Predictions for 2007 Trends in the Outsourcing, Shared Services and Offshoring Market

Tight labor markets accelerating pace of outsourcing; "location" decisions will become more challenging, guru Ben Trowbridge predicts

Dallas — December 8, 2006 — Outsourcing service providers moving into 2007 must place higher priority on staying cost competitive and staying ahead of global trends in the sourcing market if they are to remain viable, according to Ben Trowbridge, CEO of global advisory firm Alsbridge and a collaborative outsourcing guru.

Trowbridge reviewed Alsbridge proprietary data, public information and current industry trends to produce a set of predictions for the outsourcing industry in 2007.

"Companies want to see the results of their sourcing projects turn out successfully," observed Trowbridge. "In this regard, we believe our predictions of the market will prove beneficial to industry leaders and buyers in all stages of the sourcing lifecycle."

The guru's predictions for the year ahead:

  1. Because of a tightening U.S. labor supply in technology, accounting and other processes, U.S.-based companies will accelerate their outsourcing strategies to stay competitive.

  2. Contrary to prevailing opinion, cost of labor in India will remain neutral when compared with wage inflation in U.S. market. The offshore trend will not subside.

  3. Contrary to prevailing opinion, China will still lag other markets, mainly India, as a destination for English-language-driven business process outsourcing (BPO) or shared service centers due to language, low national birthrate, intellectual property and other legal issues. The exception will be those companies who have a market strategy to sell into China market, which will override the former comments.

  4. New areas of Eastern Europe will open up and should be evaluated as local authorities jump on the outsourcing, shared services and offshore boom.

  5. The "location" decision will become more challenging due to shifting political and threat profiles.

  6. The major private equity firms will again review acquisition and rationalization of the large outsourced provider market. The fact that no deals were done in 2006 does not mean they have lost interest.

  7. Outsourcing of procurement will gain momentum in 2007 as certain providers begin to achieve true scale and market share as others continue to challenge them. The business case will become the velocity case.

  8. Indian providers will continue to grow their global presence and win even more complex deals. The challenge will be to move from their high-margin man-time "voice" pricing to true outsourcing price structures.

  9. Throughout next year, the thriving U.S. providers will begin to fall into one of two groups:
    • "The Transformers" Those that offer transformational outsourcing as a result of taking on multiple process silos thereby gaining enough mass to affect change; or,
    • "OAP providers" Those who focus on single functional areas, often within a single vertical market, and offer outsourcing as a product (OAP)
  10. Shared service centers where clients choose to outsource to a center owned by the company will continue to represent as much as half of the offshoring activities with Indian providers starting to participate more and more, creating hybrid solutions eventually poised for outsourcing. U.S.-based outsourcers will lag in adopting this solution area.

  11. Knowledge process outsourcing (KPO) will grow significantly over next three years and generally go to captive centers or be outsourced as a part of hybrid transactions. Research and engineering will grow significantly as an offshored service.
"Future trends are easy to identify if you know what indicators really make a difference," said Trowbridge. "You have to know how to read between the lines when it comes to revenue numbers released by outsourcing providers. While an interesting statistic, forecasts must be evaluated based on labor statistics, birth rates, economic indicators and hard-to-find, internal corporate activities not released to the general public."

Trowbridge said that his company gathers data from a variety of sources, including customers, providers, government agencies, research firms, trade and business media from around the world for the use clients making informed decisions.