Outsourcing:the emerging trend

With market pressures increasing day by day, companies find it profitable and cost-effective to outsource work to third-parties so that they can focus more on their core functions and thus perform those more efficiently. And it makes complete sense not to waste time and resources on tasks of secondary importance when that work can be completed more efficiently by organizations specializing in those functions. But a new trend we see emerging is that of companies outsourcing parts of their key businesses in areas where it proves profitable and efficient.

BPO (Business Process Outsourcing) is a growing sector today. According to Faraz Khan, Analyst at McKinsey, BPO and IT today make up a market worth over USD 530 billion, where BPO includes both domestic outsourcing and off-shoring. Outlining a survey his organization had carried out over 20 companies who had multiple relationships with vendors over time, to gauge the outsourcing scenario of the country, Faraz informs that when asked how many companies planned to increase outsourcing and off-shoring over the next few years, about 87% responded that they would increase the functions or the verticals that they outsource or offshore, saying their decision would be primarily driven by cost., while 13% said they planned to increase outsourcing and off-shoring and this decision would be driven essentially by the fact that they wanted to improve their efficiency model. No company said that it would decrease its outsourcing or off-shoring and thus Faraz stresses that BPO is a trend that has been growing for the last decade or so.

"It is a common belief that off-shoring is a huge business," says Faraz. "That is actually not true. If you look at the statistic, only 12% of the total is off-shoring, the remaining is based on domestic outsourcing. If you take BPO, almost 300 out of 330 billion comes from domestic outsourcing."

"The total market size between IT and BPO is around USD 530 billion. The domestic share out of that is 88%. 40 billion in BPO and 25 billion in IT goes into off-shoring, the rest is all domestic outsourcing. We estimate that domestic outsourcing will grow around 8-10% over the years, this is again a growing market."

So, why do companies outsource and why exactly should they be outsourcing? That is a question that often comes with a very matter-of-fact answer: to cut costs of course! Faraz has a slightly different view. "When we talk to people, the most common reason we hear for people to offshore or outsource is that of 'cost'," he says. "Of course, there are variable cost that you can save through economies of scale, and then there are fixed costs, which you can also save on. But before making a decision to outsource to a country, the overall cost isn't the only consideration. There are multiple other factors that we have to look at and whenever we make an outsourcing decision, you have to make sure that all of those parameters are in the picture." As is evident, when deciding on a vendor, you have to take a look at the complete picture, including that of infrastructure and expertise.