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BPO sector set for rebound in 2011 Ovum

Veronica C. Silva | Oct. 28, 2010
New opportunities abound for contracts scheduled for renewal

MANILA, PHILIPPINES, 27 OCTOBER 2010 -- Like all other industries worldwide, the business process outsourcing (BPO) was not completely spared from the negative effects of the global economic crisis. But next year shows more promise for the industry as outsourced contracts set to expire will be more likely up for renewals. This, as companies see value in outsourcing as a cost-cutting measure.

According to Ovum's IT Services Contracts Analytics, which tracks all IT and BPO contracts worth more than US$1 million, the BPO sector is set for a rebound as expiring contracts next year may spell new business opportunities for some players.

More than 200 BPO deals are set to expire next year with a total contract value of US$12.2 billion, according to Ovum's 2011 Trends to Watch: BPO' report. Despite the global recession, this value is 15 per cent more than the US$10.6 billion worth of contracts that are due to expire this year.

The largest opportunities in expiring contracts are in the manufacturing sector, with 31 per cent of total contract value, followed by banking (24 per cent).

With these contract renewals, Ovum said BPO is poised for faster growth than IT services. Ovum forecasts the BPO market to grow by five per cent this year, rising to 6.3 per cent in 2011. IT services, on the other hand, is expected to grow by five per cent in 2011.

Changing landscape

While recovery from the global recession is likely to continue at a slow pace, the way the BPO market will address the changing needs and desires of potential customers will be more rapid, said Patrick O'Brien, principal analyst, Ovum.

He added that companies now have more options in choosing BPO companies and some of them are in geographies previously untapped.

Outsourcing back-office processes were once seen as a radical, aggressive move based almost completely on Indian labour arbitrage, but the market has become more complex and nuanced. The competitive landscape has changed dramatically, and the capabilities of vendors have improved drastically, while more and more geographic locations are positioning themselves for BPO work, opening up new low-cost possibilities for work in multiple languages.

Among these geographies which are showing promise are the Middle East and Latin America, the Ovum report noted. India, however, will continue to dominate even as more countries are trying to position themselves as BPO locations.

Market shakedown

The BPO industry has also seen a wave of mergers and acquisitions (M&A), particularly in the sub-sector of human resource outsourcing (HRO).

Recently, the industry has seen HR units of BPO giants Hewitt, HP, Convergys, and ACS having been acquired for knock-down prices, Ovum noted. That wave of consolidation appears to be over for now.

 

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