The business case for outsourcing is building as the global economy slides deeper into recession, but the ability to execute multi-year outsourcing deals is hampered by tight capital and market uncertainties, according to international business advisory firm EquaTerra.
Industry consolidation, changing priorities and continued budget and staffing cuts are fuelling a pent-up demand that will likely result in an increase of judiciously planned outsourcing engagements in the second half of 2009.
EquaTerra’s Advisor and BPO/ITO Service Provider 4Q08 Pulse Survey* finds that as organisations worldwide urgently seek ways to cut costs and free up cash flow, experienced outsourcers are beginning to migrate and consolidate contracts to gain economies of scale and preferred pricing, terms and conditions. Meanwhile, new buyers are entering the market via speed sourcing – streamlined efforts focused on a few key initiatives to rapidly realise outsourcing benefits.
Also, In light of recent terrorist attacks and financial scandal in India, wary buyers may shift more work to larger, more established Indian firms and away from second-tier players, while first-time buyers may want the added assurance of offshoring with top-tier western-based firms with extensive Indian operations.
Despite these concerns, however, EquaTerra expects India to remain the top-ranked offshore destination for the near term. “We anticipate heightened scrutiny and greater safeguards being built into new and existing contracts, but India will retain its lead in the near future due to its many advantages, including language, talent and experience.” according to Stan Lepeak, the firm’s managing director of global research.
Key findings from EquaTerra’s 4Q08 Pulse survey:
• Demand for outsourcing dips five percent quarter-over-quarter – Worldwide, 38 per cent of EquaTerra’s advisors reported demand was up for BPO/ITO and other business process/IT services in 4Q08, a decrease of five percent from last quarter. Advisors supporting work in the Americas, where the severity of the economic crisis was felt earlier and organisations are further into the downturn, were more likely to cite increased demand for outsourcing than those working in Europe.
o Projections for 1Q09 demand up – 53 per cent of the service providers polled expect an increase in demand next quarter, up 14 percent from the 3Q08.
• Public sector a bright spot – Demand in government and the public sector remains strong for IT outsourcing, back-office process improvements and support for deploying shared services. But service providers are also winning contracts for training, operational support and supply chain management.
• Buyer’s market developing – The deteriorating economy has a positive side for organisations seeking to expand their scale/scope of work. Outsourcing service providers feeling the impact of the downturn are focused on increasing market share by expanding existing accounts, providing savvy buyers the opportunity to use the downturn to make great strides toward transforming their business, accomplishing more, faster and with fewer resources.
o Emerging markets – Service providers financially able to expand into new market niches will find increased opportunities with global pharmaceuticals, particularly in research and development, financial analytics, document services, facilities and real estate management and logistics services.
ERP Applications Outsourcing Gaining Speed
EquaTerra finds third-party activities supporting the deployment, modernisation, rationalisation and operation of enterprise resource planning applications and systems shows signs of strength in both the commercial and public sector. A confluence of factors is kindling a second wave of ERP deployments ranging from a desire for greater operational efficiencies and increased business process automation to heightened concerns over the security of custom software developed by third parties. Financials are also a key driver. EquaTerra finds organisations are increasingly outsourcing ERP applications/systems to pay back upfront capital expenditures for needed upgrades and improvements or to adopt a fee-for-service model, effectively shedding the expenses associated with ongoing operations/maintenance.
“Outsourcing service providers have both a skills and cost advantage,” said Lepeak. “They have a deep bench of experienced ERP experts that can get the most user value from ERP software and are on call to fix problems and initiate incremental upgrades. Too often ERP systems have proved to be financial sink holes, but, with the help of experienced service providers, they can be tailored to cut operations costs and support new business strategies.”
For insight into the global outsourcing market and a comprehensive discussion of BPO/IT advisor and service provider results, please register to attend EquaTerra’s 4Q Pulse Webcast on Wednesday, Jan. 28, at 4p.m (GMT). Presenters: Mark Toon, CEO of EquaTerra, and Phil Morris, managing director for EquaTerra in Europe and Asia.
About EquaTerra’s 4Q08 Pulse*
EquaTerra conducts ongoing research on a variety of topics relating to emerging markets, changing market conditions and demand for outsourcing. The company combines relevant recent research with trending data gathered through its quarterly survey of leading outsourcing service providers and its own client-facing advisors to create its Pulse report. For more detail, or to obtain a copy of the Pulse survey, please contact email@example.com
Director of Marketing EU/Asia Pacific
EquaTerra sourcing advisors help clients achieve sustainable value in their IT and business processes. Our advisors average more than 20 years of industry experience and have supported over 2000 transformation and outsourcing projects across more than 60 countries. Supporting clients throughout the Americas, Europe, Middle East, Africa and Asia Pacific, we have deep functional knowledge in finance and accounting, HR, IT, procurement and other critical business processes. EquaTerra helps clients achieve significant cost savings and process improvement with internal transformation, shared services and outsourcing solutions. For more information, please contact Lee Ann Moore at +1 713.669.9292; firstname.lastname@example.org; www.equaterra.com.
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