BPO Market to Reach $122B in 2003

In 2003, the worldwide business process outsourcing (BPO) market is expected to grow 10.5 percent – to $122 billion – up from $110 billion in 2002, according to Gartner Inc., and the Aberdeen Group predicts 13 percent annual growth until 2005 when the market will reach $248 billion.

BPO allows organizations to form strategic partnerships that focus on core competencies, thereby reducing corporate costs and increasing productivity. The centralized buying power of these BPO service providers, coupled with the fact that they represent a major new low-cost channel of distribution, can create a unified block of purchasing strength.

“Although several large BPO deals of over $1 billion will be signed in 2003, there will be a decrease in growth linked to a period of disillusionment starting in 2004,” said Rebecca Scholl, principal analyst for Gartner’s sourcing group. “2004 corresponds to the five-year mark after the signature of several early BPO ‘megadeals’. These deals will be renegotiated, in some instances re-competed, while other late adopters take on a ‘wait-and-see attitude’.”

Gartner expects North America to represent 57 percent of the total BPO market in 2003 – to $69 billion – with growth in other regions eventually outpacing North America. Gartner analysts say that after several years of double-digit growth, delays in contract signings and lower negotiated rates for large BPO deals have led to moderate growth in 2002 and 2003.

The Western European BPO market is forecast to grow 10.9 percent in 2003, to $27 billion, according to Gartner. In Europe, outsourcing of financial services processes are widely used, however, other industries are growing in respect for different types of BPO. Customer interaction for demand-management BPO is proving popular in the utilities and telecommunications sectors. Supply-management BPO is gaining popularity in local governments, and enterprise services are growing in telecommunications for human resources, finance and accounting.

Starting off slowly, the Asia Pacific BPO market is expected to grow 7.8 percent in 2003, to $8.7 billion, but it is then forecast to have double-digit growth during the next few years. META Group, Inc. found that nearly all Asia Pacific IT organizations will outsource at least one mission-critical technology operation by 2005.

Gartner’s research found that Australia and New Zealand are the most mature economies in terms of acceptance of BPO services, followed by Singapore. In most other countries there is almost no history of outsourcing other than product support, education and training and some application development. The Indian market is largely export oriented with exports of IT services and BPO services far outstripping the domestic market size, which is still largely immature. BPO markets in China, Taiwan and Malaysia have a large contract-manufacturing base, but outsourcing of other business processes has yet to take off.

“Enterprises around the world are attempting to focus their investments on their core business processes and are increasingly looking at outsourcing noncore business processes,” said Gartner’s Scholl. “Early adopters of BPO services, primarily large organizations, continue to expand their relationships to include new process areas, and new technology and media are creating opportunities for outsourcing entire lines of products and services, such as online payroll, online benefits administration, online order management and online transaction processing.”

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