Global Outsourcing Is on the Rise

Outsourcing is on the rise and moving beyond application-related services to include business process outsourcing, call centers, and infrastructure services. Analysts at research firm Gartner say that by 2004, more than 80 percent of U.S. executive boardrooms will have discussed offshore outsourcing. And, according to Gartner, more than 40 percent of U.S. enterprises will have completed some type of pilot, or will be sourcing IT services through a global delivery model, such as nearshore and offshore, by 2004. Researcher Frost & Sullivan says that outsourcing revenues totaled $22 billion in 2002, and are projected to reach $25.7 billion by 2009. Frost & Sullivan also says India is the fastest-growing market for contact centers in the Asia-Pacific region. The region is projected to generate revenues of $17 billion in IT--enabled services over the next eight years. The outsourcing incentive stems from lower wages and reduced turnover in other countries. That translates to less hiring, staffing, and training expenses, plus fewer productivity lags as new agents are brought up to speed, analysts say. According to Geri Gantman, a senior partner at Oetting and Company, in New York, annual turnover rates are just 5 percent to 10 percent in India and the Philippines, compared with 50 percent to 100 percent in U.S.-based outsourced call centers. In addition, outsourcing outside the United States avoids complex and costly site selection, and legal and regulatory issues involved with setting up and managing in-house call centers. Partha Iyengar, research vice president in Gartner's software research group says that offshore providers increasingly compete with existing major players, which will result in a shift in the global services marketplace. "This will see the emergence of a new order of top-tier Global IT service providers, some of whom will be the current global leaders and some will be from the ranks of the Tier 1 Indian service providers," Iyengar says. However, as this happens businesses will have to evaluate the associated risks of outsourcing. "Risks exist in any project using external service providers and enterprises must understand the differences between domestic and offshore sourcing, and use risk assessment framework to understand the risks of each stage of an offshore relationship," says Frances Karamouzis, research director for Gartner's sourcing research group. Gartner Research Director Christopher Ambrose says that businesses should expect to allocate a specific amount of time to manage outsourcing relationships: "It is not a one-size-fits-all thing. Typically, three to eleven percent of an outsourcing deal should be allocated to managing ongoing supplier and contract relationships." This week Gartner analysts are providing their outlook for the outsourcing industry at the Gartner Outsourcing Summit in Los Angeles. At the conference analysts said that human resources is the most outsourced business process, with worldwide HR business process outsourcing revenue on pace to reach $46 billion in 2003, an 18 percent increase from 2002 revenue of $39 billion. By 2004 HR business process outsourcing is expected to reach $51 billion and represent 39 percent of all business process outsourcing (BPO) revenue. Payroll and benefits services are the most popular in HR BPO and are driving the growth of the market, and companies already outsourcing HR processes expect to significantly increase their investment in HR outsourcing in the next 24 months, according to Gartner.