2014: The Year in Review for Outsourcing Services
Outsourcing services is a process that has been at the forefront of the business agenda since 1990. It has evolved from a mere cost-reduction strategy to a system that merits serious consideration for the standardization of processes and scaling of operations.
Outsourcing benefits companies by capitalizing on the comparative cost benefits and advantages of economies of scale available in another region; labor being the most prevalent factor of production. As technology has advanced to bridge economies, businesses have seen that outsourcing’s benefits extend beyond cost reduction. Skills that were available in the outsourcing destination were deemed highly qualified and capable to render service without compromising quality of work.
Statistics on the performance of the global outsourcing industry in 2014 support the contention companies will continue to look to outsourcing services as one of the key solutions to business recovery as the world continues to struggle with the effects of the recession.
- Global Market Value of Outsourcing was estimated to be at US$507 Billion. According to Tholons, a US-based strategic advisory firm for global outsourcing and investments, India remained the number 1 outsourcing destination in 2014, followed by the Philippines. Overall, India continues to lead the world in global outsourcing services with 13 cities in the Top 100. The Philippines came in second with seven cities in the Top 100. Two European countries entered the Top 10; Poland and Ireland which came in at number 9 and number 10 respectively while South America was solely represented by one country; Brazil and its city of Sao Paolo. The study shows the continued dominance of Asia as the preferred outsourcing region.
- Global outsourced services market size was estimated to be at US$104.6 Billion. Since the start of the new millennium, the market for outsourcing has been on an upward trajectory. In 2000, the market size for outsourcing was calculated at US$45.6 Billion. The US$104.6 Billion estimate in market size for 2014 represents a 129% increase in the industry for the past 14 years. There has been no downward slope in the growth of outsourcing. The steepest jump occurred between 2006 and 2008 when numbers grew from US$77.1 Billion to US$87.5 Billion largely due to the onset of the economic meltdown of 2007. There has been an exponential increase in market size since 2008 and this can be attributed to the problems at the Euro Zone which had its origins in 2009.
- Business, professional and technical services accounted for more than half or approximately 53% of all outsources services. Financial services was second at 28% followed by Education at 9% while telemarketing and insurance services rounded out the bottom at 5% each. The wide distribution reflects the evolution of outsourcing as a highly commoditized service to a highly specialized service. Telemarketing used to be the primary outsourced service but recent developments in telemarketing rules and guidelines in response to complaints from consumer protection groups have diminished the value of these services. The growth in demand to outsource services that require higher levels of technical competence, specialization and greater skill is supported by the development of new branches of outsourcing.
- “Cost Reduction” remains the primary objective of companies that implement outsourcing solutions. But “Greater Scalability of Operations” and “Process Standardization” are not far behind as 82% and 74% of respondents declared these as the basis for outsourcing The increase in the number of companies that outsource to capitalize on economies of scale and to standardize operational processes prove the improving confidence in the capabilities of outsourcing nations to render quality service.
2015 appears to be a continuation of the trends from the previous year as economies remain focused on adopting high value business development strategies into their annual agenda. Outsourcing services is a strategy that is expected to figure prominently in getting businesses off to a great start in the New Year.