Top 10 Outsourcing Trends For The Decade

By Sramana Mitra and Tony Scott

Next in line, after the Top 10 Tech Trends and the Top 10 Cloud Computing Trends, are the Top 10 Outsourcing Trends for the decade.

1. Broadening Geographies

East Asia, Africa, and Latin America are becoming service providers – in particular, China, Eastern Europe and Latin America. The Phillippines is becoming a big player in BPO, as English skills are often very good there. Latin America and Eastern Europe are growing because of multilingual skills. China is growing in tech outsourcing, not BPO. In addition, on-shoring in the U.S. is happening – see our next point. We are particularly excited about the development economics implications of this trend. Entire countries can lift themselves out of poverty by using this trend effectively.

2. Rural and Small-Town BPO

Both a very early trend in India and in the United States. In India, the cost structure of outsourcing is rising. At the same time, infrastructure is getting better in the small towns. The two trends will converge this decade and move a large portion of low-end outsourcing – including software testing and non-voice-based BPO – to the heartland. In the United States, rural and small-town BPO, especially with call centers, promises to bring back jobs to America from India and other places where costs are rising. See more on this below. At 1M/1M, we are very committed to supporting this trend and helping to build it.

3. Indian Outsourcers Moving up the Value Chain

Indian outsourcers are moving up the value chain and taking on more complex work. They have quite successfully done this – no one is batting an eye anymore over outsourcing quite challenging technical tasks that are not core. Bu some outsourcing companies are making a name for themselves as experts in a particular field and taking on parts of activities (such as product development) that companies had previously considered core. Companies are outsourcing this because the expertise the outsourcing companies are providing enables products to be built faster, with better results, and at a lower cost. Chinese outsourcers are following this model as well.

4. Call Centers Returning

Once outsourced call center jobs are returning to the United States to some extent due to rising cost structures and attrition rates as well as time zone problems resulting in burnout in India. The U.S. recession may also be a factor. A lot of companies are finding that outsourcing call center work to people who don’t speak English that well and who live and work 12 1/2 hours away (in terms of time zones) is not working – their customers don’t like it, and that costs them business. A more sophisticated way of handling basic inquiries off-shore, and escalating smoothly up the chain back to on-shore technical experts is critical for success in a multi-country strategy. The increase in “virtual” call centers also allows more U.S. workers who may live in remote locations, or who can’t easily come in to an office every day for other reasons (child rearing, disability) to be used.

5. Indian Outsourcers Setting up Shop in the U.S.

Indian and to some extent Chinese outsourcers are setting up comprehensive U.S. operations. This is a recognition that you need to be close to your customers – particularly as you go up the value chain. Some of it is also to mitigate attrition issues. The U.S. recession may also be a factor, diminishing the cost structure advantage of off-shore. The recession cuts both ways – it has diminished to some degree the cost advantage of off-shore, but it also has put a ton of pressure on companies to find ways to cut costs so they can maintain profitability – which of course leads more companies to look at alternatives to doing things in-house.

6. Indian Outsourcers Setting up Shop in other Parts of the World

Indian outsourcers are setting up shop in other parts of the world, including Latin America and China, to diversify their sourcing capabilities. This is partly happening because they are being driven to do this by their customers.

7. Outsourcers Starting to Resell SaaS

Outsourcers are starting to become resellers of certain SaaS capabilities. This is happening in cases where an outsourcer has a real expertise in a particular area where a software can provide a technology enabled solution to their customers.

8. SMEs Using Offshore Services through Marketplaces

SMEs are finding service providers through eLance and oDesk type services. This is happening slowly – but many SMEs don’t want to have to deal with finding their own outsourced services. There is a big push by outsourcers (smaller ones, generally), which are providing talent for tasks in a particular niche industry or function, such as researchers and recruiters for search firms, editing books, SEO/PPC optimization, or off-shore administrative assistants. The trend will surely continue.

9. SMEs Using Freelance Resources in the U.S.

SMEs are using freelance resources in the U.S. to avoid paying payroll taxes, also through these portals. The cost advantage – and lower risk of hire – is a big issue here. Plus, with added tax burdens and requirements to provide health care, there is an even bigger incentive to off-shore some of what would have been hired in the U.S. As an example, we can hire a person with an undergraduate degree in electrical engineering and an MBA (both from Indian schools) to work as a researcher to do Web-based research on identifying senior executives we should contact for searches for $1,250/month – full time, fully-burdened. A person in the U.S. with similar credentials would cost $60,000 to $120,000. You can hire an off-shore administrative assistant in the Philippines with a college degree (maybe even a master’s degree), great computer skills, and strong English for about $6/hour – and they will work in my time zone. If business drops, we can let them go relatively easily, unlike a domestic hire. Our businesses are starting to get pinged frequently by companies who are providing such services. Our belief is still that most SMEs and individual professional practices would rather have someone else manage this for them than trying to find the right person on oDesk or eLance. We see providing offshore services to SMEs will become a lucrative sector, and if coupled with the rural/small-town BPO trends, amazing cost structures will be invented. This is a major opportunity for India.

10. Home Based Call-Center and BPO Agents

At-home agents are a very fast growing trend in the U.S. – the virtualization of the call center. This has not happened much outside of the U.S., probably because call center operators like to manage people they can see. Managing virtually is not easy and harder to do outside of the U.S. if you want workers to deliver to U.S. standards. Also, penetration of reliable broadband in emerging markets is not as high, making the at-home agent trend harder to scale outside of the U.S. This is an excellent opportunity for the U.S. to zero in on and create jobs, as well as for the government to provide incentives around.

In general, there is room for both entrepreneurship and effective policy making in shaping this coming decade of the outsourcing industry: for India, to develop its hinterland and bring the small towns into focus. For America, to create incentives to bring the call-center industry back to the U.S. and lower unemployment. And for Africa, East Asia, and Latin America to develop large outsourcing industries that can create new employment.

Many believe that globalization is a zero-sum game. At first blush, it looks like that. But today, there is a much larger spectrum of technologies and businesses around the world that requires customer support and technical support. So the pie is actually growing. Imagine a billion people in India and a billion people in China using computers, mobile phones, digital camera, tablets, and who knows what else? They will need support. Imagine the healthcare IT back office to support these enormous populations that are gradually coming out of poverty. How about financial services? The BPO needs of the global population will, surely, be increasing at a phenomenal pace.

Aided by information technology and broadband telecom, outsourcing will create more employment all around the world. This is my rather optimistic prediction for the coming decade on a business model that often evokes negative emotions.