The US and Europe are some of the most popular markets for ITES (IT enabled services) and BPO however at the same time they are the most crowded. The competition is fierce and more so for the small companies from developing countries who are expanding and want to internationalize their business. Below we look at some of the challenges facing the export of ITES/BPO services.
Many companies looking to export their products and services lack international networks. This in turn makes it very difficult to obtain intelligence on marketing matters on foreign markets. Marketing then becomes a key problem.
The marketing challenge can be explained from different angles. One of them is the lack of proper country branding and the other is the lack of marketing skills of individual companies. Country branding will be discusses shortly. As for the lack of individual marketing skills in regards to companies, they do not have knowledge that can help them effectively market themselves. Their know-how may not even be sufficient to help them do proper local and regional marketing let alone international. Many may result to relying on referrals and word of mouth in order to acquire new business/clients.
Aside from the lack of/limited knowledge, limited finances also play a part in poor marketing. Marketing is expensive and many businesses rely on their already limited finances to conduct marketing and advertising. Currently the kind of marketing and advertising that many businesses engage in is not enough to convert leads into revenue generating clients.
A company may have great products and services but when that is not properly packaged and advertised it won’t attract any business. It also may be marketed but poor products packaging in itself is enough to turn a potential or current client away.
Also many of the businesses lack proper network building abilities. With the absence of a reliable contact on the ground in their target market they are unable to get their products to those who need it outside of their zones (read local market). This therefore renders the question, how can businesses establish connections with the stakeholders in their target markets?
- Skill disparity and shortage.
Lack of high-quality and experienced staff is a key contributor to poor quality services in the ITES/BPO sector. Therefore skill disparity and shortage pose a major problem to many companies looking to export their services. Even though a country may have staff who are graduates they may first need to be trained in order to be conversant with the BPO market requirements. A company therefore has to invest a lot in incubating and training them to get them up to speed with what is happening and what is required of them.
Another factor in regards to skills and workforce in the ITES/BPO industry is the fact that in many developing countries it is not considered a career. Therefore those who come into it do so with a view of it being a ‘temporary gig’. A company therefore ends up training staff that will sooner rather than later move to another field taking their skills with them. They are then left to train other staff.
Also the skills in developing countries’ tech space in varied, thus the disparity. The difference in the technological skills between an IT specialist and a non-IT graduate is very big. A company looking for staff with high tech skills has no choice then but to employ on IT specialists. But in doing so they end up spending a lot of money to recruit and retain them. In the end they cannot be competitive (especially in the international market) because of the expenditure-gain margin.
To such businesses the decision to exclusively employ IT skilled staff was informed by the fact that having non-tech staff often leads to production of poor quality products and services. Secondly there are many services being offered in the ITES/BPO sector that require specialized skills. Furthermore businesses are often forced to undertake the training themselves because there are not that many training institutions for BPO.
- Regulatory Restrictions.
Businesses sometimes face difficulty in penetrating foreign markets as a result of trade regulatory restrictions. These restrictions could be domestic and foreign taxation-related, too many protocols and licensing requirements etc. The businesses are then often required to meet these standards. There are regulatory issues in which companies have to first meet these set international standards before they are allowed to export many of which are at times hard to meet.
- Product pricing.
From time to time the businesses looking to export their products and services have insufficient knowledge on vital matters like pricing. How can one be competitive in a space that is already crowded by business that have been in the game for years when you are even not fully informed on the value of ITES/BPO service offering?
- High bandwidth costs.
In many developing nations bandwidth costs are still high. This makes communication and conducting business expensive. This is a blow to many businesses in the ITES/BPO industry since almost all if not all of their businesses are conducted online. The same goes for IT infrastructure. The IT infrastructure in many of these countries are antiquated and need re-hauling if they are to deliver to the maximum and to the satisfaction of the clients.
- Lack of Market information
Lack of market information and insights limits businesses’ all out on investments focus on the export. It is impossible to invest wisely in the foreign market if you are going to do so blindly. Without the knowledge on export opportunities, markets, processes and required tools, venturing in the global market will almost always lead to failure. On top of that many also do not know how to go about acquiring that knowledge/information especially since there are not that many resources out there informing on BPO trends and the likes. A potential key contributor to this limited information might be due to the fact that many of these businesses have never exported before thereby they lack pre-requisite information.
Most businesses have poor understanding of the international investment climate and best practices and also lack knowledge on how to strategically align their marketing strategies with the global market requirements to draw business.
- Increased competition
Overtime the competition has not only increased in the ITO/BPO services industry but has evolved to become fierce. New businesses have to compete with already well-established brands in the sector in the local, regional and global market. These businesses are offering the same services yet one has a well-established reputation and network, staff and finances while the other is only just starting out. This makes it harder to enter the market. On top of not being recognized, these new entrants many a times cannot even make their margins.
- Privacy and safety concerns.
The internet has a tendency to render people faceless and nameless. In addition many developing countries and some developed nations still lack proper law on data protection. Some of them do have the laws but lack strong legislation to enforce it. This fact has raised concerns in regards to confidentiality and safety of shared information especially for US and Europe. This might be due to the rise in cyber crime over the last few decades. They then have to worry about finding credible service providers. And even when they do find these honest service providers they can never be too sure of their data safety. Some of the ITES’ include outsourcing financial, legal and medical services all of which involve sharing of sensitive information.
This concern however is not one-sided. Those offering the ITES/BPO services are also concerned seeing as during the course of sourcing for clients there are chances that they may instead end up finding fraudsters. This makes it difficult for them to find honest clients as well.
- Country Branding
There is lack of proper country marketing for many developing nations as a reliable ITES/BPO destination. Lack of awareness of these countries as attractive outsourcing destination makes it hard for them to penetrate the international scene. Lack of a country marketing strategy is often the cause of poor country branding. As a result very few countries have managed to venture and succeed in the foreign market. Many of these countries struggle to build that image for their clients and convince them that they have credible technical expertise.
To get a country known for its ability in the outsourcing sector can be well solved by collaborating. Have competitors put their differences aside and work together for the sake of building their county’s image. However this has not been easy thanks to lack of trust. None of the companies want to work together as they often tend to view their competitors as the ‘enemy’. They all want to build a wall around their ‘territory’ and are often overprotective of it. In the quest to fight each other they sadly end up working against themselves by creating closed markets. Although there are some nations e.g. India and Bangladesh, that have managed to work together.
- Lack of comparative advantage with other countries.
Other countries have already established brands, networks and finances and have been in the industry for a while. This makes the playground a little uneven for the new businesses.
- Quality assurance measures.
There is a lack of internationally accepted outsourcing standards to make the services quality competitive. How can one measure if their quality is up to par? Who dictates the terms of the measures?
- Different business cultures.
The business culture of the nations that businesses are exporting to differs from their own. This means that they have to familiarize themselves with it and try to fit in so as to be able to deliver to the client expectations. Sometimes they fail and other times they do manage to fit in.
- Language barrier.
Speaking different languages forms a hurdle between the service providers and their clients in two ways. One, it makes communication difficult when instructions are not understood. Secondly the message may be passed along but then it is may be misinterpreted on the other end. In such cases some result to learning the new language while others rest on using an interpreter or simply sticking to nations who speak the same language.
- Finance issues
Cash flow issues also present a key challenge. Most companies use their own money to conduct business and then you find most clients paying for the services late. This then forces the businesses to try to make their margins while also paying for utilities and the staff from their own pockets. They might also need to invest heavily in IT and communication infrastructure not to mention training which requires a lot of money that many of them do not have. The poor communication infrastructure that they are then forced to work with if they cannot upgrade makes communication difficult and at times expensive.
In the next post we will take a look at the solutions to these challenges. Don’t miss our next article.