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Asia Looks Inward
India, the doyen of off shoring, has seen some determined efforts by industry groups to cultivate its domestic IT services market. According to a Study on the Domestic Services Market Opportunity by Indian IT services association NASSCOM, about 27 percent of India’s domestic IT spend is now in IT services. The market has seen breakthrough deals, especially in the cutthroat telecom and financial services markets.
The Asia Pacific region offers a viable option for providing Business Process Outsourcing (BPO) services at significantly lower costs than first world BPO service providers. However most of the BPO vendor focus in the last six years has been the giant markets in the US and Europe. With the incredible growth of the Indian, Chinese and more recently the Japanese economies there is a growing trend for companies in those countries to free up their limited human resources and outsource non core activities into the local markets. However, the contact center and the back office BPO service provider market in the Asia Pacific region is highly fragmented, and local companies have little information about, or experience with creating business relationships with Asia Pacific providers in their own back yard. This creates a barrier to establishing outsourcing relationships in the region and a supply demand mismatch. More over it increases competition for the first world buyers.
What does that mean for the outsourcing fraternity? For the suppliers, it means that while concentrating on North America and Western Europe, they could be looking more closely at Asia itself for growth. For the outsourcing buyers in developed markets, it could mean more competition for limited human resources. While it is getting harder to find people in first world countries to work low level jobs mainly because of a shortage of workers due to full employment it is getting no easier in the BPO supply markets.
The Philippines and India have become offshore powerhouses for business process outsourcing applications such as contact centers and back-office processing. India and The Philippines’ strength has been its large numbers of well-educated graduates and their use of the English language. According to figures from NASSCOM, offshore jobs revenues into India increased by 46 per cent from 2004. The Philippines BPO sector now employs over 100,000 people and another 100,000 is allied and support jobs. This is more than double the numbers from only last year. The real question is whether it is sustainable or will the cost of labor rise with the increased demand. In India, for example, the local telecom industry already lures IT professionals with a higher average salary than what the IT industry provides. The financial services industry also pays almost as much as IT industry pays the IT professionals.
In the last week of March 2006, news of two major IT outsourcing deals hit the media headlines. Valued at about US$400 million, both were 10-year total outsourcing contracts, in the broader financial services/insurance domain. What makes them newsworthy? Both of were announced in Asia, in consecutive days. Both were Asian companies outsourcing to Asian companies.
Martin Conboy
President
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