The Growth Of Offshore Business Process Outsourcing by Kelly Hunter

In the fast-moving world of Information technology, Business Process Outsourcing, or BPO as it is known, has rapidly taken hold of the industry. It is heralded as the perfect answer to minimising costs, but is it all it's cracked up to be? Sometimes contractors make costly mistakes, as you will gather below.

Services are contracted remotely, with practically no overheads in terms of employee insurance and benefits, let alone running costs of an office. The tasks most appropriate to outsourcing tend to be back office, such as billing and purchasing. Front office tasks would be customer care, marketing and technical support, which many companies prefer to take care of themselves.

The contracted personnel are often located in a different country from the contractor. This is known as offshore outsourcing, and can lead to time-difference problems and delays in communications, particularly between countries where the Internet infrastructure is not very reliable.

The most popular countries for offshore outsourcing are India (commanding a whopping 63% of the market), Eastern Europe, The Philippines and South Africa, with China a more recent runner in the race to supply the occident with low-cost labour. These countries are a natural choice, because of the strong presence of the English language and the extremely low wage costs, which are often about a tenth of what a worker from the same country as the contractor would charge. India, however, seems to be slowly loosening its stranglehold on the industry, having dropped seven percentile points since last year, although BPO there in general is expected to continue to grow. Transferring risks to the outsourced vendor is an attractive prospect, but the range services which can be thus provided is limited. Processes such as human resources, finance and administration are just too complex to be offered on this basis. The BPO market is expected to grow to $146 billion in 2008, although in a fragmented market of single bulk transactions, shared services and vertical processes and applications.

So what is the experience of this kind of contracting? Many companies experimenting with BPO report inflexibility of contracts, management problems and erratic performance. Certain tasks which are expensive to administrate at home are only tentatively being offered to outsourcers, because of doubts about the ability to cope with complex tasks and problems of control of the quality of the processes remotely.

The most likely candidates for offshore outsourcing are repetitive, transaction-intensive processes, although many businesses are unwilling to give up control of the processes because of strategic or security risks. Viable options here would be offshore insourcing or shared service centers. The fastest growing sector of the BPO market is set to be simple bulk transactions, predicted to expand to $58 billion in 2008. This segment includes the simplest tasks for vendors to master, such as credit card or stock trade processing.

Broad shared services will, at $57 billion, be the second most popular sector by 2008, meaning finance, administration and human resources. A smaller segment will be high-volume vertical processes, with a predicted volume of $6 billion by 2008. You can go to http://www.business-process-outsourcing-guide.com to find more information on business process outsourcing.

The smallest, currently at about $5 billion, will be niche vertical applications, although this segment is expected to take a massive upturn once customers become comfortable with outsourcing in these areas, to achieve $24 billion in 2008. These applications include complex processes such as data reporting on the environment and the monitoring of chemical process, matters which require a very high level of specialization.

About the Author

Kelly Hunter operates http://www.business-process-outsourcing-guide.com and writes about Business Process Outsourcing.