With significant contributions from the healthcare, transportation, utilities, and banking industries, outsourcing is expected to grow at a CAGR of 3.3 percent through 2009.
Posted Aug 11, 2005
The telecommunications sector will lead all other verticals in outsourcing engagements with a 10.7 percent CAGR over the next five years, according to a recent IDC study. IDC's Industry-Based Services Forecasts, a set of studies designed to measure the causes of industry trends among IT services, forecasts the growth rate of outsourcing engagements in 16 vertical industries from 2005 to 2009.
The increased adoption of BPO services within the telecommunications industry is to be expected, as competitive forces are pushing this market to offload business processes like customer care and other back-office functions, says Jason Spaulding, research analyst, vertical industry research at IDC. The industry, "is in a lot of turmoil, right now... [so telecom providers] are very comfortable with the practice of BPO."
Following the telecom industry's uptick in outsourcing are discrete manufacturing (automotive and aerospace firms), banking, and the government sector, all of which will show a CAGR of 10.5 percent in its outsourcing engagements over the five-year period.
Discrete manufacturing and the government sector continue to use outsourcing to handle important, but not critical, business processes. "If you look at the automotive industry for example--that's a huge industry," Spaulding says. "They're taking some of their back-office operations and outsourcing them to reduce costs. These are all important processes, but not a core piece of their business. A call center wouldn't be considered a critical component of an automotive manufacturer's business."
Those industries outsourcing the least include financial services, wholesale, personal services, education, and the resource and construction industries. "You'd think financial services would do a lot of BPO, but CRM is such an important core part of their business, they keep it in-house," Spaulding says. In addition, new trends like captive offshoring, which involves staffing call centers with a company's own agents in another country, is a popular alternative among financial companies like First Fidelity.
In general, overall outsourcing is expected to enjoy a 9.3 percent CAGR over the five-year period, with transportation, utilities, retail, banking, healthcare, and government experiencing the highest growth rates. Healthcare will have an above average CAGR, an estimated 9.5 percent from 2005 to 2009. Driving this growth will be the increased need to use project-based services to gain advice, education, and implementation solutions to maximize the healthcare industry's investments in new technology and process management, according to the study.
As for the companies providing these services, Spaulding stresses that success will ride on the ability to comprehend how hardware, software, and solutions spending priorities differ by industry, as well as understanding how firms in select industries can deploy and benefit from their services. "Outsourcing is hot right now. It's growing and growing quickly," he says. "Support and training services, as well as project-based services, will increasingly become embedded in IT outsourcing and BPO deals as they become larger and more encompassing. Consequently, growth for standalone support and training services will slow, and vendors in both the support, training, and project-based services will need to react by forming partnerships to ensure that they maintain a seat at the table."
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