BPO Market Will Continue to Gain Momentum in 2008
by John Willmott
NelsonHall's BPO Index for 2007 shows that the BPO market is prospering with year-on-year TCV (total contract value) growth of 147% and that the leading indicators for BPO in 2008 are strong.
During 2007, the defense sector became an increasing source of "white-collar" BPO activity and two U.S. military contracts worth a combined total of $17.4Bn made a major contribution to 2007 BPO TCV growth.
However, the growth in BPO momentum in 2007 was by no means confined to the defense sector and the underlying BPO TCV growth across the commercial sector and civil government sectors in 2007 was 28 per cent. This growth was evident worldwide with significant double-digit TCV growth in each of North America, Europe, and rest of the world.
In addition to this overall strengthening of BPO in 2007, there was a relative strengthening in BPO contract signings as the year progressed, boding well for prospects for BPO in 2008. Overall BPO contract activity in H2 2007 was over 20% stronger than would have been predicted on the basis of H1 signings.
Indeed the indicators for increasing BPO contract activity in 2008 are positive and include:
- The prospect of an economic slowdown, which will encourage companies to examine the efficiency of their internal processes and to seek support in maximizing customer retention and cross-selling within their existing businesses
- The continuing need for companies to globalize and seek support for their operations in new geographies. This is particularly apparent in emerging economies in activities such as payment processing and recruitment services
- A recent increase in the number of contracts with a TCV of $100m or higher, and an attendant increase in the average TCV of the leading contracts
- Increased maturity of supply-side capability. Vendors are increasingly taking a more realistic commercial approach to BPO that enables them to do deals while avoiding excessive financial risks.
- Increasing BPO capability within the Indian companies, who are now complementing their traditional application management strengths with complementary BPO capability. For example Wipro now has its first major Medicaid services contract in the U.S., TCS's Diligenta subsidiary is now ready for additional life BPO contracts, and Infosys has made major inroads into F&A outsourcing
- The use of KPO as a low-risk mechanism for opening doors and demonstrating BPO capability.
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