As the outsourcing industry continues to mature, driving the commoditisation of services, service providers are taking steps to diversify their service offerings.
This is a new day, and we are witnessing a changing dynamic. Certain geographies—particularly China, Latin America, and Eastern Europe—are emerging as new magnets for outsourcing firms looking to diversify. While these geographies have been immature until now, they’re quickly climbing up the curve and attracting service providers looking to increase the scope, scale, and footprint of their outsourcing operations.
Using a multi-pronged approach, today’s competitors are entering new markets with both low-end, commoditised services with few market-entry barriers, and also with high-end, value-added services that drive higher margins but where market entry is more challenging. This shift is having an impact on incumbent India-based and US firms that are caught in the “perfect storm.” They are getting squeezed at one end by the new market entrants from other parts of the world who are grabbing market share from them, and at the other end by existing clients who are being forced by the recent economic plunge to demand price reductions for services. This challenge is driving down service provider margins. Incumbents are being increasingly pressured by this escalating margin decline—particularly in India.