Sunil Mirani As Chief Executive Officer of Ugam Research Solutions, India's pioneering provider of market research operations solutions to the global Market Research Industry, Sunil has overall responsibility for developing, and delivering upon, the long-term vision and strategy for the company. Read the full biography here.

Bridge Over Troubled Water?

Offshoring / Outsourcing In Recessionary Times

25 January, 2010

A quick look at the financial results of almost all major market research firms suggests that they may be feeling like the Sri Lankan cricket team after its recent tour of India - battered and bruised!! Almost without exception, revenues and profits of all major research firms are down by a significant amount (did someone say 'flat is the new Up'?), and it doesn't look like getting better anytime soon. With marketing budgets under pressure across virtually all industries, it was inevitable that research budgets would be slashed. Experts, who once believed that MR is 'recession proof', have probably reconciled to the fact that MR cannot escape the brunt of the global recession. With many industries undergoing a 'permanent reset', it is highly unlikely that the MR industry will go back to business as usual. This time it's (indeed) different!!

What then, are the options for MR firms? As many leading firms that I have interacted with over the past few months would attest, a two pronged approach is required: to focus on reducing costs and improving profitability (or reducing losses, as applicable) in the short term, while yet investing for the long term, clearly recognizing that the landscape will be very different when companies start spending on marketing/advertising/research again. And as companies go down this path, it is my belief that the forward thinking and nimble firms will embrace OFFSHORING very aggressively, and use it as a strategic tool for competitive success. Let's understand why.

While there have been some poor experiences, offshoring, for the most part, has proven to be highly successful, having saved MR firms anywhere from 10% to 30% of total costs

Using offshoring to reduce costs, and improve profitability, for the immediate/short term is a no-brainer. While there have been some poor experiences, offshoring, for the most part, has proven to be highly successful, having saved MR firms anywhere from 10% to 30% of total costs (fully loaded). With the extent of offshoring done over the past 8 years or so, there have emerged a handful of offshore providers who have used robust processes and proprietary frameworks, made innovative use of technology to provide quality of service, and who have engaged with clients, in some cases I daresay exceeding the experience they have working with their own internal teams. With data and metrics to back this claim, this clearly shows that it is possible to enjoy cost saving, without compromising on quality, and in fact, in many cases, with better quality. (This is in direct contrast to certain myths prevailing, and being propagated every now and then, but more of that later...).

Therefore, while it was only the large MR agencies which enjoyed the benefits of offshoring thus far - due to them having the financial, technological and managerial bandwidth to do so - I believe that the times like these will in fact, compel the small and mid-size firms who had not even considered offshoring to very seriously do so, and in fact, embrace it aggressively. Fortunately for them, given the maturity of the supply side, they may not have to experience some of the painful lessons that the large firms did 5 or 7 years ago.

Social media research, mobile research, data mining and advanced analytics - there are a whole host of areas in which offshore firms are taking the lead in investing

If 'offshoring 1.0' (let's say the last 6-8 years ) was all about saving costs, i.e. about improving the bottom line, then we have entered, I believe, the era of 'offshoring 2.0', which is all about using the advantages of offshoring for growing the top line, and creating differentiators for competitive success. In recessionary times like these - in which companies also have to focus on new products, services and creating competitive differentiators - it will once again be the savvy MR agencies which will use offshoring for strategic advantage. The small and medium sized firms, who have limited or no legacy of operations - will particularly benefit, since they don't need to invest in any capacity, but yet reap the benefits that their offshoring partner may have to offer.

Social media research, mobile research, data mining and advanced analytics - there are a whole host of areas in which offshore firms are taking the lead in investing; the firms who take advantage of these capabilities will be well positioned when the downturn ends. Think of it like the 'Intel Inside' model - Intel makes all the investment, R&D in the next generation chipset, while the laptop manufacturer reaps the benefits of the same, and focuses on building, the next generation laptop, powered by 'Intel Inside'. Similarly, the research firm can focus on consulting, methodology, client relationships, while leveraging the process, operations methodology and frameworks, and investment in technology/innovation made by someone else to power its business.

This model has been adopted very successfully by many Silicon Valley based technology firms where all the manufacturing, and some R&D, innovation etc. is done in India, with only Marketing and key R&D roles in the US, and I see no reason why it cannot be adopted by MR firms. Of course, a big difference is that most of the Silicon Valley firms are backed by venture capitalists who insist that their investee firms adopt this model. The difficult times prevailing today may well play the role for MR firms, that the VC played for the Valley based technology firms.

This leads me back to a point I had alluded to above, i.e. of quality in offshoring. Much has been made recently of the need to have 'transparency' in offshoring, which in my mind completely side steps the main issue. The discussion in my opinion has to be on quality, timeliness, delivery standards, value addition provided to clients etc., no matter where the work is done - whether 10,000 miles away, 10 miles down the road, or 10 feet away in the next cubicle. As they say in the airline industry 'in God we trust, everything else needs data': let the debate be based on data and metrics, and not emotions. Insinuations that offshoring implies poor quality or lack of transparency are factually incorrect at best, and self serving and dangerously protectionist at worst.

A lot of jargon is already used - 'offshoring', 'outsourcing', 'smart sourcing', 'right sourcing' - and I don't intend to add any more to them. However, the fact remains that just like globalization of manufacturing started decades ago, the globalization of services is rapidly happening in the 'flat world'. It is an economic reality that one has to live with, and the market research industry is no exception.

The firms that get it will indeed thrive - an example is GE, one of the world's greatest firms, which pioneered the outsourcing industry in India. GE came to India in the mid-90s purely for cost savings, but now use India and China as a base for 'reverse innovation' (as they call it) to introduce new products that are made in these countries for the US market. As one of my clients told me 8 years ago (when offshoring among MR agencies was just beginning, and in the aftermath of the post 9/11 recession) 'I can either resist the wave (of offshoring) or ride it. I would rather ride it, than be washed away by it'. I believe recessionary times like these indeed provide the opportunity for MR firms to ride the wave once again; time will tell whether they do so successfully or not.

Sunil Mirani

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