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Outsourcing – The Coming of An Age

Thu, Dec 11, 2008

Offshoring

It wasn’t until the late 1980s that outsourcing began to emerge as a potentially powerful force in transforming global economies. Meanwhile, in technology circles, the focus on outsourcing turned from its efficiency to its economy and productivity. Early outsourcing to overseas providers by corporations like Kodak and American Standard began to capture the public’s attention. Kathleen Hudson, then Kodak’s CIO, said, her goal was to ‘plug into the wall and have data come out.’ That type of thinking helped put outsourcing on the map.

Outsourcing is big business, generating global revenues of $298.5 billion in 2003, according to Gartner Inc. Many now associate outsourcing with call centers in India. However, Forrester Research estimates that by 2015, as many as 3.3 million US jobs and $136 billion in wages will move not only to India, but also to China, Russia, Pakistan, and Vietnam. Europe has taken a central role in outsourcing as well, and is soon expected to reach nearly 25 percent of total global outsource spending. (Source: Global Envision)

According to Evalueserve, the global Knowledge Process Outsourcing industry (KPO) is expected to reach USD 17 billion by 2010, of which USD 12 billion would be outsourced to India. In addition, the Indian KPO sector is also expected to employ more than 250,000 KPO professionals by 2010, compared with the current figure of 25,000 employees. A report by Evalueserve predicts that India will capture more than 70 percent of the KPO sector by 2010. Apart from India, countries such as Russia, China, the Czech Republic, Ireland, and Israel are also expected to join the KPO industry. China is likely to get a bigger share of the Japanese and Korean markets due to the similarity in language and culture. Russia, with a good number of engineers and doctors, is also expected to emerge as a significant player in the domain. Close proximity and cultural compatibility are also expected to add to the attractiveness of Russia as an attractive nearshoring country for European businesses.
Low-end outsourcing services have an expected Cumulative Annual Growth Rate (CAGR) of 26% by 2010. In contrast, the global KPO market is poised for an expected CAGR of 46% by 2010. (Source: Evalueserve)

Future outsourcing trends worldwide (Source: outsource2india)

1. Outsourcing expenditure will continue to rise.
2. More countries will find outsourcing attractive, creating a multi-polar world. Following the lead of the US and UK, the European Union markets will expand their offshoring programs, while Japan will increasingly look to China for its needs.
3. Clients will take greater control in driving and designing deals.
4. The interlinking of the supply chains brought about because of outsourcing will create stability as companies will put pressure on governments to avoid wars.
5. Risk factors and unexpected occurrences like war, terrorism, disease, natural disasters and economic upheavals can throw a wrench in the works.
6. The rising price of oil will put increasing pressure on companies to both utilize technology and outsource to remain profitable.
7. The rising price of oil will cause oil consuming countries like the USA to be less competitive resulting in more outsourcing to India and China.
8. India will show excellence in Services that require advanced English like Knowledge Process Outsourcing (KPO), Content and Medicine.

9. Political backlash over outsourcing is likely to lessen over time as economies strengthen and companies continue to reap the benefits of offshoring.
10. Technological power will shift from the West to the East as India and China emerge as big players in the global outsourcing market. The two countries have the size and weight to transform the 21st global economy.
11. By 2015 China will be No. 1, India No: 2 in the global top five outsourcing destinations.
12. Vendor focus will shift from basic skills, costs and processes to domain knowledge, transition challenges, change management, HR issues and governance.
13. Regional outsourcing hubs will develop as companies will take strategic near-shoring initiatives to minimize risk and leverage cultural and linguistic compatibility. The supplier countries are in the same time zone as their clients.
14. The large diverse Indian companies will face stiff competition from new focused smaller companies. Because these companies are able to focus and become excellent in one are they will be able to provide a higher level of service.
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