Contributors

A Baker’s Dozen of Offshoring Trend Predictions for 2006

These changes ahead will reshape how you perceive and, eventually employ, HRO to your organization’s advantage.

by Atul Vashistha

This will be the year of services globalization. Offshore HR outsourcing will no longer be limited to a single country, a single vendor, or even a single model. Client organizations will look to adopt a portfolio approach to services sourcing to leverage the unique capabilities of different vendors in different locations.

In the offshore services industry on whole, we’ll see growth in confidence in emerging offshore BPO markets as client organizations build more captive centers in those markets and as more complex processes are performed there. We’ll also see a heightened focus on data security and disaster recovery following several security breaches in 2005. Moreover, discrete outsourcing—an integral part of services globalization—will gain momentum as client organizations look to mitigate the risks of sourcing to a single vendor and to take advantage of unique strengths in centers of excellence around the world. Specifically, I predict five trends for the global services industry this year:

  • Offshore IT outsourcing in HR will become a viable mainstream alternative to onshore outsourcing.
  • Global BPO will gain momentum via captive thrust.
  • Data security and disaster recovery will be key points of focus.
  • Discrete outsourcing and mega-deals will emerge.
  • Prices for offshore services will appreciate 3 to 5 percent.

On the buyer’s side of the market, we’ll see client organizations engaging the global sourcing process from the C level down as the number of mission-critical and select core business functions performed globally increases. Further, as an increasing number of knowledge-driven services are successfully performed offshore, the availability of qualified, skilled employees in global supply markets will become more visible. But as client organizations globalize core services to improve operational efficiency and realize growth opportunities, change management and governance will be even more critical than before. At the same time, it will be important for client organizations to revise expectations of the costs and benefits of a global sourcing initiative to realistically reflect the actual potential that services globalization offers. I foresee five trends for the global services buyer’s market in 2006:

  • Global services sourcing will become a C-level issue.
  • Operational efficiency and growth will emerge as key objectives.
  • Global sourcing of core services, knowledge services, new services, and complete processes will grow.
  • Multi-vendor, multi-model, and multi-country contracting will demand a stronger emphasis on governance and change management.
  • Clients will revise expectations as several offshoring failures come to light.

In 2006, evolution in the supplier market will follow clients’ movements toward services globalization and will include growth in vertical processes and the process maturity of service providers; consolidation among service providers to create larger and better organizations; and capital market accession creating several cash-rich, medium-sized services providers. India will maintain its stronghold as a preferred HR offshore destination, though the Philippines, Brazil, Mexico, Israel, Russia, and China will emerge as attractive sourcing destinations for U.S. organizations. The Czech Republic, Poland, and Hungary will build upon their attractiveness as sourcing destinations for Western European firms while China will remain the preferred sourcing location for Japanese firms. Suppliers will seek growth opportunities in the acquisition of companies with complementary capabilities or niche strengths. And the IPOs of ITO and BPO service providers in U.S. markets will likely set off a spree of acquisitions, creating larger-sized service producers that can better compete with more established players in the global services industry. I am predicting three trends for the global services supplier’s market:

  • India will strengthen its position as a leading offshore destination, though new supply markets will also emerge.
  • Inorganic growth will be an important force within the offshore outsourcing industry.
  • Small and mid-sized suppliers will launch IPOs.

Underlying the 13 predicted trends is the fact that more companies than ever are replacing simple offshoring strategies with complex services globalization strategies, allowing clients to leverage lower costs in offshore destinations as well as opportunities to increase quality, operational efficiency, and accelerated growth.

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