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BPO Predictions for 2012
It’s that time of the year again. Time to review what happened in 2011 and lay down some predictions for 2012. If anything we can all agree that 2011 was a very eventful year. We saw major global events unfolding that will surely be recorded in time as significantly historical. I thought it would be worthwhile to lay down these key events that occurred in 2011 before we get started on some of the predictions:
- Arab Spring: major civil unrest across the Middle East and North Africa
- Overturning of governments: Egypt, Libya, Tunisia, Greece
- Civil unrest in the UK, Greece, Spain and Russia
- Death of key strongmen: Gadhafi, Kim Jong IL
- US debt crisis
- European debt crisis
- Japanese earthquake and Tsunami
- Christchurch earthquakes
- Queensland flood
- Thailand flood
- Philippine flood
These events, in one way or another, would have touched each and every one of our lives in 2011. Such significant events have not only sent global markets on a wild rollercoaster ride but have managed to influence every business plan in the corporate world. The GFC had managed to affect 86% of all BPO providers to one degree or another. The impact of 2011 will be closer to 100%.
My last set of predictions for 2011 outlined the need for BPO providers to reorganise their businesses to be able to compete more effectively by addressing growing economic and political pressures. These challenges were further compounded in 2011 by the turbulence experienced in the markets in response to the global economic, political, and environmental events occurring in 2011. It was a difficult year for BPO providers to determine whether to alter their direction or maintain a steady course and weather the storm. The key factors to address in 2012 will be:
- How to address lower BPO revenues from traditional sources such as call centre outsourcing
- How to address risk effectively in BPO locations affected by political instability and legal deficiencies such as data protection laws
- How to address commodity based pricing of BPO services
- How to address growing staff attrition and increasing labour costs
- How to address new competition from new low cost labour markets
- How to address legal complications brought about by the proposed US Outsourcing Bill
- How to address the impact of currency fluctuations to ensure your Gross Profit is maintained
A report produced by Ovum concluded, from their research, that a number of firms surveyed are reluctant to outsource their business as they consider it risky to offshore their business. This survey was undertaken in companies based in Australia, Europe and North America. Only 2% of the companies surveyed indicated they would be outsourcing offshore in a year’s time. I can only conclude that fear from executives to send their call centres offshore is brought on by the heightened sense of the risks associated. These risks are not only highlighted in the list of key issues to address in 2012 but also by the negative impact on customers from poor quality services.
One of the key strategies BPO providers can take in 2012 is to address the slowing down of traditional voice revenues by leveraging their relationships with existing customers and begin offering them new value-based services. These services should be specialised value-added services with a compelling ROI. This will enable a BPO provider to move into the trusted partner level with their clients and move away from the commodity single service provider. By opening up the types of services offered the BPO provider can increase their addressable market opportunities and position themselves to become a sustainable BPO provider in the future. A report undertaken by NASSCOM and Everest India has identified that the Indian BPO industry can increase its revenues five-fold from its present revenue to reach US$50B by 2012 by extending its capability and footprint. Countries like India can address their current challenges in voice by reviewing their assets and points of differentiation. For example, their highly skilled legal and medical workers can be used to provide new specialised services such as legal support.
We are seeing an increasing number of corporates using outsourcing to address a number of the economic challenges they are faced with. A recent study conducted by TPI covered the latest strategies adopted by global 2000 companies in the outsourcing industry. They identified that there was a drastic change in the outsourcing sector. Companies are willing to spend more compared to previous years but have tighter expenditure policies now. The report says many companies are looking at depending fully on outsourcing and are seeking a full solution at an economical budget. The opportunities in 2012 will be to:
- Increase capability and footprint to offer corporates specialised services
- Leverage from unique assets that your BPO country/city offer
- Reduce the risk for corporates by providing economical and safe solutions
- Become part of the growing move towards shared services
- Devise creative pricing models that contain an element of risk and reward
- Increase development and engagement of staff to address the growing attrition rate
- Increase innovation in your company
In my 2011 report I highlighted that we would see an increasing number of mergers and acquisitions due to greater access to cash. What we saw in 2011 was a slow start to mergers and acquisitions but a strong finish in Q4. Key transactions were made by companies such as Exls, Capita, Genpact, Xerox, Infosys and Aegis. I would expect this activity to continue to be mostly strong in the middle market space in 2012.
With an addressable global marketplace estimated at $450 billion the BPO industry is continuing to be a major economic powerhouse to most countries. Gartner states that the global BPO industry is anticipating a global growth of 6.3%. However there are some noticeable exceptions worthy to keep track of in 2012.
The report highlights that the Asia Pacific market (India, China, Philippines and Australia) is likely to see a 17.9% growth in business. This region is by far the shining star in the industry. China is seen as the key growth contributor in the region with expected annual growth of 20% to 25%. The reason for this is not only because of the amount of work outsourced from the US and Europe but also because the region faired a lot better than the US during the financial and currency crisis. The growth expected in the US is much lower at only 3.8% and Western Europe may have growth up to 8.9%. The rising star globally is Latin America which is expected to grow at 14.7%.
Have a great 2012 and keep smiling!
Updates
- My 2010 predictions for the BPO industry were largely consistent with the final outcomes we saw in 2010 for many of the regions I covered. There were, however, a couple of interesting variables in 2010 that were not identified in the predictions. These factors had a significant influence on the industry and helped shape the flow of work to various regions. The factors that had a material effect on the BPO industry in 2010 were as follows: 1. President Obama’s push to retain jobs in the USA and to provide incentives for companies to hire Americans 2. The devaluation of the US dollar and the effects on other currencies, especially low cost base regions undertaking BPO work 3. Wage pressures in some BPO locations further reducing the attractiveness of labour arbitrage 4. Uncertainty in political stability of some BPO locations leading to slower than expected investments in some regions. These factors affecting the industry in 2010 will continue to shape the industry in 2011. Economic instability in Europe, especially in the UK, will force many companies to rethink their customer management strategies. I would expect to see further outsourcing to lower cost base centres such as South Africa for predominately English speaking services and it will be anyone’s guess as to who picks up the multilingual services now that Egypt has become unstable. Bulgaria, Romania or Turkey could be worthy recipients of European language based services. 2011 could be a year where we see a shift in traditional outsourcing regions as the heavyweights in the industry begin to shift some of their business to emerging regions in the hope they can offset the challenges they face in some of the more overpopulated BPO regions. The choice of location will be interesting as well. As technology now easily permits the seamless management of multiple smaller centres the option of moving away from the mega centres to smaller centres could see a change in the way the large outsourcers undertake their business. There are advantages and disadvantages to operating smaller interconnected centres as opposed to mega centres. Some of the considerations in 2011 that will drive the decision making of the larger operators will be: 1. Size of exposure to one particular economy 2. Labour pressures in one particular region 3. Currency exposure 4. Inflationary pressures 5. Political stability 6. Redundancy and follow-the-sun solutions The cost of data links has come right down and the maturity of VOIP and virtualisation has increased making the equation right for new and innovative approaches to operational delivery of services. 2011 is likely to also see further consolidation as larger players try and acquire smaller operators and also buy their way into new markets. Companies like Aegis will continue to penetrate the marketplace by their sheer mass and the forward momentum of their aggressive M&A strategy. In general we would expect renewed M&A activity in the industry as cash becomes more easily accessible to companies. Growth in the industry is likely to come from immature markets such as Africa and the Middle East. I would expect to see some large outsourcing deals coming from this region. The current unstable political and economic climate in Egypt is likely to create opportunities for surrounding countries in the region. Cultural differences and access to experienced management will remain the largest obstacles for foreign companies to enter and succeed in these marketplaces. We are seeing some real growth opportunities in countries such as Saudi Arabia but the challenges to enter and conduct effective operations will be very high and likely to prove too difficult for most of the larger players. The two largest BPO countries, India and the Philippines, will continue to compete with each other in 2011 for the title of leading BPO destination. We learnt in 2010 that the Indian BPO and contact centre industry was responsible for adding five million jobs and $15 billion in revenue. 2010 was also the year that the Philippines overtook India as the contact centre outsourcing capital of the world, according to industry data and the Philippine government. A report from IBM released in October 2010 said the Philippines had this year passed India as the global leader in business process outsourcing in terms of the number of people each country employed in the sector. "For business support functions... the Philippines has taken over the lead in the global ranking from India, after having challenged the top position for several years," the report said. The Philippine’s’ outsourcing sector could more than double its revenues and workforce by 2016, according to an industry roadmap released by the Business Processing Association of the Philippines (BPAP) in 2010. The roadmap, dubbed "IT-BPO Road Map 2011-2016: Driving Global Leadership", projects the business process outsourcing (BPO) sector growing its revenues to $25 billion and workforce to 1.3 million by 2016, from $9 billion and 500,000, respectively, today. However, to achieve these, the BPO industry in the Philippines must accelerate talent development initiatives and obtain stronger government support. A key driver in 2011 will be the importance of enhancing the customer experience. I would expect that given all things being equal the desire to improve the customer experience will remain the most important component in the decision making process in 2011. The International Quality and Productivity Centre study in India found that 72.2% of respondents said that enhancing their customer experience is one of their top priorities. This is a significant figure highlighting a market trend that is no longer driven by costs alone. This figure is also very encouraging as it demonstrates matured thinking in outsourcing and the various components that need to be considered. Customer experience is at the forefront of people’s thinking meaning we are likely to see more thoughtful decisions that will ultimately produce greater results for companies in 2011.
