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Business Process Outsourcing (BPO) Market Growth |
In 2003, the worldwide Business Process Outsourcing (BPO) market is expected to grow 10.5 percent - to $122 billion - up from $110 billion in 2002, according to Gartner Inc., and the Aberdeen Group predicts 13 percent annual growth until 2005 when the market will reach $248 billion.
BPO allows organizations to form strategic partnerships that focus on core competencies, thereby reducing corporate costs and increasing productivity. The centralized buying power of these BPO service providers, coupled with the fact that they represent a major new low-cost channel of distribution, can create a unified block of purchasing strength.
"Although several large Business Process Outsourcing
(BPO) deals of over $1 billion will be signed in 2003,
there will be a decrease in growth linked to a period
of disillusionment starting in 2004", according to
Rebecca Scholl, principal analyst for Gartner's sourcing
group. 2004 corresponds to the five-year mark after the
signature of several early BPO 'mega-deals'. These deals
will be renegotiated, in some instances re-competed, while
other late adopters take on a 'wait-and-see attitude'. |
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North America is expected to represent 57 percent of the total BPO market in 2003 - to $69 billion - with growth in other regions eventually outpacing North America. Gartner analysts say that after several years of double-digit growth, delays in contract signings and lower negotiated rates for large BPO deals have led to moderate growth in 2002 and 2003.
The Western European BPO market is forecast to grow 10.9 percent in 2003, to $27 billion, according to Gartner. In Europe, outsourcing of financial services processes are widely used, however, other industries are growing in respect for different types of BPO. Customer interaction for demand-management BPO is proving popular in the utilities and telecommunications sectors. Supply-management BPO is gaining popularity in local governments, and enterprise services are growing in telecommunications for human resources, finance and accounting.
Starting off slowly, the Asia Pacific BPO market is expected to grow 7.8 percent in 2003, to $8.7 billion, but it is then forecast to have double-digit growth during the next few years. META Group, Inc. found that nearly all Asia Pacific IT organizations will outsource at least one mission-critical technology operation by 2005.
McKinsey's research found that Australia and New Zealand are the most mature economies in terms of acceptance of BPO services, followed by Singapore. In most other countries there is almost no history of outsourcing other than product support, education and training and some application development. The Indian market is largely export oriented with exports of IT services and BPO services far outstripping the domestic market size, which is still largely immature. BPO markets in China, Taiwan and Malaysia have a large contract-manufacturing base, but outsourcing of other business processes has yet to take off.
According to Gartner's Scholl, enterprises around the world are attempting to focus their investments on their core business processes and are increasingly looking at outsourcing non-core business processes. Early adopters of Business Process Outsourcing (BPO) services, primarily large organizations, continue to expand their relationships to include new process areas, and new technology and media are creating opportunities for outsourcing entire lines of products and services, such as online payroll, online benefits administration, online order management and online transaction processing.
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OUR KEY DRIVERS OF GROWTH
Attempt to focus on Core Competencies. The number one driver behind the growth in the BPO market today is an increase in the number of enterprises that are reviewing their internal operations in an attempt to more fully understand their true core competencies, and focus on only those competencies. All other internally provided services then become candidates for examination in terms of how efficiently and effectively those services are being delivered compared to what is available from an external service provider. This decision-making process often includes an evaluation of the cost of owning technology - with its associated support costs, that are not core to the enterprise (HR applications as an example). This is leading to an increased willingness to outsource processes considered non-core, yet critical - activities such as claims administration, HR services and payment services.
Desire to Improve Service Levels. A secondary driver of growth in this market is a desire by enterprises to improve their current service levels. Business Process Outsourcing (BPO) offers enterprises an opportunity to do so in many cases, and at the same time removes the requirement for the capital expenditure that would be necessary if the enterprise sought to improve those service levels internally. Service providers who can best communicate their ability to deliver significant process improvement (as opposed to simply taking on an existing process in a status quo manner) are likely to emerge as the market leaders who will change the way in which business has traditionally been done.
Aim of reducing internal costs. The third most prominent driver of growth in this market - not surprising given the current economic environment - is a desire by enterprises to extract all possible costs from within their internal operations. Any chance of decreasing transaction-processing costs frees up precious capital that can then be applied to more strategic initiatives. |
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