Outsourcing has been around for decades, although it was not formally identified as a business strategy until 1989. During its initial stages, outsourcing was used primarily as a measure to save costs by outsourcing necessary functions which are not related to the core business. At present, outsourcing is a growing strategy that revolutionizes the way businesses operate today. From the changing business environments and industry developments sprung a relatively new strategy--IT Outsourcing. IT Outsourcing has been grabbing more and more companies’ attention because of the competitive advantage and other benefits it can bring to the company, all while adapting to the changing business environment.
IT Outsourcing is a sector expected to grow steadily this year. As the changes and innovations in the industry continue to shape and influence the way IT outsourcing is done, here are some trends to expect and watch out for in 2018:
Cloud continues to bring significant changes over the past few years, emerging as an “ace trend” in 2017. CES, an annual consumer technologies showcase in Las Vegas, branded cloud as one of the “Do Watch” trends for 2018. The benefits of cloud computing, such as reduction in hardware costs, increased productivity, and enhanced data security are convincing more and more enterprises to adapt cloud technologies to achieve their business goals and keep up with the competition. RightScale’s annual State of the Cloud Survey conducted January 2017 showed that 95% of small and medium businesses have already adopted cloud technologies.
According to estimates by Cisco, cloud traffic is likely to rise 3.7-fold in 2020. From 20% in 2015, it is predicted that database, analytics, and Internet of Things workloads will account for 22% of total business workloads by 2020. The same RightScale survey suggests that there will be a shift to the public cloud, likely as a part of hybrid cloud strategies. According to the survey, the percentage of enterprises that have a strategy to use multiple clouds grew to 85% from 82% in 2016.
The Rise and Domination of Automation
With the continuous emergence of new technologies and innovations, digital labor is now making its way to many types of business processes, replacing manual labor. Through automation, work is made faster, more efficient, and more accurate at reduced costs.
However, as more and more enterprises are adopting automation, the low skill sectors of the BPO are at high risk. In a 2016 research, India’s BPO industry workforce is predicted to shrink by 14% in 2021. On the positive side, automation paves the way for more higher-skilled employees. In the same research, it is expected that around 700 thousand medium and high skill jobs will be created in the Philippines by 2022.
Automation brings in different outcomes to different situations. Nevertheless, more outsourcing companies will automate processes to increase productivity and client satisfaction while keeping labor cost advantages. Process automation is set to dominate 2018.
Continued Growth in Top Outsourcing Countries
Top outsourcing destinations like India, Malaysia and the Philippines are expected to continue their growth this 2018.
With the robotic process automation (RPA) taking over simple jobs, the Indian BPO sector has prepared to re-skill their workforce. According to the National Association of Software and Services Companies (NASSCOM), up to 40% of India’s IT-BPO workforce needs to upgrade their skills over the next five years to ensure that only low level jobs will be replaced by automation. Despite the challenges posed by automation and new technologies to the manual labor, the Indian IT industry has been adding new jobs. In 2018, the IT-BPO industry in India is expected to grow 7-8% in export revenues with an additional 130,000 new jobs.
Malaysia is a competitive country in the IT-BPO industry because of its strong business environment compared to countries like India and China. With a growing investor interest in Malaysia’s shared services market and an increase in demand for customer care sector and analytics solution, the country’s IT-BPO industry is predicted to grow at a compound annual rate of 7.9% by 2021. According to the International Data Corp (IDC), outsourcing enterprises in Malaysia will improve their overall customer experience, integrate better applications and upgrade their flexibility and innovation in their business processes.
In 2016, the BPO industry in the Philippines grew by 17% and created 1.3 million jobs. The country has expanded its BPO operations outside the capital city Manila and to provincial regions such as Cebu and Davao, resulting in a significant growth in the industry.
Despite President Trump’s Executive Order “Buy American, Hire American” that can possibly affect American investments in the country, it is predicted that BPO services in the Philippines may become the primary source of revenue for the country in 2018. The BPO industry is also predicted to bring in over 7 million new jobs and $40 billion in revenue.
Another interesting sector to look out for in 2018 is the emergence of Knowledge Process Outsourcing (KPO) in the Philippines, which can cater to new demands and offer more specialized roles such as equity research, market research, web design and development, etc.
New Outsourcing Destinations to Watch for in 2018
Due to the oversaturation in the top outsourcing countries, businesses are now searching for alternative cost-effective locations. A.T. Kearney’s Global Services Location Index (GSLI) is an annual research report measuring the attractiveness and viability of countries as an offshore destination, helping businesses and companies with their outsourcing decisions. The yearly GSLI is based on three factors: financial attractiveness, people skills and availability, and business environment.
Some countries saw significant movement up the GSLI rankings, such as Vietnam, Colombia, and Czech Republic.
Vietnam moved up 5 places and is now the 6th most desirable outsourcing location, reflecting its growing popularity for BPO centers. For the past decade, the BPO industry in Vietnam has grown at a rate between 20-25% annually. The key factors for this growth is the low cost of labor in the country, and the predominantly young population’s fluency in English. The continued growth of the Vietnamese BPO industry in the future is largely dependent on the Japanese economy, since Japan is the country’s primary client.
Colombia is the 10th most desirable place to outsource, moving up 10 positions from its ranking last year. According to the GSLI report, Colombia’s popularity in the BPO industry is likely to increase because of the currency’s falling value. 2016 saw one of the largest nearshoring developments for Colombia when Luxembourg BPO giant Atento created 2,000 jobs in Bogotá.
Czech Republic moves up from the 26th spot to the 16th place as the most desirable outsourcing location. This is due to the country’s improvements in its people skills and availability and financial attractiveness scores. Czech Republic has more than 180 service centers and 65,000 people employed in the business services sector. The BPO industry takes 1.5% of Czech GDP, bringing in $3 billion in revenue every year.
Read the full report here.
Startups becoming BPO customers
Startup activity has seen a huge surge in growth over the years despite political, economic, social, technological and legal factors presenting challenges to the industry. To be able to deliver and succeed despite the limited resources and a small budget to hire talent, startups often outsource for cost-effective labor. This interdependence between startups and BPOs will continue to become more pronounced this year as startups rely on BPO for providing talent completing tedious and technical tasks at lower costs. In turn, BPOs will improve their quality of work and produce greater revenues.
This 2018 we face yet another year of interesting trends to watch out for in the IT Outsourcing industry. The industry is becoming increasingly competitive with more and more companies choosing to increase outsourcing their work this year. As a business owner, will you keep up with the trend? Or will you let it pass by you?
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