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Outsourcing to gain as geopolitical risks grow

New Delhi: As recent events like the US-China trade war and political tensions in Hong Kong raise fears of delivery disruptions, the stable Indian outsourcing market can benefit from the growing geopolitical instability, a new report said on Wednesday.

Fears of geopolitical instability may impact the global offshore services market, as sourcing, procurement and vendor management executives review their options to mitigate risk, according to Gartner.

“The Indian outsourcing companies can benefit from these risks but are likely to do so via delivering services from smaller scale near shore countries such as Philippines and Vietnam as well as some Eastern European and Latin American offshore countries,” Jim Longwood, Research Vice President at Gartner, said.

Indian outsourcing firms generated more than $45 billion in global services in 2018.

The offshore outsourcing market has been relatively stable in recent years, with organizations using a mix of onshore, nearshore and offshore resources with relatively stable demand and supply patterns.

However, recent events like the Sri Lankan terrorist attacks, the US-China trade dispute and political tensions in Hong Kong are raising fears of delivery disruptions.

“Political and economic stability is an important factor in offshore outsourcing arrangements,” said Longwood.

Gartner estimates that China exports around $10 billion of IT application and business process services, primarily to North America, Western Europe, Asia/Pacific and Japan.

“How the trade talks progress may hinder China’s ability to deliver IT services,” Longwood added.

Concerns include potential disruption to or cessation of services, increased tax added to export labor rates and reduced quality of service due to ‘patriotic’ backlashes by local staff.

“However, instability is not limited to the US/China situation. All organizations should review their offshoring and nearshoring arrangements,” he said.

Gartner predicts that by 2023, 65 per cent of larger enterprises using captive offshore or near  shore service delivery centers will have adopted a multi-country sourcing strategy for these services.

The report recommended that organizations should build a roadmap to split risks across multiple countries and/or onshore low-cost centers, including automation of service delivery.

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