January is an exciting month and being the 1st month of the year, people ponder what would likely be the business scenario for the year. I always look forward on what the experts and research groups may forecast for this year particularly in the outsourcing industry.
In the article I wrote at the beginning of 2011 -January 27, 2011 to be exact in this same paper – I mentioned that 2011 will usher in growth in new set of industries such as healthcare and financial services. And rightly so, the year 2011 results show the popularity of the banking, financial services, insurance (BFSI) business process outsourcing and BFSI applications outsourcing (AO). In fact for 2012, Everest Research Group forecasts growth of about 15% in BFSI globally depending on global economy and majority of this will be driven by the capital markets BPO which is seen to account for the 20% growth. This growth will most likely be led by emerging economies in Asia Pacific and Latin America. Just as in 2011, BFSI will continue to dominate the market with North America being the dominant buyer in terms of geography – Europe and Asia Pacific following behind with growth seen to be faster than the industry average.
The other areas of the market predictions of Everest Group include Finance and Accounting Outsourcing (FAO) and HR Outsourcing (HRO) to mention a few and the paper also include a forecast of the whole Global Outsourcing. I will focus more on FAO and HRO since these are the more popular ones in our country today.
For 2012, FAO is seen to bring in 15% growth in the market in Annualized Contract Value (ACV) year on year (YoY) though the cycle to reach a done deal will still remain long. Reason for outsourcing will not just be cost arbitrage but also process transformation. As forecasted in 2011, this year will still be more a phased approach rather than a “big-bang” approach. The over-all ACV is predicted by Everest to cross the 700 mark and will be in the range of US$4.5-5billion. The growth will also spur on the increase role of technology and more inclined for platform and what we call in our Company – SaaS (Software as a Service) proposal catering to SMEs.
Knowledge outsourcing (analytics, internal audit, risk assessment, IT audit, etc.) will continue to increase as its favorable results show in 2011. In the Philippines, knowledge outsourcing has become popular too, as more and more companies turn to outsourcing to leverage on the provider’s expertise. There will also be an emergence of FAO delivery locations outside of India with the increase in services offshore.
In HRO, high growth is expected to continue in standalone single process outsourcing, such as multi-country payroll, benefits and recruitment outsourcing. Multi-country payroll outsourcing will increase among multi-national companies.
Uncertainty in the global macroeconomic and political environment will slow down outsourcing activity in the early part of 2012. Recovery is seen toward the end of the year when business confidence returns. Our country (Philippines) will continue to ride in the bandwagon of outsourcing growth in the above industry segments together with India as established markets, although this growth will not happen in the early part of the year but towards the end of the year with both countries to experience again the labor market pressure (which is really a good problem for the two countries) due to the demand at this period.
In the Philippines, tier 2 cities for outsourcing will continue to grow in outsourcing business and this same thing will also happen to tier 2 cities in India. Tier 1 cities however will dominate Central Eastern Europe and Central and South America.
Outsourcing is a major dollar earner if not the number 1 dollar earner for the Philippines. We have to improve our labor market since from the forecast this year and in the recent years, labor market pressure is a significant constraint in both countries (India and the Philippines). To remain an established market and continue to be the dominant player in the outsourcing industry we should be able to anticipate this concern and find ways to be ready to tackle the demands.
(The writer is the Chairperson of FINEX Publications Committee, VP-Chief Business Development Officer of KPS Outsourcing, Inc and Partner- Inventor, Miranda & Associates. The views expressed herein are her personal views and do not necessarily reflect the opinions of these institutions.)