Offshore BPO Industry to Grow

Gartner predicts offshore business process outsourcing to increase 38 percent in 2003, although market still immature

Gartner predicts offshore business process outsourcing to increase 38 percent in 2003, although market still immature

Stamford, CN — July 7, 2003 — Offshore business process outsourcing (BPO) is expected to reach $1.8 billion in 2003, a 38 percent increase from the 2002 total of $1.3 billion, according to Gartner Inc. The analyst firm said that in 2003 offshore BPO would represent 1.5 percent of the total BPO market.

"If enterprises that have been developing offshore sourcing strategies over the last few months successfully conclude pilot projects, the growth in offshore BPO during the next couple of years will be significant, as a result of contract expansions and new adopters," said Rebecca Scholl, principal analyst for Gartner's sourcing group. "Organizations have been cautious in their adoption of offshore BPO services, so growth in offshore delivery is expected to be continuous, but moderate compared with the excessive hype around the concept last year."

Gartner analysts said that India's revenue from BPO will grow from slightly under $1 billion in 2002 to $1.2 billion in 2003 and will represent 66 percent of the offshore BPO market. This will be supplemented by significant additional revenue from internal company operations and U.S. firms setting up their own delivery centers out of India.

"Although India has inherent skills related to transaction processing, Indian service providers cannot expect to target the higher value and more lucrative BPO services until they acquire and demonstrate their process skills and industry knowledge to offer process transformation capability," said Sujay Chohan, research vice president for Gartner. "Most of today's offshore BPO opportunity remains at the level of out-tasking a component of a business process rather than outsourcing an entire business process, and is mostly relegated to contact centers and back office transaction processing."

Gartner analysts said that while offshore BPO is growing, it is still an immature market. Gartner conducted a telephone survey in April 2003 with 250 U.S. clients of BPO that showed 1 percent of these enterprises are currently outsourcing BPO services offshore, and that 19 percent are considering outsourcing processes offshore within the next two years.

"However, over one-third of companies with over 1,000 employees obtain offshore BPO services from BPO providers headquartered in the United States," said Debashish Sinha, principal analyst for Gartner's IT services group. "The use of outsourcing is expected to grow as the supply base matures and companies are more comfortable working with external providers based in offshore locations."

India is the top country for delivery of offshore BPO services among large companies, but new regions are emerging as new delivery platforms for BPO. "Although India dominates the market today and for the near future, Indian service providers should not get too complacent as other English-speaking nations across the world are ramping up their delivery capability and putting into place aggressive investment-friendly policies to attract BPO investment," said Chohan. "BPO is truly a global delivery opportunity."

"There is a strong opportunity for growth in offshore outsourcing as enterprises use the expanding global IT and telecom infrastructure, maturing delivery processes and increasing cultural compatibility among nations to source IT-enabled services from where it makes the most economic sense," said Sinha.

Additional information is available in the Gartner Dataquest report "India Will Generate $13.8 Billion from Offshore BPO Exports in 2007." This report examines the current state of the offshore BPO services and looks at the trends that will drive future growth in the market.