The State of the GBS Market – Alive and Well and Evolving

Stan Lepeak, Global Research Director, KPMG LLP Advisory

The rumors about the death of global business services (GBS), or globalization, or global outsourcing in the services space, are highly exaggerated. They are the wistful daydreams of those pining for a time in the past when everything was produced, managed, operated, and serviced locally by (insert your western country’s name here) employees. They are often bloated, inefficient, and ripe for assault by global competition but still domestic champions. That was then and this is now. And while legacy outsourcing (lift and shift, mess for less, all focus on cost savings and labor arbitrage) may be dying (more on this to come) it is being superseded by more ambitious and strategic global sourcing programs and agendas.

The reality is that despite an uptick in protectionist sentiment and populist politics, and an endless stream of anecdotal examples of failed global sourcing efforts, the globalization of services continues to expand. Global business services have become more complicated from a services delivery standpoint. It is no longer about whether to outsource or not, but about a continuum of service delivery models from internally maintained to domestic, near and offshore shared services and outsourcing.  It is no longer about onshore versus offshore, but rather global sourcing across multiple geographies, often paralleling the global footprint of the client itself.

GBS goals have become more ambitious and focused on transformation and innovation, with cost savings expectations a base-level given.  Costs savings, either via labor arbitrage, economies of scale, or simple staff reduction, are “table stakes” in today’s market. All buyers seek cost savings via GBS, but most today are more focused on seeking value above and beyond cost savings via things such as process improvement or transformation, access to third-party skills or talent, or access to new technology. Strategic activities such as R&D, sales and marketing support, and analytics are now in scope for GBS efforts.

This being said, for organizations in second and third generation outsourcing deals, the biggest proportion of cost savings has already been achieved (low-hanging fruit has already been picked), so additional significant cost savings are often unlikely, further driving the shift towards a focus on process improvement and access to skills.  Future cost savings are as likely to come from process automation—removing labor altogether—as from lower labor rates. Ongoing declining global wage variations–lessening of labor arbitrage benefits—further fuels this trend.

While some work is being brought back onshore from offshore, it is a small portion of the overall work typically outsourced offshore, and represents more a rebalancing than a change in strategy. The challenge for buyers today is not whether, how, or where to deploy GBS efforts, but how to make GBS a core organizational competency; no mean feat.

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One Response to “The State of the GBS Market – Alive and Well and Evolving”

  1. Very well said. Everything has evolved. Years ago the sourcing strategy was more linear. Companies moved toward shared services and then perhaps applied an overall sourcing strategy, dependent on the pressure of cost saving targets. There are vastly more options available now. With greater focus on transformation and innovation, GBS will likely be the overall driver and each area may be evaluated for sourcing approaches based on the availability of technology, access to skills and which avenue currently provides the most efficient and effective approach toward the objectives. This may involve sourcing internally and locally, or internationally, sourcing parts or all of a process externally, or some combination – even realigning over time as needs change. GBS should become much more significant, rather than passing away.

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