A recession-proof business tool, Outsourcing

Source: Tekrati services

By EquaTerra

EquaTerra's 3Q07 Pulse Surveys revealed that demand for Information Technology (IT) and business process outsourcing is improving and is especially strong in the Europe, Middle East and Asia (EMEA) markets. The uptick in outsourcing demand is strong across all major industries, and is occurring even as growth in many vertical markets, such as financial services, is challenged by a range of economic and demographic challenges. Free report, teleconference.

Overall Outsourcing Demand Growth: 51 percent of EquaTerra advisors noted that demand for outsourcing services was up in 3Q07, and their outlook for 2008 was optimistic. Demand growth was strongest into the ITO market segment and in the EMEA market geography. Demand for Finance & Accounting Outsourcing (FAO) outpaced that for Human Resources Outsourcing (HRO), though there are signs of improved HRO demand in EMEA.
lobalization of Outsourcing: The use of remote, lower cost offshore resources to deliver ITO and BPO services continued to grow during 3Q07. However, wage inflation in leading offshore markets like India and the falling value of the U.S. dollar negatively impacted margins of service providers with extensive offshore operations. This, coupled with changing buyer demands and the need for service providers to access talent with more diverse skills, further drove the expansion of delivery capabilities beyond the Indian market into locations like China, Central/South America and Central/Eastern Europe. Similarly, as wage rates across markets converge, more outsourcing buyers in the U.S., along with non-U.S. based services providers, have increasingly begun looking closer to home for onshore delivery resources. Investments in the India market remained strong, however, for both captive and outsourced delivery capabilities, and Indian service providers continued to broaden their delivery capabilities into BPO and newer ITO areas like remote infrastructure management.

Outsourcing Becoming a Recession-Proof Business Tool for Financial Services and Other Industries: There was a consensus between EquaTerra advisors and service providers polled that recent turmoil in the financial services industry could slow some outsourcing efforts in the short-term, and continue to negatively impact some providers. Longer term, however, the expectation is that outsourcing in this industry will grow as buyers seek to reduce operating costs, avoid investments into new systems and capabilities, shift focus to more strategic activities, and leverage their growing supply of skilled global resources. This trend in financial services illustrates that outsourcing as an industry has become “recession-proof”, and that outsourcing is a tool buyers use in up markets to improve performance and in down markets to reduce costs and remain competitive. EquaTerra expects this trend to play out in other industries that are negatively impacted by economic and demographic factors such as aging workforces and weak local labor pools. These industries include consumer packaged goods, healthcare, public sector and retail.

"The findings from our 3Q07 Pulse Surveys are generally positive in terms of the growth, maturation and globalization of both the ITO and BPO markets," said Stan Lepeak, Managing Director of Research for EquaTerra. "While buyers still experience challenges with their outsourcing efforts, overall results have met or exceeded expectations, which has enabled outsourcing to become a commonplace tool that -- regardless of broader economic and market conditions -- buyers employ in an effort to improve their process delivery and reduce operating costs."

About this study

The EquaTerra BPO/ITO Pulse Surveys yield insightful market analysis including longitudinal comparisons derived from recurring topical themes. The Pulse Surveys do not capture quantitative market size information. Rather, these surveys capture changes in demand, scope, capacity and related key market indicators. They highlight changes, and the direction of change, in the outsourcing market compared to prior quarters and years.