Expansion seen for global outsourcing market

Outsourcing providers around the world predict that demand for their services is expanding rapidly, and they are adding staff and investing in new services to meet expected growth, according to a new survey from Duke University’s Offshoring Research Network and PricewaterhouseCoopers.

The survey of 514 outsourcing service providers in 50 countries found that the industry is transforming due to the emergence of new providers around the world and efforts of existing outsourcers to expand into new markets. Outsourcing companies in North America and India, which have long dominated the industry, are being challenged by competition from Latin America, Eastern Europe, and Asia, in service areas such as contact centers, business process outsourcing, and information technology outsourcing.

According to the survey, a large number of service providers expect to begin new software development and IT service contracts in the next 18 to 36 months. The number of service providers planning to offer new finance and accounting, human resources, and innovation services more than doubled from the previous year. Overall, 62 per cent of service providers said they plan to expand the scale of their existing offerings.

“Growing competition has transformed the outsourcing industry into a global race for market share,” said PwC Managing Director Dr. Charles Aird. “India’s success as the world’s back office has motivated other developing countries with well educated and under-employed populations to seek to duplicate their experience.”

Although India remains the outsourcing market leader, other emerging economies are seeking to expand into the sector. Among those efforts, the Chinese government has designated 20 cities as outsourcing hubs in an effort to attract more international investment, while the Philippine government has declared outsourcing a priority industry. However, only 16 per cent of Indian service providers see competitors from other emerging economies as a threat.

The survey also found that the economic crisis of 2009 reemphasized the importance of cost savings and efficiency improvement as the top strategic reasons for outsourcing, followed by access to qualified personnel.

Legal Services Outsourcing Emerging

The growth of legal services outsourcing has been strong and is likely to remain so, particularly in India, the survey found. Legal services outsourcing is growing at a rate of 40 per cent annually in India, with about 110 legal services providers in the country. The Philippines and Sri Lanka provide 20 per cent of legal outsourcing.

“The economic benefits of legal services outsourcing are undeniable; it provides the highest profit margins for services providers and as well as the highest cost savings for companies,” Aird said. “The emergence of available outsourced legal services and the impact of the economic conditions have changed the perception of the legal industry, once regarded as too sensitive to be outsourced.”

Other survey findings:

—  70 per cent of outsourcing deals in 2008 were renewed at the
expiration of the first contract, down from 72 per cent in 2007.
—  Unrealistic client expectations and the lack of a client outsourcing
strategy were the top reasons for contract terminations.
—  “Near-shoring” has gained momentum among companies using or
considering outsourcing services.

Notes to Editor:

The Duke University Offshoring Research Network Service Provider Survey was initiated in 2007 and aims to track service providers along the key dimensions of service offerings, offshore destinations contract and client relationships, economics and growth strategies.

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Source: PricewaterhouseCoopers