09 Jan 10 Outsourcing in 2010 (and beyond)

The new year invariably brings out predictions from a variety of armchair critics, so why should I be different? After all, I’m actually sitting in my armchair right now!

In an attempt to be different, I actually resisted the temptation initially, but finally succumbed. So even though these are a bit late, here are some more predictions.

Indian companies will continue to rule the roost, as far as offshoring is concerned: Though there is increasing competition from other destinations, India’s early lead (and therefore sophistication) will help keep Indian companies ahead of the pack. Even if work moves to other locations, Indian companies will be at the forefront of this move. We believe that Indian companies will be the most aggressive in terms of developing a multi-location delivery capability. After all, they have the most to lose (and the most cash)!

The Big IT & BPO companies will seriously invade new turf: Many knowledge service companies or KPOs believed that they had something unique to offer, services that large, generic outsourcing companies would not be able to compete in. This is changing, and services/verticals like legal services (or LPO), publishing, engineering design, research & analytics, etc. will see aggressive moves by Indian giants (like Infosys, TCS, Wipro, Cognizant, Genpact, WNS, etc). While this may seem like good news for niche KPO providers looking to exit, the giants are quite confident of their ability to drive organic growth, so will not be ready to offer premium valuations except in exceptional circumstances.

Platform based BPO will become all-pervasive: Another initiative by the IT biggies, platform based BPO essentially means using technology platforms to deliver BPO services cheaper and with higher efficiency. At ValueNotes, we’re seeing this across verticals and horizontals, including knowledge services. The use of technology is becoming critical to delivery of services, even for those services that appear to have little to do with IT. This further skews the advantage in favor of larger players, who have the ability to invest in such technology.

Cloud Computing will gain traction: This may seem like an old idea, as many have likened the cloud phenomenon to another form of outsourcing. However, traditional outsourcing providers will be threatened, especially in areas where the cloud might cut out traditional local providers (who typically offshore a few services). Examples of this could be tax returns filing, content creation or even jobs like transcription.

Analytics will become a necessary layer: A large proportion of outsourced services will adopt (or be required to adopt) a layer of analytics, as the thrust of cost reduction moves from labor arbitrage to efficiency. Whether it is CRM, recruitment or market research; the role of analytics will only increase. BPO providers will need to add analytics capabilities, or risk being relegated into a “commodity class”.

Newer forms of knowledge services will continue to emerge: As vendors mature and technology evolves, the limits of outsourcing will be expanded. Services that were believed to be difficult or impossible to outsource, will start being outsourced. This is particularly true for knowledge services (also called KPO), where the industry is still some way away from maturity.

And finally, outsourcing will not die: Contrary to the claims of many skeptics who believe that outsourcing is a fad, the industry will only grow in strength. This is despite political and other forms of dissuasion. One cannot really stop any kind of wave, leave alone a tidal wave!

And with that, here’s wishing you a great 2010.

The author, Arun Jethmalani, runs ValueNotes, a research company with a specialized unit dedicated to outsourcing.