Being Near Is Not Going to Be Nearly Enough

Being Near Is Not Going to Be Nearly Enough

Being Near Is Not Going to Be Nearly Enough

WHAT COUNTRY YOU ARE FROM WON’T MATTER. It’s what you can do that will count, says Jimit Arora, research director for Everest Group. He leads the company’s service provider intelligence practice, focusing on suppliers around the globe.

We spoke with him recently about what he sees going on in Brazil and the surrounding region, how the outsourcing landscape is changing, and what IT providers need to do to meet buyers’ needs and succeed on a bigger scale. For your convenience, a condensed version of Arora’s comments follows.

Being Near Is Not Going to Be Nearly Enough

Only the different survive

IT service providers have to differentiate themselves. This is not happening enough, and that was one of the themes at the Nearshore Nexus conference. Companies have to go beyond saying ‘We’re nearshore.’

For a company in Brazil like a Softtek or a Stefanini or a CPM Braxis to be truly relevant, being nearshore as a differentiator won’t be enough anymore. Competitors like a TCS can come into your location, bring in more people, offer onshore and offshore, farshore and nearshore, and then what is your differentiator?

Brazilian and Latin American companies need to demonstrate their differences. They can emphasize their unique application experience. They can say ‘Hey, I can do nearshore delivery for healthcare, or for energy, or for pharma.’ Brazilian companies have deep competency in particular technology stacks, like SAP and Oracle.

We expect to see a more focused effort by these providers to demonstrate differentiation rather than trying to be all things to everyone. Being nearshore, having time-zone proximity, those will become table stakes for most of the other companies in the marketplace. The geographic play is fast becoming a commodity play. The argument is going to be survival — survival of the differentiator.

Size is getting bigger

Scalability, total headcount, is becoming an even more important criteria. Lots of this M&A activity is to get access to scale. Stefanini, CPM Braxis, they recognize this. The larger you are, the more difficult it becomes for them to get rid of you.

And if you work with a global major from India that has the same capabilities in, say, Brazil but has more employees, more resources, why wouldn’t you want to continue that relationship rather than building a new relationship with a smaller provider? Indian companies are dealing with this too. IBM has more employees in India than the Indians do.

[During their recent webinar to discuss global sourcing trends, Everest analysts noted that Brazil has “a vast labor pool and domain skills” that make it “attractive for supporting North American markets” and high-level IT services like application development, engineering, and R&D.

But for the time being, “Brazil is unlikely to be effective serving large-scale BPO in the near term but has a clear and important role as a delivery center with moderate scale of operations.” Brazil’s greatest strength is in the IT realm and not business processes, they suggested.]

M&As are good for service buyers

The merger and acquisition activity we’ve seen in Latin America, especially in Brazil, is a sign that the market is evolving and maturing. If you think back, lots of M&A activity occurred in Indian IT several years ago. Now look at what has happened in Brazil.

Capgemini acquires CPM Braxis, a large home-grown provider. Apax acquires a stake in Tivit. Stefanini acquires TechTeam [in the U.S.] to become more than a Brazil company. A deal like Stefanini’s shows that it isn’t just about big players coming in and buying up smaller firms.

IBM, HP, Accenture, TCS, they have established scale that’s potentially more than the locals can match. But it’s the ambition of Brazilian and Latin American companies to become bigger, to scale up. The landscape is changing, which is usually a good thing from the buyer’s point of view. Buyers will be doing business with a company that’s there for the long haul.

There’s going to be lots of consolidation, and that will be good for buyers in one sense in particular: Buyers want to simplify the portfolio of vendors they’re working with, they want to work with fewer providers. When you work with a large number of vendors, you lose standardization.

“Social media is a necessary evil.”

You ask ‘Is it driving business?’ Well, there’s not yet a very high correlation between investments insocial networking and new customers — but not having it is putting you at a disadvantage.

If you have new offers that you’re trying to roll out to customers, there’s a chance they will be interested if they “like” you on Facebook or wherever, but they might not click on an e-mail message [that you send to promote that offer]. With younger audiences, you’re not going to be relevant if you’re not on the Facebooks or the Twitters.

You need to get on those sites to find out what young customers are looking for. Social networking is another channel to reach customers. It’s too early to predict its success as a business driver. But not using social media can potentially take away from revenue growth.

“Buyers want providers to drive growth through innovation.”

Every couple of years there’s a new IT wave that’s going to change the world. In a lot of instances, the hype is created by the providers. But the cloud appears to have caught the fancy of buyers.

Companies are asking, ‘What are we doing with the cloud? What is our strategy?’ They don’t necessarily have the answers yet, but there is a fair amount of activity around cloud computing right now that is more than hype.

Tablets and smartphones are another important theme. The impact of mobile technology on consumer business, retail, banking, that raises questions of how to best interact with customers — but it also raises questions about how the workforce operates.

Instead of one employee/one desktop PC, it’s now becoming one employee and three devices: PC, smartphone, tablet. This raises lots of challenges for the CIO and the IT department. Still, no matter what the technology, businesses have three main objectives to solve:

How to achieve growth.

How to stay profitable.

How to innovate and develop new business models.

These are at the forefront of everyone’s agenda. And providers should know that buyers want them to drive that growth through innovation.