Asia Still Tops for Business Process Outsourcing - But For How Long?

India, China and Malaysia are still top when it comes to Business Process Outsourcing, according to a recently released report. But competition is heating up as shifts in currency values increase the appeal of other locations, including the United Kingdom and the United Arab Emirates.

With the world's economies recovering at different rates following the global final crisis, it is perhaps unsurprising that the predictions about process outsourcing are extremely varied.

The changing economics mean destinations which were once considered unattractive as locations for outsourcing are becoming increasingly viable, while many believe the nature of the outsourcing contracts themselves are changing.

Globalization

In its recent Global Services Location Index, consultancy A.T. Kearney claimed outsourcing is becoming an increasingly globalized process.

Erik Peterson, managing director of A.T. Kearney's Global Business Policy Council, said: "IT and BPO [Business Process Outsourcing] offshoring are early manifestations of a larger trend that, in the long run, means that more functions can and will be considered for localization in countries outside of which end-customers reside."

India, China and Malaysia reclaimed the top three spots on the list, thanks to their provision of human resources and low costs, however changes in currency values were said to have led to other nations, including the United Kingdom and the United Arab Emirates, increasing their appeal.

Asia managed to retain the majority of positions within the top ten.

A separate study conducted by Global Industry Analysts identified the markets for BPO were likely to recover more quickly within the BRIC nations – Brazil, Russia, India and China.

Changing Nature of Outsourcing

What both the reports from A.T. Kearney and Global Industry Analysts agreed on was that the nature of the outsourcing contracts being awarded was changing.

A.T. Kearney said the system was changing from one where providers offered "multi-year contracts, custom code, and on-site systems integration workers" to one where "standardized software solutions on a per-use basis" are offered. It claimed this shift was part of "a coming revolution in outsourcing."

The Global Industry Analysts research, meanwhile, claimed: "With customers looking to manage costs and retain customers, finance and accounting, customer relationship management, and business intelligence services are set to gain significance."

Further research conducted by TPI identified restructuring projects were what drove outsourcing activities in 2010 within the Europe, Middle East and Asia region (EMEA), particularly with regard to what it termed mega deals. This trend for restructuring was predicted to continue throughout 2011.

John Keppel, partner and president of information services and chief marketing officer at TPI, further identified a trend for multi-sourcing strategies, which "allows them to tap into the best talent for their needs."

"Using multiple providers, they can customise their sourcing solutions and leverage the best skills in each market," Keppel said.

Outsourcing Customers

Further to the changes seen in the nature of outsourcing contracts, the type of enterprise seeking the services differs greatly between locations – a trend which is perhaps set to intensify in 2011.

In the UK, government cost cutting exercises and budget reductions mean the public sector is increasingly looking to outsource some services. According to TPI, in 2010 UK private sector outsourcing declined for the second consecutive year, while activity from the public sector continued to grow.

Some 77 percent of the outsourcing activity within the country comes from state-run organisations, while the "overwhelming majority" of public sector outsourcing within the EMEA region – 92 percent – takes place in the UK.

With specific regard to IT outsourcing, there are predictions that the landscape could be changing dramatically this year.

Gerry McLaughlin, of IT Contractor.com, said medium-sized companies are set to embark on the kind of outsourcing projects which were once reserved for larger enterprises, and systems architects and business analysts are set to be in particular demand.

However, he added: "Many companies who outsourced in the past are now 'insourcing' again as they didn't get the cost benefits that they expected and lost control of the vital IT side of their businesses."

[eventPDF]