Glocalizing BPO Services, the manufacturing way
While globalization has taken a full circle trot around the world, glocalization, is steadily being implemented across the world. Global companies are looking to adopt their glocalization manufacturing paradigm to their BPO support as well. Glocalization is the creation and servicing of major markets by local hubs. Putting your eggs in baskets close to each other is what enterprises are looking at.
Outsourcing all parts of production and the supply chain to low-cost countries, specifically China, while retaining the bare minimum in distribution and design in-house is now witnessing a profound change.
Factors affecting this change are:
- Rising labor costs in emerging economies such as China where labor costs have doubled in two years
- Higher fuel costs resulting in higher logistics costs while moving goods across continents
- A requirement for greater localization in product content
- High risks associated with disbursed supply chains. Example: the Japanese Tsunami disrupting supplies to American auto majors is a recent example
- Sales growth being driven by emerging markets
- Political pressures resulting from recession and stagnating economies
In the manufacturing industry, glocalization focuses on creating glocal hubs where each major geo is serviced within the boundaries of the hub. Caterpillar's glocalization strategy is most identifiable in recent times where a single world market is replaced with many regional ones. The U.S. market was predominantly serviced from its Peoria plant. Projects were lined up to automate most labor-intensive processes such as welding (done by robots) while still creating more jobs for technicians with higher levels of computer skills.
Since 2009, Caterpillar started the program of replacing cheap labour with even cheaper robots. There has been no fall in the number of human employees. The only change being one in the skill levels required of these employees. Similarly, a network of over 2,000 suppliers in the Illinois areas provides custom-designed goods for the main plant in Peoria. This strategy was replicated in major markets such as China creating regional hubs to cater to localized demand specifications.
Do these initiatives apply to the BPO industry?
The answer would be a resounding "Yes" with the BPO industry actually having made its baby steps in this direction with a slew of initiatives:
- FEND-BEND model: The concept of basing FEND services (Front End Customer facing operations) near shore to a client's markets while moving only the BEND services (Back End transactional operations)
- Onsite delivery of services requiring higher or specialized skill sets being delivered from the client's premises or in the target country locations
- Most BPO vendors today have delivery centers in the US - aided largely by the recession. This has eased the labor markets and associated costs
- Tools and technologies: BPO vendors have been quick to adopt cloud / platform based solutions and automating technologies which replace FTEs with tools and applications (very similar to Caterpillar's robots)
Will we see the possibility of BPO vendors moving towards glocal markets where individualized services are delivered from glocal hubs focusing more on intellectual arbitrage and less on cost arbitrage? Or will it be a combination of the traditional and glocal models which vendors will now have to offer clients to match their operating models? I would like to hear your views.