Offshoring Business Processes trends have surprised even the most avid promoters, and the concept is definitely here to stay. All the indicators suggest that this cost-saving business practice will only grow more commonplace with improved modes of communication, trade agreements, and continued endorsements from some of the world’s largest companies. Skilled and cost-efficient labour, market competitiveness, economies of scale, and increasing expertise are some of the key triggers that promote offshoring of business processes.
Offshoring Business Processes (OBP) is a business model that evolved to address a highly competitive business environment and its associated cost constraints. The advancements in technology and opening up of the economies to globalization led to the advent of a business model that has redefined how business processes are structured the world over, through Offshore Business Processing Centers.
This article is an analysis of a secondary data research on the trend of Offshoring Business Processes. With U.S. import of OBP services reaching over US$34 billion in 2014, UK intends to double its OBP import to touch $10 billion by 2019. New Zealand’s OBP investment is also set to jump from $1 billion in 2014 to $5 billion in 2020; OBP trends are clearly on the rise. It will not be surprising if these estimates get stretched to deliver multifold results.
Offshoring Business Processes Trends
What are the main services demanded from OBP providers? Our research shows that the top five offshored business processes are recruitment, sales, procurement, call center services, and finance/accounting.
In the early days of OBP, services considered to be less ‘business critical’ were identified and offshored to establish confidence in the Offshoring Business Process model. Functions that involved decision making or were instrumental in exercising control were invariably retained by the client organization. Thus backend business processes that could be easily decoupled from the critical functions constituted the first batch of services to be offshored. This was comprised of services that were generic and did not require special expertise. It was believed that these could be effectively delivered through a rule book.
As confidence in this business model grew, OBP gradually transitioned from packaging and offshoring of mundane functions to higher processes that involved more critical aspects of business operations.
Further, there came about an advent of a new trend to offshore more complex business functions, which can be demonstrated by the spurt in growth of these offshored processes between 2010 and 2014. Insurance processing (13.60%) and data entry services (12.57%) are two of the front runners of complex business processes that have grown in recent years. More interesting is the fact that these business processes figure in the top three offshored services with respect to growth statistics. Hence the trend not only speaks for itself but also paves the way forward to yield an increase in offshoring of complex functions. It is projected that finance and accounting will form a major component of the offshore service basket in 2017 and is estimated to stretch beyond $35 billion. This is closely followed by call center services and telemarketing, which are projected to reach the $20 billion mark by 2020. Moreover, complex functions such as insurance processing should also make good ground to cross the $10 billion mark by 2017.
From 2010 to 2014, OBP experienced growth from $52 billion to $67 billion. This has been driven by factors such as cost-reduction and business strategies to focus on core business functions. However, the market trends, trade agreements, proven success stories, and peer pressure also influence the trend and instigate companies to offshore their business processes. It is forecasted that by 2020 the top ten global importers will spend over $75 billion in offshoring business processes. The top ten importers of OBP have experienced a consistent import growth in the range of 10% to 13% a year. Netherlands, New Zealand, and Spain are a few of the high-growth players.
Despite the fact that major players like the United States and Australia do not figure amongst the top five based upon their growth percentage, they still happen to be substantial contributors to the overall import numbers based upon their sheer volume and market share of OBP imports.
The United States and Australia combined account for 84% of OBP imports worldwide. This is more than three times the percentage of OBP imports for Europe, including the UK. However, this status is expected to be short lived. European countries seem to have also started showing an increase in appetite for OBP. The United Kingdom and Netherlands are expected to double their current OBP import by 2020. Furthermore, New Zealand and Netherlands have demonstrated the highest percentage of growth, pegged at 14% and 13% respectively.
Despite the appearance of new OBP exporting countries, statistics show that India, Philippines, and China combined still account for more than 85% of the OBP export market. As the two most populated countries on earth, both India and China have an immense workforce with comparatively low labor costs. India is particularly attractive thanks to its command of the English language and recognized expertise and experience in the space.
Thus, the top runners of OBP service destinations are located across India, China, and Philippines. These three destinations have numerous established sites, which are spread across multiple cities and towns. These three countries are expected to retain their share of the OBP market space as there are no immediate competitors that match the level of experience that these countries offer. Moreover, these destinations tend to gain from the competitive edge due to the longstanding expertise and confidence imposed by numerous importing countries.
Offshoring Business Processes might have been established in response to constraints imposed due to a highly competitive business environment, but this trend was fueled by its merit in creating a model aimed at holistic growth and development.
Further, this trend picked up strength through the last decade and has made rapid advances in the last five years to foster new entrants, both with respect to services offered and emerging destinations across the globe. Thus it is safe to assert that the world is set to converge into one big level playing field called the Global Business Service Industry, and this can be credited to the offshoring of business processes.
- Dnb.co.in, “Ites And BPO 2010 – Outlook“. 2016.
- Everest Group. “Procurement Outsourcing (PO) Annual Report 2014: Expanding New Horizons“.
- Frost.com, “Demand Analysis Of The BPO And Contact Centre Market Within The South African Financial And Retail Sectors“. 2016.
- Frost.com, “South Africa’s BPO Sector Set To Expand, Says Frost & Sullivan“. 2016.
- Ibisworld.com.au, “Business Process Outsourcing In Australia Market Research“. 2016.
- Jeal, Nick et al. “Business Process Outsourcing“. Deloitte United Kingdom. 2016.
- Kpmg.com, “Global Finance And Accounting Outsourcing”. 2016.
- Outsource2india.com, “Telemarketing Services – Outsource2india“. 2016.
- Research.everestgrp.com, “Banking BPO Annual Report 2015 Heavy On Technology, Low On People Future Of Banking BPO – Everest Group Research“. 2016.
- Research.everestgrp.com, “Banking, Financial Services, And Insurance BPO“. 2016.
- Research.everestgrp.com, “Recruitment Process Outsourcing (RPO) Annual Report 2014 Time To Be Strategic – Everest Group Research“. 2016.
- Services, Kelly. “Global Trends In RPO And Talent Recruitment 2014“. Slideshare.net. 2016.
- Statista, “Global BPO And IT Services Market Segments 2013“. 2016.
- Kumawat, Vishnu. “Business Process Outsourcing”.
- Zicuma.com, “BPO And Call Center“. 2016.