Outsource Magazine

As 2011 fast draws to a close, most companies will have given thought to their plans for 2012. What revenue growth are you expecting next year? How hard will you be pushing the sales force? What can you realistically expect to earn from your customers or win from your competitors? In public companies shareholders expect that their investments will outperform the market. They should be able to make more money by investing in you than they would get by leaving their money in the bank. After all, higher risk attracts a higher return, right? In the USA, you’ll be doing well to get 1% for a long-term investment account. Around 3% is the norm for the UK. Australians can get 6%.  So, depending where you are in the world, are your growth aspirations close to those levels?

When the economy is tough, it’s a natural reaction to close ranks, pay attention to what’s close at hand, and do whatever is necessary to survive. One of the earliest casualties of such a reaction is often the retraction of one’s global perspective. (Ironically, it was failing to recognise the major trends in international markets that, to a large extent, placed us in this position to start with - think US sub-prime mortgages...) So, to ensure we don’t fall into that trap, let’s indulge, for a moment, in a perspective from a market a little further from home.

In 2010 China’s services outsourcing exports grew by 32% over the previous year. So to outperform the market, services outsourcing companies there have to target at least a 33% p.a. growth trajectory. How would your sales managers feel if asked to accept that challenge? They’d feel sick, right?  But then how would your shareholders feel about seeing other companies grow at that rate – but not yours? Also sick, right? We operate in a global market, so what will you do about this dilemma? Just re-focus on what’s right in front of you and make the most of what you have – or consider looking outside your comfort zone for the results you can’t get closer to home?

If we look at national GDP figures from 1980 to 2010, over the intervening 30 years UK has achieved a CAGR of 4.9%. In the same period, USA grew at 5.7%, India at 7.4% and China at 11.9%. Take a look at China’s performance during the GFC:

While many of us in the West are looking forward to better times ahead, China is making better times happen right now – and the good news is you’re invited to the party.  Good news, I say, because there are opportunities for western service outsourcing companies to participate in China’s exceptional growth. Bad news, perhaps, because once your shareholders realise that the opportunity is very real for their funds to be invested in high-return opportunities, you may find yourself under pressure to perform, whether you like it or not.

Focusing on your current business may be crucial to survival, but it’s like running along looking down at your feet. You can see where your next step will be – but you can’t see what path you’re on, or what obstacles might be in your way. Subconsciously, you make assumptions that the future will be a linear continuation of the past, even though intellectually you know that can’t be true. Forecasting the future during periods of economic uncertainty is often speculative and you don’t want to look foolish by making unsubstantiated predictions. So you drive along looking through the rear-view mirror, thinking it’s the windscreen. Well it’s not.

As a case in point, the world generally groups China with India, the Philippines, Eastern Europe and Central America as locations from which to source offshore services. There’s nothing wrong with that; China was the world’s third-largest exporter of services in 2010 (US$170 bn). But it misses the main point. China’s population is 20 times that of the UK, it has eight cities bigger than New York and 100 cities bigger than LA. It is a vast market for the purchasing of services, and in March of this year, the Chinese government flagged its intention to accelerate the growth of the outsourced services sector. It will drive its state-owned enterprises to outsource contracts to the Chinese service providers, to stimulate them to grow. So, the companies that are thriving today are not those that have a Chinese supplier – but those that have a Chinese customer. Companies that perpetuate the myth that China is just a place for sourcing cheap services are crafting their vision by looking down the wrong end of the binoculars.

One Chinese BPO company I know has recently won a new contract to deliver outsourced services to a Chinese bank. The size of that contract is such that the company’s workforce will need to triple in size within two years to accommodate the scope of works. Another Chinese organisation has sought our help in designing training programmes for BPO workers: ten million trainees over a ten-year period. Yet another one is looking for an external investor, not so much to fund expansion, because funds are not in short supply in China. What they need is a strategic investor who can bring application knowledge, domain knowledge, technology expertise, vertical market experience – the kind of non-financial resources they can leverage in China’s high-demand environment. Of course they’ll need to bring their chequebooks too.

So will you sit at home, dig deep, focus on your core markets and concentrate on your survival strategy? Or will you carve out a select team that is willing to take a few calculated risks, give them access to some of your scarce resources, and task them to pioneer opportunities in potential high-growth markets? If they succeed, they could return the kind of growth that will give the rest of your business the breathing space it needs to recover from these tough times. At least then you’ll be able to look your shareholders in the eye and tell them you’re taking their investments seriously and acting in their best interests.