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Gartner: Geopolitical tensions affect risk management strategies

25 Nov 2019

Geopolitical instability could be a major factor in how organisations review their risk mitigation options, which means the entire global offshore services market may shift.

That’s according to new research from Gartner, which points to the recent political tensions in Hong Kong, the ongoing trade dispute between the United States and China, and Sri Lankan terrorist attacks as signs that organisations fear delivery disruptions.

As a result, executives in charge of sourcing, procurement and vendor management are treading carefully in the area of risk management.

Gartner research vice president Jim Longwood says political and economic stability is important to offshore outsourcing arrangements – and more organisations are asking how to address instability.

“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,” says Longwood.

Gartner highlight China as an example. China exports approximately $10 billion in IT application and business services to North America, Western Europe, Asia Pacific and Japan.

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

“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. However, instability is not limited to the U.S./China situation. All organisations should review their offshoring and nearshoring arrangements.”

Gartner suggests that organisations should take a proactive risk management approach to address geopolitical events. This includes creating a risk management process when selecting a vendor or country for service delivery, and ensuring making sure that the risk management process is continuous.

“Organisations should monitor industry press, government trade sites, country/embassy immigration sites and feedback from sites for signs of impending problems,” Gartner states.

Organisations should also build a roadmap that allows for risk splitting 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% and will spur movement of these services onshore to mature country locations,” the firm states.

“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.”

Finally, organisations should create contingency plans and discussing geopolitical instability scenarios with a global delivery 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 programs they have in place for clients, and work with them to create a viable business continuity plan.”

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