Losing the Offshoring War
American contact centers are losing ground to their global counterparts, with the total global offshore spending on IT services expected to reach $50 billion by 2007, according to a new Gartner report, "Outsourcing Worldwide Cluster Research." The report also states that tight U.S. profit margins and the continued rise of new offshore markets are driving outsourcers to move offshore.
A Datamonitor report, "Contact Center Outsourcing in the United States," shows Canada, India, and the Philippines are expected to benefit from this trend. In addition, outsourcers are being forced to reinvent themselves by merging, partnering, or competing with other types of outsourcing companies. Datamonitor found that in 2004, 37 percent of the world's outsourced contact center agent positions were in the United States. By 2008, Datamonitor expects that number to shrink to 25 percent, with the number of U.S. agent positions expected to drop from 315,000 to 291,000. And, nine out of 10 jobs lost in the U.S. contact center outsourcing industry will be outbound telemarketing jobs.
"The boundaries between U.S.-based contact center providers and other business process outsourcers are dissolving, and firms are invading each other's territories," says Ri Pierce-Grove, associate analyst at Datamonitor. "There have been at least eight publicly announced acquisitions since 2003 [among outsourcing service providers], and we expect that trend to continue."
The report also says that contact center outsourcers are introducing new services to grow revenue and compete more effectively in the U.S. market. Firms that were founded as contact center outsourcers are offering services that overlap other BPO areas, and BPO providers are acquiring contact center capabilities. This consolidation, combined with emerging outsourcing markets oversees, is hurting the U.S. contact center market. "As the market contracts through 2009, it will be imperative for outsourcing service providers to choose between competing on the basis of cost or reinventing themselves," Pierce-Grove says.
Despite India's prominence in the offshoring market, strong governmental support is propelling China's capabilities and Brazil, Latin America, and Mexico also are increasingly attractive options, according to Gartner's report. Eastern European countries including the Czech Republic, Hungary, Poland, and Russia are among other countries to watch.
While the cost of labor remains the major factor in determining which country will be selected, Ian Marriott, research vice president at Gartner, says other factors are becoming equally important, especially given the multitude of new markets sprouting up throughout the world. "When using offshore service providers (ESPs), common risks such as infrastructure, process, project management, and security risks are normal in any ESP relationship, but human capital consistency, sociopolitical bias, and legal jurisdiction are not typically included in the process for vendor selection."
Due to the risks associated with offshoring to uncharted territories, interest in nearshore (geographically close) countries for IT services and BPO options is growing, particularly in Western Europe, largely due to language requirements, according to the report. Ireland, Northern Ireland, and Spain are mature locations. Eastern Europe and parts of Africa are also positioned for growth, according to the study. Canada and Mexico are the most likely nearshore options for U.S. companies.
That said, India is still the outsourcing leader. "It has the majority of essential resources and robust infrastructures to deliver IT products and services successfully." Marriott contends the up-and-coming countries will continue to pose a threat to the American contact center market. "As these countries become more mature members of the international business community, their current drawbacks will change, and they'll become more appealing to outsource providers."
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