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Global outsourcing to grow amid recession

By Alexander Villafania
First Posted 12:19:00 06/19/2009
MANILA, Philippines--Demand for business process outsourcing services in Western Europe and North America will continue, a recent report from research firm Ovum said.

Companies cutting down of costs to focus on core skills amid economic pressures brought about the global recession were among the major drivers for global outsourcing, the report said.

Uncertainties in the economy are also driving retailers in these two markets to protect margins by way of cutting operational costs, the report said.

Datamonitor Retail Technology analyst Christine Bardwell said retail firms are looking to generate revenues efficiently while continuing to manage demands of customers.

“Many are looking to technology and services to help cut the cost of managing inventory, non-critical business processes and store operations. Although retailers are outsourcing in a recession, the types of contracts have changed; large scale infrastructure overhauls are less common. Instead retailers are requesting a mixture of services on lower value contracts, or transformational deals over longer periods of time,” Bardwell said.

Despite the need to outsource, companies are still affected by cost.

Bardwell said capital expenditures (capex) were among the hurdles to outsourcing.

Because capex increases over time companies are looking for more flexible payment terms, outsourcing brings down a company’s capex to more manageable operational expenditures.

Bardwell also stressed on problems experienced by clients with their contractors, which could put to question any plans for outsourcing.

Other barriers include local unrest due to offshore jobs, language barriers, and higher expertise requirements from the retail sector.

Bardwell suggested that outsourcers should know the demands of the retail industry and the challenges of the retail sector.

The Ovum report bolsters growth forecasts by business process outsourcing firms in the Philippines.

Over 200 companies in the Philippines are engaged in outsource services, with most of these catering to the US market.

Last year, the Business Process Association of the Philippines (BPAP) said that it expected “cautious optimism” in its growth forecast in the coming months. It expected overall revenues in the outsource industry to reach at least US$12 billion by 2010.

Ovum is owned by the Datamonitor Group.

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