Global BPO Industry

Finance & Accounting Outsourcing, Procurement Outsourcing, HR Outsourcing

Source: Everest Group

Global BPO Industry

The Global Outsourcing market is valued at USD 40 billion global sourcing market. The global outsourcing market continued to steadily grow in 2010 with an annualized growth rate of 6 percent.

In 2010, the outsourcing market saw Business Process Outsourcing (BPO) transactions increased 12 percent. The market recovery was led by traditional industry verticals, such as BFSI (banking, financial services and insurance), and buyer geographies, such as North America. 

Asia continued to lead offshore activity, offshore adoption also spread to other locations. Last year saw 39 new delivery centers in India followed by 32 in Eastern Europe, 27 in Latin America, 25 in the Philippines, 16 in China and six in Africa.

The service provider landscape witnessed significant M&A activity in 2010. M&A activity in the near to medium term is likely to focus on Tier-2 IT and pure-play BPO service providers.

The captive model continued to grow with 132 captive set-ups and only six divestitures last year compared to 77 and 114 set-ups in 2008 and 2009, respectively.

Global F&A Outsourcing The Finance and Accounting Outsourcing Annual Report 2011, published by Everest Group  states that Finance and Accounting Outsourcing market is expected to grow 15-20 percent and top $4B in annual contract value in 2011.

As per Everest, the FAO vendor landscape features Accenture, IBM, Genpact, Capgemini, Infosys BPO and HP as leading service providers. Other service providers include TCS, Wipro, WNS, ACS-Xerox, Steria, Vengroff Williams & Associates (VWA), Outsource Partners International, Cognizant, EXL Services and Intelenet. Also included in the report are emerging providers: iGate-Patni, Minacs, HCL and KPIT Cummins Infosystems.

FAO market growth continues to see strong adoption across most industries with manufacturing, financial services, retail, travel and logistics, and energy and utilities accounting for 70-75 percent of total FAO spending in 2010.Outsourcing of accounts payable, accounts receivable and general ledger continue to be the most outsourced processes whereas outsourcing of financial planning and analysis is an emerging trend. ( Everest report)

An end-to-end process-driven approach to FAO is also emerging as opposed to a traditional functional and piecemeal approach. More than 50 percent of the new contracts in 2010 had end-to-end scope (Procure-to-Pay, Order-to-Cash, Record-to-Report).( Everest report)

F&A Outsourcing – Future Outlook & Changes

F&A Outsourcing move beyond the labor arbitrage, Price, Cost and basic process improvements to standardization and advanced analytics.

Buyers looking for more technology enabled business models, vertically oriented solutions and enterprise business outcomes including increased revenues.

Process firms and technology platform firms to provide the next level of outsourcing. Clients are looking for innovative pricing models, innovative solutions and relationship management.

FAO vendors are focusing on ways to create differentiations in terms of products and services and build a long term relationship with the individual clients.

Platform based F&A OutsourcingF&A Outsourcing vendors are pioneering platform-based offerings that are solutions to plug functionality gaps and enable end-to-end processes , according to Everest’s study, Technology Flavors in FAO – From Tools to Platforms.

FAO Vendors are interested in platform based offerings because of differentiation it creates in the market as market is more competitive with more than 20+ established FAO suppliers.

Technology-enabled tools also allow to offer consumption-based pricing models (e.g.: price per invoice/line item processed) allows them to penetrate the underserved mid-market buyer segment.

Platform based FAO benefits are Reduced Total Cost of Ownership (TCO), Reduced pay-back time through standardization and process harmonization, Improved automation, improve visibility, compliance, and control, and offers a single window for IT and process issue resolution.

FAO vendors that are taking a platform approach differ in their scopes and industry focuses leading to some platforms to be more horizontal in nature or more industry specific

“Nevertheless, most buyers are reluctant to replace existing platforms and their inherent investments in them, instead opting for non-disruptive ‘add-on’ solutions that solve problems and enable end-to-end processes” , according to Everest, a global consulting and research firm.

Platform based offerings are better adopted by those clients who are significantly underinvested in core F&A systems, whose licenses of the existing F&A systems are nearing expiry or up for renewal and in terms systems rationalizations in M&A.

Global Procurement Outsourcing

The multi-process Procurement Outsourcing (PO) market will grow 15-20 percent and reach US$1.5 billion in annual contract value (ACV) in 2011, representing managed spend of about US$190 billion, according to the Procurement Outsourcing Annual Report 2011 published by Everest Group.

Everest Group’s PO market projections for 2011 include: End-of-term activity will be significant as 45 percent of PO contracts, valued at nearly US$3 billion, are up for renewal within the next three years.The small/medium-sized business (SMB) segment will see higher adoption levels, influenced by new platform-based offerings that include Software as a Service (SaaS) as a delivery model. Beyond procurement, buyers were increasingly interested in adjacent supply chain processes such as fulfillment and transportation and logistics management.

Manufacturing companies led adoption followed by the consumer packaged goods and retail sectors together accounted for 35 percent of market share in terms of TCV. The United States led PO adoption, accounting for 45 percent of contracts signed, followed by Europe with 43 percent. A significant traction is expected from Asia Pacific and Continental Europe.

Everest Group’s Performance/Experience/Ability/Knowledge (PEAK) matrix classified Accenture, IBM and ICG Commerce as leaders in the PO market that together accounted for nearly 75 percent of the overall market by ACV and 50 percent of new contracts signed in 2010. Classified as major contenders are sourcing-focused providers buyingTeam, Global eProcure, and Xchanging as well as procure-to-pay-focused providers CapGemini, Corbus, Genpact, HP, Infosys, TCS and Wipro. The report also classified DSSI, HCL and HCMWorks as emerging players.

Global HR Outsourcing

A stronger economy brought new contract activity in the multi-process Human Resources Outsourcing (MPHRO) market and a strong rebound in mid-market adoption in 2010, according to the Human Resources Outsourcing Annual Report 2011 published by Everest Group and projects the MPHRO market will grow by 8-10 percent and reach around $3.35 billion in 2011.

With 46 new deals signed in 2010, average contract size and term length continued to decrease, largely due to a decrease in the number of processes outsourced within new deals and annual contract value (ACV) grew by US$170 million to reach approximately US$3.07 billion.

Cost reduction, managing compliance, greater alignment between HR and business, and access to technology are the key drivers for MPHRO adoption. Payroll and benefits are the most commonly included processes in MPHRO contracts.

North America followed by Europe increased its share of adoption by 33 percent. Asia Pacific, experiencing rapid economic growth, also saw an increase in deal signings. Healthcare and energy verticals saw increases in deal signings.

India is the most popular off shoring location; however, Southeast Asia and Eastern Europe are quickly emerging as major offshore locations.

Everest Group’s Performance/Experience/Ability/Knowledge (PEAK) matrix classified Accenture, ADP, NorthgateArinso, Aon Hewitt and IBM as market leaders that further strengthened their positions. Everest classified ACS-Xerox, Capgemini, Capita, Ceridian, HP, Infosys, Logica, TCS, Wipro, and Caliber Point as major contenders. Also classified in the report are emerging players Genpact, HCL, Neeyamo and Xchanging.