Outsourcing industry gains strength

A number of outsourcing reports have been released this week that all indicate the outsourcing industry is gaining strength.

NASSCOM’s Strategic Review 2008 has been released; an annual report that looks at the IT-BPO industry in India. The review cites positive findings indicating that India’s software and services exports will increase to over $40bn this financial year, while the domestic market is expected to reach $23bn in the same period.

Professional services organization KPMG supports the positive outlook in the outsourcing market, releasing a report that states Knowledge Process Outsourcing (KPO) may now be considered mainstream, especially in the financial services sector.

KPMG competitor, Deloitte, agrees that outsourcing has moved beyond cost reduction but believes it can move a lot further.

Partner at Deloitte, Neville Howard, said, “The question that needs to be asked is how much more than cost reduction can you do?”

Deloitte has released research drawing on nearly 400 members of the outsourcing market. While 34 per cent of respondents reported they had gained transformation benefits from their service providers, rather than simply cost reduction, after having observed these results, the 66 per cent of respondents who were not requesting innovation benefits realised they should expect more. Only 27 per cent said they outsourced in order to gain competitive advantage.

The reason for organisations not taking advantage of such opportunities lies in a lack of communication and lack of preparation, according to the report.

However Howard does note caution, especially when it comes to KPO. “When outsourcing to gain competitive advantage, firms need to be cautious when outsourcing something unique and fundamental to the business, because the very nature of outsourcing is providers offering the same type of service to numerous different companies.”

This caution comes when KPMG’s KPO White Paper, launched at the NASSCOM Mumbai industry event, indicates KPO is picking up at a major pace. Speaking at the launch, Edge Zarrella, KPMG global head of IT Advisory, said “Now, depending on who you believe, it [the KPO industry] is set to be worth between $10bn and $17bn in just two years time.”

And the KPO in the financial sector alone is expected to be worth $5bn, according to the report.

But KPMG does recognise ” teething problems”, which may affect the increasing possibilities, such as the weakening of the U.S dollar against the Indian rupee, skills shortages, intellectual property concerns and shortcomings in the KPO providers’ legal and compliance departments.

Although when KPO does realize its full potential, KMPG does not reckon India will be the sole player. “India is by far the dominant by far the dominant force in this area but other countries like Canada, Australia, Singapore, South Africa and parts of the U.K are not competing for a piece of the actions.”

In the European market, software engineering outsourcing provider EPAM Systems, has just been awarded first place in the “emerging European Markets” category of the 2008 Global Services 100 ranking.

EPAM chief executive and President Arkadiy Dobkin, said “rather than thinking about cost, we think about the quality of service.