Emerging Markets Driving Continued Growth in Global Business Process Outsourcing Market

NelsonHall forecasts BPO TCV at $450 Billion by 2012 as companies look to develop capabilities to support new market entry; continued growth seen for financial sector services

Boston — June 9, 2008 — The business process outsourcing (BPO) market continues to strengthen relative to the more mature IT outsourcing market and is forecast to reach $450 billion by 2012 as globalization drives companies to develop capabilities in emerging markets, according to a new report from BPO analyst firm NelsonHall.

The BPO market has continued to mature in terms of supplier capability, and this increased supply-side maturity was matched by growth in BPO total contract value (TCV) awarded during 2007 across all major geographic regions, NelsonHall analyst Helen Neale writes in the report "Global BPO Market Forecast: 2008-2012."

The 243-page report provides a forecast of BPO services globally by service line and geography. Neale reports that the underlying strength in the BPO market is being amplified by the current economic slowdown, placing pressure on organizations across all sectors to review their efficiency in mature markets.

NelsonHall believes the economic climate will hasten globalization, with organizations not only using offshore outsourcing to reduce their cost base but also hastening the development of their capability in emerging markets to take advantage of the growth opportunities there. This will lead to an increased requirement for BPO services to support new market entry, with this need particularly evident in the financial services and telecommunication sectors, the analyst writes.

As a result, services such as customer management services, payments and other industry-specific financial sector services will benefit, as will recruitment process outsourcing. As organizations increasingly focus on establishing themselves in the emerging economies of Asia and Latin America, they will look to locate support functions such as finance and accounting services and procurement within these geographies, leading to opportunities in the outsourcing and relocation of existing shared services centers.

By service line, the analyst sees strong growth continuing in industry-specific (middle-office) BPO, with outsourcing strengthening for finance and administration (F&A) as well as individual HR service lines such as benefits administration, learning services and occupational health. Recruitment process outsourcing — though showing lower growth than in the heady days of 2007 — remains a key opportunity to support companies entering new markets.

In addition, the customer management services (CMS) segment is showing an upturn. The segment is important in supporting new market entry as well as taking on increased role in assisting organizations in customer retention.

One area showing lower growth than previously is multi-process HR outsourcing, although new entrants here will give the market a boost in activity relative to the past 12 months, according to the NelsonHall report.

Economically, North America is the most affected geography. This should lead to increased BPO activity, but there is always a possibility, especially as the presidential election gathers pace, that this will result in greater protectionism in the U.S. market and a reaction against both outsourcing and offshoring. Currently, rather than a backlash, there are signs of increased BPO evaluation, but it is possible that a downturn in BPO contract activity could take place in the U.S. in Q4 2008 and during the first half of 2009.

By sector, financial services and government remain the dominant sectors for BPO, with industry-specific activity in the financial services and state and local government sectors remaining key growth opportunities. The defense sector has also emerged as a major source of "white-collar" BPO activity within government in the U.S., and there remains scope for enhanced growth in areas such as HR outsourcing and supply chain management services in the defense sector in both North America and Europe.

Other growth sectors globally include the healthcare and pharmaceuticals sectors along with the transportation sector.

More information on the report is available at the NelsonHall Web site.