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November 2011 | Outsourcing Blog | BPO Industry Updates and Articles

Outsourcing in China to Hit US$10bn, says Everest

by: Karen Cayamanda

Monday, November 21, 2011 | Comments (0)

Category: Outsourcing Research / Trends

It looks like the next few years will be great for the offshoring and outsourcing industry in China. Advisory and global services research firm Everest Group predicts that by 2015, China’s global services exports may reach a compound annual growth rate (CAGR) of 20-25 percent, valued at US$9.5 billion. This is a significant increase from US$3.5 billion posted back in 2010.

According to a recent Everest study entitled “Global Locations Compass: China”, the country’s global services exports rose to US$3.5 billion in 2010 from US$1.2 billion in 2007. IT outsourcing accounted for 65 percent of the total services export revenues of China. The rest (35 percent) came from business process outsourcing or BPO.

With the country’s 2010 market growth, it has been re-classified as a mature offshoring location in the Market Vista Locations Maturity Map of the Everest Group. It also comes close to India and the Philippines in the Offshore Locations Survey, also of the Everest Group.

Vice-president - Global Sourcing Amneet Singh said China may not have an advantage in terms of cost and English communication skills compared to India and the Philippines, but the country can still be seen by the US and European markets as an alternative to reduce risks. The country has a regional language advantage and cost arbitrage is predicted to stay sustainable in the next 13 to 14 years.

Expansion of delivery centers

The study also shows that in the last 12 months, more than 15 delivery centers were developed or expanded in Tier-1 and Tier-2 cities. The efforts and incentives of the Chinese government also drove the growth of the market.

Vice-president - Global Sourcing H Karthik advised companies that intend to tap or expand in the Chinese market to pay attention to talent, keep track of data protection policies, and assess Tier-2 cities for cost reduction.

What to Look Out for when Reevaluating Contracts

by: Karen Cayamanda

Friday, November 18, 2011 | Comments (0)

Category: Outsourcing Research / Trends

Service terms and contracts in the outsourcing industry continue to change as the landscape of the field evolves. Not a lot of terms change on regulatory requirements or governing transactions in outsourcing, but they can increase in importance as outsourcing risks and challenges continue to emerge. As a case in point, accounting scandals with Satyam and terrorism in Mumbai changed security controls in India. 

As client markets pick up from recession, rates are again experiencing an upward movement. The question on who takes on greater risk between provider and client has also shifted, and this resulted to more considerations on liability clauses, especially for outsourcing to cloud service providers.

Guidelines on how to evaluate outsourcing contracts

With the trends and changes in the market, buyers are pushed to reassess their contractual terms. A research from Forrester enumerates guidelines on how to evaluate outsourcing contracts and protect players from risks and threats, as stated in the article published at NetworkWorld.com:

  • Directly address the need for liability - As the need for a cloud computing strategy increases, clients ought to be more cautious in reviewing terms on liability. Forrester clients discovered that there are cloud service providers who refuse to accept liability and insure clients for exposure of private data. Because of this, a Forrester client was forced to pull out from the deal.
  • Update change of ownership provisions to safeguard against industry consolidation - The possibility of industry consolidation makes it more important for buyers to ensure that their contract allows for termination in the occurrence of a company changing in ownership and control. In most cases, it is impossible to predict the actions of a provider but clients should expect volatility in SaaS and cloud segments. 
  • Bulletproof your provisions for permissible rate increases - A clause or a statement on allowable rate increases is appropriate for expiring contracts or those with terms that cover a long period of time, but clients should take it upon themselves to compare ongoing increases with current labor costs. Also, consider that services costs typically decrease over time, and in this regard, increases might not be justified. Lastly, contest provisions that will allow your provider to raise prices without your permission. 
  • Transition assistance is important - With the rapid changes the industry is experiencing, it is safest to have provisions in your agreements that cover transition assistance. This normally includes terms on timeframe and costs to compensate for loss of business. The stated requirements should apply for both transitioning work back in-house or onto another provider. It would be ideal to have clearly stipulated roles and responsibilities for the parties during transition. 
  • Key personnel provisions - Direct contact to a supplier’s managerial, administrative, and technical support teams can make a big difference in the success of an outsourcing venture. Adding provisions on the ability to access key personnel assures customers that they will be given quality service. In the cases of ramps or issues, it is critical that customers be able to connect to the right people.
  • Align termination fees with length and type of contract - For contracts that are shorter in term and that will utilize less assets on the supplier’s end, termination fees and provisions might be in the form of a penalty rather than a way to compensate for rendered investment. Costs that are for the purpose of a penalty should be avoided. Suppliers will always try to recover costs in the process of winning and executing a contract. In this scenario, it will be smart to research on supplier selling and delivery costs and use this as ammunition to negotiate.

Upsurge in ITO Spending and BPO Trends

by: Karen Cayamanda

Tuesday, November 15, 2011 | Comments (0)

Category: Outsourcing Research / Trends

ITO and BPO Spending

The TPI Momentum 2011 Market Trends & Insights Service Line Report (tpi.net) has just been released and it includes observable trends across eight outsourcing disciplines. The customer markets of ITO and BPO services are all looking out for the best technologies available - some examples are mobile device support and Cloud Computing. Clients also demand better forms of customization from providers in terms of functionality and features.

Rapid IT developments and changes in the field do not cause resistance but these even fuel the growth of the market. A record on closed contracts in the BPO industry is at record high in 2010, directly correlated to expenditures in ITO and network solutions.

Here are some of the highlights from the report:

  • Business Process Outsourcing (BPO) is gaining support in new client markets. A total of 759 BPO contracts were closed in 2010. This poses a 20-percent increase from records in the previous year. Most of these deals are inclined towards disciplines such as Contact Center, Finance and Accounting, Human Resources, and Procurement. Majority of the contracts are with small companies exploring outsourcing, and are not necessarily large in volume. Consequently, total spending decreased by 12% from 2009. 
  • Evaluating strategies slow ITO. The ITO market had to take a stop and wait as clients evaluated their IT strategies. This resulted to a decline in contract volumes because clients involved themselves with exploring options and setting guidelines for new technologies, like with mobile devices, applications, information security, Cloud Computing, etc. Contracts in ITO increased by 1.6 percent in the US, and faced a decline in EMEA and Asia. The Managed Network Services service line experienced greatest demand mainly due to telco-to-telco needs. 
  • Clients are bundling up. Clients opted to utilize more bundled contracts, as opposed to standalone, in 2010. Especially with Cloud Computing and finance and accounting, clients build portfolios or separate bundles of outsourcing contracts that consider business and technology perspectives. Portfolio bundling and developing a niche expertise led to multi-provider sourcing.
  • Mobility is moving the market. The business need for mobility is setting direction in the field of outsourcing. This demand has the greatest effect to the End-User Computing service line because providers need to expand solutions to respond to the growing number of mobile devices. Providers now are asked to create mobile applications, manage network traffic, and allow mobile access to business applications. 
  • Expert help wanted. Clients seek providers with expertise in their particular field. They would rather outsource to companies who can offer customized solutions for a particular industry or business process, instead of generic services. Cost-effective and innovative solutions are also a selling point, like Cloud Computing services that both result to cost savings and greater efficiency. Lastly, there is observed inclination to “business-process-as-a-service” solutions where entire functions like payroll and recruitment are outsourced on a project basis.

The entire TPI Momentum report dedicates one chapter for each service line that tackles their respective trends and developments in greater detail.

Choosing between Being Secure and Being Flexible

by: Ronald Escanlar

Monday, November 14, 2011 | Comments (0)

Category: Outsourcing Research / Trends

As the world becomes smaller due to emerging web technologies, information security has become more important as companies seek to go global. Some have even outsourced captive offshore operations in their bid to become global companies. As with any expansion, plans are needed to ensure that the expansion enables the company to achieve its objectives of being effective and efficient. Among companies that rely on outsourcing, an offshore risk mitigation plan is needed for captive operations.

Most companies already have internal security controls in place before turning to outsourcing. Since captive operations are regarded as offshore business units, a captive operation is expected to adopt its mother company’s security policies. Outsourcing consultancy firm TPI.net points out that captives oftentimes face hurdles in enforcing these policies due to internal customizations made by client companies, especially in policies regarding Internet use, social networking exposure, and the use of storage devices.

Tips in formulating an offshore risk mitigation plan

TPI suggests the following tips for outsourcing companies and their clients in formulating an offshore risk mitigation plan:

Assess the mother company’s internal controls. Can the mother company’s internal controls be immediately adopted for the captive operation, or do they need to be modified accordingly? With a comprehensive assessment, risks can be mitigated early on as the outsourcing service provider takes an active stance to quickly address issues as they crop up.

Focus on human resources. The reputation of the outsourcing service provider is at stake in any outsourcing deal, especially those who serve the financial and healthcare sectors where data confidentiality is of top concern. An exhaustive screening process is vital in hiring staff for captive operations.

Include local influences in creating the plan. Study how captive operations and local companies deal with security issues - how do they compare against the mother company’s internal controls? Such observations can be used in assessing whether those internal controls can be adapted into the local operation.

Imbibe the importance of security. More security controls do not mean an office is better secured than an office where the employees are security-conscious. Having a culture of security among employees is more effective than enforcing a multitude of security controls and policies among employees who may find ways to circumvent security policies.

Constant training. Train the staff regularly on information security courses. The effectiveness of the training must be measured to evaluate if it supports and complements the company’s risk mitigation plan.

An offshore risk mitigation plan ensures that the outsourcing service provider is ready to hurdle the operational challenges in a captive operation that functions as an extension of the client company. Such a plan must include security policies that should be flexible enough to factor in human behavior and local culture.

Avoiding Visa Delays in Transition Phase

by: Ronald Escanlar

Friday, November 11, 2011 | Comments (0)

Category: Outsourcing Research / Trends

Switching to a Global Outsourcing Model

Multinational corporations consider their global service delivery networks as vital communication channels among international offices. Internal electronic communication is oftentimes supplanted with personal, face-to-face interactions between managers and staff. Governments, such as the United States and the United Kingdom, issue a variety of visas to facilitate the entry of foreign staff needed by either mother companies or client-companies based in these countries.

However, due to security issues, the issuance of US visas has seen additional restrictions, stretching the timeline for companies relying on outsourcing as they shift to a global service delivery model.

Outsourcing research firm TPI (tpi.net) lists five tips that can help companies avoid these visa delays:

Include delays in the transition timeline. Formerly, offshore employees needed to work in the US arrived within a month’s time. With the new visa restrictions, foreign workers coming in to the US arrive within two months - an addition of one month. This is a very significant delay for those in transition.

Establish backup plans. Delays in transition are normal, but since they directly affect the profitability of a company, a backup plan is needed in case the needed foreign workers do not arrive in time.

Take advantage of the Internet and new technologies. There are various software programs or applications that enable virtual collaboration and file-sharing among team members spread across the globe. These tools and technologies must be set up early in the transition phase, as time saved in business converts to money saved.

Shift the majority of transition work to the offshore service provider. Many client companies based in the US are now sending their local resources to offshore sites during the transition phase, serving as subject matter experts (SMEs) and trainers. Outsourcing service providers have established client services departments for such situations, taking care of visas and accommodation for the direct employees of their client companies.

Create a risk mitigation plan with the service provider. Client companies will find it easier if they work on transition delays with their outsourcing service provider. Usually, risk mitigation plans are included during the onboarding phase. These plans must be created even before the ink on the outsourcing contract dries up.

There are various details involved during the transition to being a global company, but a well-defined plan will help a company pursue its outsourcing goals. Visa restrictions, part of the transition process, can easily be mitigated with the right strategy.

Everest Group: Global Outsourcing Slowing Down

by: Karen Cayamanda

Tuesday, November 8, 2011 | Comments (0)

Category: Outsourcing Research / Trends

Is Outsourcing Losing its Touch?

Activity in the global outsourcing scene is getting slow. From 503 outsourcing contracts posted back in third quarter of 2010, the number went down for the same period this year - only 472 according to market advisory and research firm Everest Group (reported at zeenews.india.com).

Everest Vice President (Global Sourcing) Amneet Singh said the decrease in the number of outsourcing deals and transaction volume indicates the “sluggish” phase the global outsourcing market is currently facing. However, several large deals have been closed during the quarter, and this drove the global transaction volumes to reach US$2.7 billion in annual contract value (ACV).

IT outsourcing and business process outsourcing (BPO) posted a drop in transaction volumes, though the former had seen a 14-percent increase in ACV for the third quarter of this year.

It’s good to note, though, that Q3 is not all about outsourcing slowdown. Third quarter had seen an increase in the number of captives that were set up. In 2010, only four new captive centers were established, and nine expansions. For Q3 2011, however, 20 new centers were set up.

This slowdown in the global outsourcing landscape is almost something to be expected, considering the current financial woes in the US and UK, two of the largest markets being tapped by the industry. Of course, various business owners are getting more and more cautious when it comes to spending especially in times of financial uncertainty.

It may be the reason the global outsourcing market is now seeing a decline in deal signings and transaction volumes, but then again, there are other companies that are realizing what outsourcing can do for them. By transferring work to a service provider, they can take advantage of the labor arbitrage, enabling them to reduce their costs and keep the business going.

Like what Singh said, it is still too early to say what will happen in the next few quarters or years. This Q3 decline may or may not be a trend. The key, as always, is to stay updated on the latest developments and have contingent plans to ensure the business will stay afloat no matter what the economy will throw at us.

Developments in the BPO and ITO Market

According to the latest TPI Momentum 2011 Market Trends and Insights Service Line Report, clients who rely on BPO and ITO services are interested in service delivery options and emergent technologies, such as support for mobile devices, cloud computing, and X-as-a-Service. Providers also face the clients who demand custom-fit services and features for their business processes.

The same report from the outsourcing consultancy firm said that 2010 saw a record number of BPO contracts being signed, coupled with a tremendous increase in ITO budgets across companies.

From the same report come these highlights:

New clients came over to the BPO fold. Last year saw 759 BPO contracts being signed - a 20% increase from 2009. Majority of these contracts were signed between companies venturing into outsourcing over Contact Center Services, Finance & Accounting, Human Resources and Procurement. Total spending, though, was down by 12% from 2009.

The ITO market slowed due to re-evaluation of company IT strategies. Contract award volumes were reduced from 2009 since clients were evaluating their strategies and policies, especially with the exponential growth in mobile computing, virtualization, and cloud computing. The Americas, nonetheless, witnessed a 1.6% increase in ITO contract awards.

Clients opted for multi-sourcing. As clients renewed outsourcing contracts, companies opted to use portfolio bundling, creating separate bundles of outsourcing contracts in business and technology sectors.

Mobile computing has changed the market. The explosion in mobile device use and mobile computing has directly impacted the outsourcing industry, via new advantages and disadvantages. Service providers needed to create new solutions for clients who wanted mobility with information security.

Experts needed. Clients have shifted to expertise in their respective vertical industries when it came to choosing service providers last year. Custom-fit solutions have become the name of the game, instead of basic, pre-packaged services. Innovation has also taken the front seat among clients, as they saw the advantages of cloud and mobile computing. Preference for business process-as-a-service has also increased among clients.

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