Companies Willing to Take Offshore Outsourcing Risks

The London School of Economics and Political Science (LSE) Outsourcing Unit published a report titled “Beyond BRIC”. The Outsourcing Unit researched on the state of outsourcing in non-BRIC (Brazil, Russia, India, and China) countries and global outsourcing trends. The study compares Egypt with 13 non-BRIC countries, namely Romania, Bulgaria, Poland, Slovakia, Czech Republic, Belarus, Morocco, Tunisia, Costa Rica, Mexico, Venezuela, Vietnam and the Philippines.

Vietnam and the Philippines are the only 2 Asian countries who made it to the list because of their strong foothold as an emerging offshore outsourcing destination. Thailand is also an emerging offshore destination but is still far behind the Philippines and Vietnam. The study gauged the non-BRIC countries’ offshore outsourcing attractiveness using the following indicators: availability of skills, cost attractiveness, IT/BPO environment, quality of infrastructure, risk profile and market potential. Out of the 6 indicators, the Philippines managed to capture a spot in 4 indicators except for cost attractiveness and risk profile. “In 2008, the Philippines recorded $4.1 billion ITO/BPO in exports. Whether for captive or outsourcing services, the Philippines offers cost competitiveness, as well as an educated workforce and English proficiency–all of which has played well into the US market though it does need to improve its service maturity and IT skills levels. The Philippines has yet to move into other markets and is threatened by emerging lower-cost destinations, not so much in voice-based customer support, as in other types of BPO,” says the LSE Outsourcing Unit report.

The report emphasizes the increasing competition for clients between non-BRIC countries as more of them offer basic call center support services. In order to grow, offshore outsourcing providers need to expand their market coverage, raise their level of expertise and establish niche market capabilities. Given the demand for domain knowledge and analytical skills, Knowledge process outsourcing (KPO) is expected to increase. According to the report, “Although the KPO market was, in 2008, quite small, industry analysts expected a huge growth in this sector over the next five years. Evalueserve estimated that the KPO market in 2007 was $3.05 billion and would grow annually by 39%. It expected the KPO market to be $16 billion by 2010 or 2011, employing approximately 350,000 professionals globally.” The increase in KPO demand is attributed to offshore providers “moving up the value chain”. As client-provider relationships mature, providers gain knowledge about their client’s business domain plus the expertise to find, analyze and report on domain knowledge.

Another key finding identified by the report is the growth of establishing “captives” overseas, which has been driven by the need to lessen corporate risk by not having all business processes undertaken in one country. Beyond BRIC co-author Leslie Wilcocks emphasized that clients are willing to take on additional risks that comes with offshoring to an emerging market in their constant search for availability of talent pool, secure location, good service and lower costs.

On another note, Infosys conducted a survey of their top 135 clients and shared the results in their earnings release. Infosys’ survey shows some insight to the overall state of IT budgets and client offshore outsourcing decisions. Some of the findings are: 89% see a decrease in IT budgets, 22% see a marginal increase offshore outsourcing, and 5% see double-digit increase in offshore spending.


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