Outsourcing barn dance continues, but chose your partner carefully
In June's Orange Business Live event, the "special challenges of global IT organizations" buzz session looked at Orange's experience of offshoring. Despite the recession, outsourcing and offshoring has remained a growth industry. Canadian research firm XMG Global reckons that the industry has grown nearly 15% this year - far outstripping general economic growth - resulting in a $373 billion market.
In the offshoring business, it's no surprise that India and China were the major players. Despite the accounting adjustments at Satyam and some clients shifting to cheaper locations, India has performed well again. With $48 billion in revenues, it accounts for 45% of the world's offshoring activity. With $28 billion, China is number two in the market, followed in third by the Philippines with $7.3 billion, having grown 21.7% in the last year.
XMG believes that an economic recovery in the US and Europe during 2010 will create a shift for BPO, with IT services, application development and support being absorbed into BPO deals. It also believes Egypt, South Africa, and Mexico will emerge as strong players on the global stage particularly as the costs of offshoring to India rise. "In an industry where double digit growth is not ordinarily seen during a global recession proves that offshoring and outsourcing is part of a natural ongoing economic revolution notwithstanding a financial crisis", said XMG analyst Vincent Altez.
AT Kearney produces an index of offshoring nations every year: In 2009's survey, India and China are not surprisingly at the top with Egypt figuring well in sixth place. Egypt's strength as an offshoring location was underlined by the London School of Economics. In a report, the LSE said that Egypt's investment strategy in education, infrastructure and IT is paying off. It's low cost base, market potential and skilled workforce rank Egypt above the offshoring pretenders Romania, Bulgaria, Poland, Slovakia, Czech Republic, Belarus, Morocco, Tunisia, Costa Rica, Mexico, Venezuela, Vietnam and the Philippines. Last year it was the UK's National Outsourcing Association that was singing the praises of Egypt.
Egypt's virtues were recognized by Orange back in 2004 when it opened a 200 employee major service center. By 2009, this had grown to around 1400 employees and is now the largest of Orange's four major service centers (the others are in Rio, Delhi and Mauritius). The Cairo service center offers technical support in 20 languages to over 2000 multinational customers; it is also home to an Orange Labs with 50 research professionals. Here is a video of life in the service center.
Always some losers
Despite healthy growth, the industry faces upheaval in the coming years, warns Gartner . The venerable analyst firm expects one in four BPO providers to disappear by 2012, due to acquisition or bankruptcy. One of the problems is the competitive nature of the market - too many BPO suppliers have signed unprofitable contracts (much like we have seen and IT and network) and many have suffered during the collapse in the financial services industry. Consequently, companies considering long-term outsourcing projects should take a serious look at the books of their would-be partners and ask what its long-term strategy is.
For those that are concerned, here is a good article on how to avoid being "burned" by BPO. If you want a quick summary: you should be asking yourself, are they making money? Are they winning new customers while fulfilling the needs of their existing ones? Are they too reliant on the financial sector? And most importantly: have you got an exit strategy?
October 20, 2009It is no surprise why the outsourcing industry has grown so much this year despite the recession. Saving cost is one of the great benefits we can get out of outsourcing. Businesses that are in financial crisis because of recession can always opt for outsourcing. But like you have said Stewart, if these firms would consider long term outsourcing they should be too careful in choosing the right BPO partner and should make a lot of study before diving into it, or else they would put their business at risk.
Also, it is good to see Egypt slowly climbing at the top of the ranks when it comes to outsourcing but this year the Philippines won the offshoring destination of the year award of the recently concluded National Outsourcing Association (NOA) Awards.