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CIOs advised to review outsourcing arrangements to mitigate geopolitical risks

CIOs advised to review outsourcing arrangements to mitigate geopolitical risks

Gartner outlines steps to address risks organisations can - and can’t - control

Credit: ID 68486955 © Flynt | Dreamstime.com

List ongoing IT initiatives by ease or complexity of transfer and business or IT impact. Once ranked, identify those most suitable for a potential transfer

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

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

But 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,” says Jim Longwood, research vice president at Gartner. 

“Gartner has started fielding more questions from clients about how to address these scenarios. This includes whether to stop sourcing services from a particular country, move services to another country or bring them back onshore. Each option is quite costly and can disrupt service delivery in the short-to-medium term.” 

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

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

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

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All organisations should review their offshoring and nearshoring arrangements

Jim Longwood, Gartner

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

However, he adds, instability is not limited to the US-China situation. “All organisations should review their offshoring and nearshoring arrangements.” 

Gartner predicts that by 2023, 65 per cent of larger enterprises using captive offshore or nearshore service delivery centres will have adopted a multicountry sourcing strategy for these services. 

These include: 

  • Undertaking a proactive risk management to address geopolitical events 

Organisations typically follow a sound risk management process as part of their due diligence when they first select a vendor and/or country for the delivery of services, but often don’t continue it. Organisations should monitor industry press, government trade sites, country/embassy immigration sites and feedback from sites for signs of impending problems. 

  • Splitting risks across multiple countries 

Gartner recommends that organisations build a roadmap to split risks across multiple countries and/or onshore low-cost centres, including automation of service delivery. 

Through 2022, Gartner believes the potential for further geopolitical disruptions will accelerate uptake of intelligent automation of managed services by more than 25 per cent and will spur movement of these services onshore to mature country locations. 

Organisations should proactively assess their key in-country risks and short-term options for anticipated scenarios by identifying key signposts when significant action will be required. 

  • Creating contingency plans

When using a large regional or global delivery provider to deliver services only from that country, contingency plans often do not adequately assess geopolitical instability scenarios, or contingency plans need updating. Gartner recommends proactively addressing these scenarios with the incumbent provider. 

“Although you can’t control a sudden cessation for service delivery due to unexpected events, you can be prepared for it,” says Longwood. “Check with service providers to determine what disaster recovery programmes they have in place for clients, and work with them to create a viable business continuity plan.” 

'Ride out the risk'

A new report by Jim Longwood and Gartner analysts Akimasa Nakao, Tao Wu, and Jaideep Thyagarajan, details steps organisations can take to address the risks they can - and can not - control. 

“You can’t control a sudden cessation for service delivery due to a natural disaster, a severe weather event such as typhoons in the Philippines, unexpected escalation of disputes or terrorist attacks,but you can be prepared for them,” the report states. 

In the short term, organisations can ensure they have copies of all process data and applications IP generated from or used in these locations to minimise disruption to your business operations in a worst-case scenario.  

“Focus on documenting all of your IT project initiatives and apply typical business continuity and disaster recovery and planning processes so that you can transfer operations back to your home base or elsewhere in these scenarios,” they advise. 

Check your service providers to determine what disaster recovery programmes they have in place for clients, and work with them to create a viable business continuity plan

Aside from being able to “ride out the risk” while things stabilise, the organisation’s only viable options are to plan to reduce the impact of using one country in its “services supply chain” being “put out of action”. 

Some of the steps they can take is to list ongoing IT initiatives by ease or complexity of transfer and business or IT impact. Once ranked, identify those most suitable for a potential transfer, they advise. 

Organisations can also adopt a multicountry delivery strategy using a planned and phased transfer of some or all of the operations to another nearshore/offshore country in the region such as Vietnam or the Philippines. 

If all of your work is with a local Chinese service provider, for example, discuss your options with them and how they can assist to mitigate the risks. 

If the organisation is using a small provider who doesn’t have the critical mass to do so, it may need to plan to switch services to a regional or global provider with multiple service delivery centres in the region.  

“If the scale of your services is relatively small, you might have to bring the services back onshore or to a low-cost domestic sourcing option,” reports Gartner.

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Tags outsourcingstrategyrisk managementpoliticsGartnerChinaterrorismdisaster recoveryBusiness Continuityoffshoringvendor managementsourcingdisruptionglobalisationglobal cioagendageopoliticstrade warCIOJim Longwood

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