Finding Asia's place in BPO

Has business process outsourcing (BPO) hit a growth wall in the Asia-Pacific region?

According to outsourcing advisory company TPI, 92 BPO contracts were signed in the first half of 2006, up 56 percent year-on-year and a "record number" for a first half-year growth. The Americas continue to account for the lion's share of global contracts with 56 percent, followed by EMEA (Europe, Middle East and Africa) with 40 percent and Asia-Pacific with 4 percent.

After growing its share of the global BPO market over the last three years, the Asia-Pacific region is forecast to slide. The region's share of the worldwide BPO market grew from 2 percent in 2003, to 6 percent in 2004 and 8 percent in 2005. However, 2006 will not exceed, let alone meet, last year's numbers, TPI has predicted.

Michael Rehkopf, a partner at TPI Asia-Pacific, said: "Although it's impossible to predict what the full-year total will be, it is unlikely that the total value for BPO contracts will equal that of 2005.

The BPO market has typically had a stronger second-half globally over the last five years. However, even with a good second-half performance this year, the number of contracts in the Asia-Pacific region is likely to be closer to 2004 figures, Rehkopf said.

According to the outsourcing veteran, 2005 was "a robust year for BPO, driven by a very strong second-half" which saw several BPO deals inked. There was fairly balanced demand across the top three leading BPO areas: CRM (customer relationship management), F&A (finance and accounting) and FSO (financial services outsourcing).

Although single-process BPO deals have been gaining popularity in the Asia-Pacific region, in line with global trends, the number of overall BPO deals in 2006 is expected to remain "small", Rehkopf said. The distribution of deals signed this year will be quite evenly spread across the various business process functions including CRM, F&A, FSO, HR and procurement, he noted.

TPI's analysis appears in line with another market report published in May this year by IDC, which pointed to modest growth for BPO in Asia. IDC noted that demand for BPO services will continue to be largely from the United States and Western Europe.

Asia's still hot
Despite the cautious growth projections for the Asia-Pacific BPO market, outsourcing service providers TCS and HP remain optimistic. Both vendors noted that, although small compared to other regions, the Asia-Pacific is buzzing with interest and activity. The two service providers said they are gearing up their service delivery capabilities.

Girija Pande, the regional director for Indian outsourcer TCS Asia-Pacific, said the Indian company is "involved in several BPO deals in the Asia-Pacific region in the financial, insurance and travel industries". Pande was unable to reveal any customer names due to "confidentiality issues".

Sanjay Singh, India country manager for HP business process outsourcing, told ZDNet Asia that the region, including Japan, is "an important market" for HP Managed Services, a division of HP Services.

"The number of enquiries and interest in F&A BPO that HP has come across in the Asia-Pacific market suggests the potential regional market for F&A BPO goes far beyond the current market activity," Singh noted.

He claimed that the Asia-Pacific market is growing at a significant pace. "We are seeing a lot of traction and interest from customers in different verticals," he said.

Describing the region as "fairly complex", Singh explained that "the nature of outsourcing in Asia-Pacific is not just one-dimensional in terms of labor arbitrage".

"Outsourcing is viewed as a strategic enabler for rapid growth in the current market scenario," he said. "Other factors such as language, compliance/adherence to stringent global standards, corporate governance, ability to grow as fast as the Fortune 500 companies and learning from their mistakes, will give companies in this region an early start at growth."

Singh added: "BPO is seen more as a driver toward benchmarking global best practices, expanding rapidly and tapping into markets other than local shores."

Still on the growth path
Even if the bright lights are predicted to dim on the regional BPO market, Asia will continue to be a hotbed for delivering outsourcing services in coming years.

Despite strong competition within Asia and emerging markets such as Argentina and Mexico, India remains the top location for offshore IT and BPO services.

China and other parts of Asia are also choice locations. TCS' Pande noted: "China, with its low-cost options, a large population base and rapid economic growth, will emerge as an alternative to India.

"Other countries such as Malaysia, Singapore and the Philippines, are fast emerging as favored offshore destinations, and the unique location advantages and value propositions they offer make BPO a viable industry [in these countries]," he added.

Last month, Motorola and Wipro announced plans to set up a center in India to provide round-the-clock managed services to both public and private network customers, while Unisys launched a new offshore services and software development center in Shanghai as part of the continued expansion of its operations in China.

Also, in June, EDS doubled its headcount in China and completed its US$380 million acquisition of a majority stake in Bangalore, India-based BPO company Mphasis.