Starting as a purely cost and labor arbitrage measure, it has now evolved into the most debated, discussed and probed strategy decision. The industry continues to grab attention in board rooms, in corporate strategy meetings, by journalists, by economists, by politicians, over dinner, over cocktails, and at length in the media. Despite opposition from various quarters, its impact on the balance sheet has been difficult to ignore, and both - companies that are willing to outsource and service providers have persisted. Among other difficulties, issues around quality, cultural differences, failure to deliver, etc. have plagued the industry, but the model has over the years with experience and experiments convincingly proved its efficacy. Some odd efforts did fail, and offshoring was either stopped, or moved to a newer, more culturally suited or competitive location. In the recent past, it grabbed headlines again, during the height of the Presidential elections in the United States. Recession and many pink slips later, the industry has only emerged stronger. Offshoring, near shoring, multi-sourcing, etc paved the way to getting the entire industry entrenched stronger and stronger into corporate plans.

Converting ideas into strategies
There is no refuting that the industry grew phenomenally in the last 10 years. India has emerged as the hotbed of opportunity. To illustrate – NASSCOM indicates that the Indian BPO industry revenues have increased to $14.7 billion in 2009 from $1.6 billion in 2002. The country garners a little more that 50% share of the total global outsourced industry. Other locations that have also made a mark include the Philippines, Malaysia, Sri Lanka, Ireland, some East European countries, Russia, South Africa, Egypt, etc. There have been a plethora of reasons for this industry to grow as phenomenally as it did.

Cost and Labor arbitrage – This is what set the ball rolling. The cost benefits and easy availability of a larger and qualified resource pool to undertake routine but important jobs was an opportunity that was hard for the companies to ignore. The costs for certain mundane tasks especially went down by less than half. As companies got more people involved through outsourcing, they not only had a greater pool of talent to work with, they were also able to free their own resources to perform core jobs. The advantage of working 24*7 fit into the corporate world that was anyway using technology and communication to get more work done in lesser time.

Risk management – As global operations and reach gained importance for companies, so did the need to manage risks. Outsourcing and offshoring of operations helped as complete shut down could be avoided, in case of emergencies in one location.

In the coming decade the industry is likely to build up primarily on these and many other benefits that it has to offer. Companies from almost all verticals and across the globe are using outsourcing to achieve leaner models and improve returns on investment. In the following segment we discuss the likely trends over the next five years, as innovations and technology lead the way.

Writing on the wall: A brighter future
There is hardly any dissent when predicting that outsourcing is set to grow further. There are bound to be new avatars, new definitions, more benefits, more innovations, further growth and many more successful transitions. Voices of protests have hovered around lack of quality, loss of jobs, risks associated among others. With none of them proving to be unmanageable, major disruptions are unlikely.

Governing with outsourcing – Many outsourcing providers have identified governments as one large target market for services across many verticals including telecom, education, IT, healthcare, and infrastructure, among others. Governments usually have very large projects and need experts to handle them. As they struggle to cope with providing more and better facilities to people and incur lesser costs taking into consideration the recent financial crisis, service providers seem to be geared up to fill that gap adequately. So even as telecom, retail, banking, insurance hog attention, governments in countries across the world will be the targets.

Global delivery model - As services made the transition from client offices, to non-client locations, to off-shore (low cost destinations) and near-shore (close proximity countries), the impact of each development on operations was different. The current model that the service providers are looking at is a combination of various strategic locations, which means that delivery centers are spread across the globe. These delivery centers have specific areas of excellence and include other benefits such as risk mitigation, 24*7 services, and optimize costs, resources ad infrastructure. What service providers need to do is strike the right balance of onsite, offsite which includes near-shore and the service capabilities of each delivery center. This means that there will be many destinations that will come up in the next few years, complimenting the ones that already are popular. Talent and capabilities will drive the discovery and popularity of these new locations.

Consolidating towards excellence – As the services being outsourced increase, even service providers are extending their line of expertise. As the operational model changes, third party service provider are getting more involved and partnering with clients in deciding processes, improvements, outputs, etc. With emphasis being put on expertise and quality, it is hardly surprising that this is the way future deals will be serviced. The other notable aspect would be consolidation, with an increasing number of mergers and acquisitions. Niche providers will continue to come up and those that have excelled will be acquired by large BPOs who want to extend their level of services or enter a new service / vertical / geography.

Technology and outsourcing – Technology has contributed significantly in bringing outsourcing to where it is today. This trend is expected to continue and further pick up, as cloud computing starts to make its presence felt. According to experts service providers will take on the role of consultants and advice clients on how to manage and organize the systems. The impact of cloud computing on infrastructure costs, energy costs and scalability will be profound. Other benefits include easier infrastructure upgrades, disaster recovery, and greater application security. Many tout this as BPO 3.0 and a number of mid and smaller sized companies are moving to cloud computing faster.

Sourcing has been through myriad challenges, and has emerged unscathed and evolved as years have gone by. Customer demands have ensured a steady flow of innovations in technology, security measures, processes, and even outputs. With companies looking to enter emerging markets as the next big opportunity, it is unlikely that outsourcing / offshoring will ever face a slow down. The trends discussed above will impact the industry positively, which only spells greater growth. As benefits out do lack of tax incentives and even threats, it is unlikely that it will grab headlines during the next American US president elections.

First published in 'Outsourcing Malaysia'.

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