Current State of the Outsourcing Industry 2013: Report

The global outsourcing industry has gone through significant changes since it created a buzz word at the beginning of the new millennium. The industry has been haunted by economic crisis since 2008 and is still recovering from the periodic impact. While most companies expect a sluggish recovery this year, the outsourcing industry believes that demand for its services will increase rapidly over the next few months.

A recent study conducted by HfS research and KPMG on the current state of the outsourcing industry included responses from 1,355 buyers, providers and advisors of outsourcing services representing a large cross section of each spectrum of the outsourcing industry. General takeaways from the study are:

• Information technology, Finance and Accounting processes dominate outsourcing plans.
• Enterprises focus on achieving operational effectiveness when they outsource: Cost reduction (87%), greater scalability of operations (82%) and process standardization (74%) are the key motivations behind IT and business operations outsourcing.
• Core areas of strategic focus when outsourcing include accessing better talent (70%), gaining access to better technology (62%) and improving analytical capabilities (62%).
• Mid-market enterprises (USD1bn-5bn in revenues) are more motivated by strategic needs than high-end enterprises (more than USD5bn in revenues).
• Outsourcing customers do not expect innovation from suppliers, they want stability, industry understanding and delivery excellence.
• Outsourcing customers are getting what they pay for, with performance meeting “ table-stakes of cost reduction and standard delivery (88% are satisfied), but falling short in strategic areas such as improving analytical abilities, access to talent and achieving innovation.

Optimism and Growth

The key findings suggest that outsourcing will be a key strategy for organizations looking to reduce costs and remain in the growth trajectory. The year 2013 will be a critical year for the future of Indian-based BPO delivery. According to the study, BPO services are expected to grow at 5.1% this year and at 6% CAGR to 2017. IT services are likely to acknowledge a growth of 3.5% in 2013 with a CAGR of 4.7% by 2017. The total market size of the global BPO and IT services market is projected at USD952bn. North America will dominate the sector with a market size of USD398bn followed by EMEA at USD319bn, Japan at USD101bn, Asia-Pacific (excluding Japan) at USD88bn and Latin America at USD44bn.

Impact of Currency Fluctuations

Exchange rates and currency fluctuations significantly influences the growth in any single currency. The dollar movement relative to other currency may affect spending between regions that use different currencies. India has recently witnessed a free fall in rupee value which allows Indian providers to offer lower rates that cannot be matched by non-Indian competitors. However, uncertainty prevailing upon the global economy may lead several clients reduce their technology spending and induce stiff competition among outsourcing companies.

Outlook

Besides the risks associated with currency fluctuations, outsourcing companies also face a number of other challenges in the year ahead. First of all, reducing costs and margins to gain customers may result in service delivery issues. Another major challenge to companies is the rising competition from new market entrants. Asian countries such as China, Philippines, South America and Middle-east have been gearing up to offer clients with low-cost contact centers, business process outsourcing, and information technology outsourcing services. Being competitive will not just require companies to improve operations and deliver services in time. Companies which concentrate on business process reengineering and product innovation will gain prominence and remain successful in 2013 and beyond.

– Back Office Pro