BPO Activity in Emerging Economies Increases While Mature Economies Pause for Thought

by John Willmott

NelsonHall's BPO Index analyzes the state of the global market for business process outsourcing, presents a review of contract activity in the first half of 2008, and identifies major developments in the BPO marketplace. The Q2 BPO Index reveals a pause in BPO contract signings in the mature economies, while BPO activity in emerging economies is on the increase.

While the value of global BPO contract signings in the commercial and civil government sectors increased by 29% in H2 2007, BPO contract signings in these sectors have more recently been impacted by the credit crunch and/or economic downturn in North America and the U.K. with the result that BPO TCV increased by just two per cent in H1 2008.

Indeed the short-term pattern is of a downturn in BPO contract activity taking place in Q2 2008. While the quarter-on-quarter decrease in global BPO TCV between Q1 2008 and Q2 2008 was only 8%, the effect has been to make Q2 2008 the lowest Q2 for global BPO TCV since 2003, with Q2 2008 being a below par quarter for signings in both North America and Europe.

This single quarter may not be the start of a trend a sign of a short-term pause in activity while organizations reappraise their longer-term plans. The broad conclusion seems to be that we are in a pause before the storm with organizations reappraising both their broader business strategies and sourcing strategies in the light of the current economic reality. This will almost certainly lead to an increase in BPO contract activity in the future and mean that organizations need to be more ambitious and transformational in their sourcing strategies, though looking for a rapid return from these strategies.

So, in the longer-term, there remains an ongoing and even enhanced need to use BPO to transform mature operations and to support entry into new markets. This use of BPO to support entry into new markets is already apparent. Although emerging markets still only account for approximately 3% of global BPO TCV, BPO TCV grew 26% in these economies over the past 12-months.

The pattern of BPO service adoption has also continued to evolve with an increased emphasis on key operational processes which can have a material impact on both an organization's effectiveness and its efficiency. This is demonstrated by the considerable growth in activity in industry-specific and front-office BPO over the past 12-months. BPO TCV has grown by more than 50% in these areas, which now account for 85% of BPO TCV, with a particularly marked increase in the level of customer management services activity. Customer management services is a key part of the BPO market as organizations address the key elements of their cost base and look for mechanisms to support them in new market entry.

The pattern of back-office outsourcing has also continued to change. F&A outsourcing has been coming into its own and growing strongly in both North America and Europe as well as increasing in importance in support of market development in emerging geographies such as Latin America. In terms of trackable contract value, F&A outsourcing now accounts for 8% of global contract value.

In particular, NelsonHall's Q2 BPO Index call, held on 10th July, revealed the following significant developments in BPO contract activity in Q2 2008:

  • Increasing BPO activity in emerging economies:
    • IBM Daksh was awarded a 5-year customer services contract by MakeMyTrip
    • vCustomer was awarded customer services contract by McDonald's India
    • DDC HRO and Temasys partnered with China Motion Telecare to deploy Chinese language support services
    • Citibank has expanded custody services into Ukraine
    • TSYS was awarded a card processing services contract by Globalcard of Mexico
  • A resurgence in activity in customer management services, with Convergys announcing four major CMS contracts in Q2 and TeleTech also announcing contracts across a broad range of sectors
  • The Philippines continuing to strengthen its position as a key CMS delivery location (Convergys opened five new contact centers in Metro Manila, Laguna, and Cebu City, EXL Service opened a center in Manila, and Sutherland opened a center in Camarines Sur)
  • Continuing Impact of green issues
  • Ongoing acquisition activity in absence management and occupational health:
    • Hewitt acquired LCG to offer total absence management services
    • Serco acquired Grosvenor Group to enhance capabilities in prospective employee screening, absence monitoring, and rehabilitation services
NelsonHall's BPO Index call is a webcast held at the end of every quarter, and the findings are published within the BPO Market Development program. To find out more, contact Paul Connolly.

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