive into optimal cities for offshoring within the ranked countries. Notes Arjun Sethi: “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 3 locations such as Surat, Nagpur, and Lucknow in India and Bacolod and Iloilo City in the Philippines. We’re also seeing 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. These emerging trends are good news for these countries’ social and financial platforms, and for business as a whole.”
The 55 countries in the 2016 index—four new countries have been added this year—are selected based on corporate input, current remote services activity, and government initiatives to promote the sector. Each country is evaluated against 38 measurements to assess its financial attractiveness, people skills and availability, and business environment.
All photos, including the firm’s Chicago Headquarters lobby (top, headline), courtesy A.T. Kearney