How can businesses mitigate geopolitical risk? Source: Shutterstock

How can businesses mitigate geopolitical risk? Source: Shutterstock

In the digital age, do businesses need a plan to mitigate geopolitical risks?

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 generated more than US$45 billion in global services in 2018.

For the companies outsourcing IT applications and business process services to China, India, and other parts of the world, therefore, geopolitical risks are a cause for concern.

“How the trade talks progress may hinder China’s ability to deliver IT services,” Gartner Analyst VP Jim Longwood told Tech Wire Asia.

“Concerns include potential disruption to or cessation of services, increased tax added to export labor rates and reduced quality of service due to ‘patriotic’ backlashes by local staff.”

To be clear, instability is not limited to the U.S./China situation. According to Longwood, all organizations should review their offshoring and nearshoring arrangements — especially as businesses are aggressively going digital.

Business leaders, of course, are aware of this. Gartner predicts that by 2023, 65 percent of larger enterprises using captive offshore or nearshore service delivery centers will have adopted a multicountry sourcing strategy for these services.

Longwood believes that planning for contingency is key and advises clients to start plan early to avoid taking rushed, reactive measures after a disruption of service has occurred.

To help Tech Wire Asia‘s audience, the Gartner Analyst VP provides some guidance:

“The first thing that companies need to think about when building a multi-country strategy is the volume of work they outsource. If there’s a lot of work being outsourced, companies need to assess how easy it is and how viable it is to split it up between two or more countries.”

The next thing, obviously, is an assessment of the likelihood of geopolitical risks materializing in the countries that companies are working in.

“Obviously, some countries are more stable than others — and you need to factor that into your planning process. What you’ve also got to account for is your vendor’s ability or lack thereof, to help you split the job to other countries or regions.”

Frankly speaking, the considerations that Longwood mentioned only form the starting point for a strategy that helps monitor and manage geopolitical risks when it comes to outsourced IT applications or business process services.

When working with clients, Gartner’s analysts evaluate countries where work could possibly be outsourced against four categories and 10 criteria, which is indicative of how much thought must be put into formulating and implementing a strategy.

Longwood, however, emphasizes that companies need to simply acknowledge the risk and get started with planning to mitigate it effectively. This is crucial to survive and thrive in the digital age.

“Just selecting the location and vendor isn’t enough. Documenting the knowledge and preparing for the move is quite an important part of the process and often can take anywhere between two to six months.”

Ultimately, the message that Gartner shared is that businesses cannot avoid going digital, and part of the process involves working with vendors overseas. However, in order to guarantee the sustainability of business operations in the long-term, organizations need to start planning for geopolitical risk mitigation now.