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Expansion Seen for Global Outsourcing Market

Competition increasing from new market entrants, PwC survey finds. Growth in outsourcing of legal services expected to be strong

Globální trh s outsourcingovými službami se rozrůstá

Outsourcing providers around the world predict that demand for their services is expanding rapidly, and they are adding staff and investing in new services to meet expected demand, according to a new survey from Duke University's Offshoring Research Network and PricewaterhouseCoopers.

The survey of 514 outsourcing service providers in 50 countries found that the industry is being transformed by the emergence of new providers around the world and by the efforts of existing outsourcers to expand into new markets. Outsourcing companies in North America and India, which have long dominated the industry, are being challenged by competition from countries in Latin America, Eastern Europe and Asia, especially in service areas such as contact centres, business process outsourcing and information technology services.

According to the survey, a large number of service providers said they would begin new software development and IT services in the next 18 to 36 months. The number of service providers planning to offer new finance and accounting, human resources and innovation services more than doubled from the previous year. In addition to new service offerings, 62 percent of service providers said they plan to expand the scale of their existed offerings.

 „Growing competition has transformed the outsourcing industry into a global race for market share," said Antonín Hamřík, outsourcing expert, PricewaterhouseCoopers Audit. „India's success as the world's back office has motivated other developing countries with well educated and under-employed populations to seek to duplicate their experience.“

Non-key Processes Outsourced in the Czech Republic

Many companies in the Czech Republic consider or have already implemented outsourcing of processes that are not key for their business.

„In most cases we still see outsourcing within the Czech Republic. But there are international companies and financial institutions already outsourcing their activities abroad, mostly at the instance of their parent companies. Support functions are frequently outsourced,, for example, IT services, processing of finance or PR activities. In the Czech market, we also often see the outsourcing of logistic services, for example, by trade or production companies,“ said Jan Malý, outsourcing expert, PricewaterhouseCoopers Czech republic.

Harder Competition for India

Although India remains the outsourcing market leader, other emerging economies are seeking to expand into the sector.  Among those efforts, the Chinese government has designated 20 cities as outsourcing hubs in an effort to attract more international investment, while the Philippine government has declared outsourcing a priority industry. However, only 16 per cent of Indian service providers see competitors from other emerging economies as a threat.

According to the survey, new entrants seek to penetrate the global outsourcing market in areas in which they have developed skills and capabilities such as software development and IT services. Providers in Eastern Europe, for example, are positioned as a nearby outsourcing alternative for companies in Western Europe.

The survey found that the economic crisis of 2009 reemphasised the importance of cost savings and efficiency improvement as the top strategic reasons for outsourcing, followed by access to qualified personnel.

Outsourcing of Legal Services Emerging

The growth in the outsourcing of legal services has been strong and is likely to remain so, particularly in India, the survey found.  Outsourcing of legal services is growing at an annual rate of 40 percent in India, with about 110 service providers in the country. The Philippines and Sri Lanka provide 20 percent of legal outsourcing.

„The economic benefits of outsourcing legal services are undeniable; it provides the highest profit margins for service providers and the highest cost savings for companies," Antonín Hamřík said. "The emergence of available outsourced legal services and the impact of the economic conditions have changed the perception of the legal industry, once regarded as too sensitive to be outsourced.“

Other survey findings:

• 70 percent of outsourcing deals in 2008 were renewed at the expiration of the first contract, down from 72 percent in 2007.
• Unrealistic client expectations and the lack of a clear outsourcing strategy by clients were the top reasons for contract terminations.
• "Near-shoring" has gained momentum among companies using or considering outsourcing services.