The future of outsourcing

Datamonitor examines what lessons from the past the new wave of
outsourcing can learn from and what will drive its success going
forward, in its report, "The Future of Outsourcing". The report
examines outsourcing in Automotive, Energy, Healthcare, Technology, and
Financial Services markets.

Datmonitor research highlights include:

Sales force outsourcing in the pharma industry: Sales force outsourcing
is common practice within the pharmaceutical industry. Sales force
outsourcing is being used as a tactical maneuver by pharmaceutical
companies, using the services provided by contract sales organizations
(CSOs) to meet their short-term and longer-term. The benefits:

* Speed and efficiencies - CSOs can quickly a build sales forces or
provide additional sales representatives. This is useful for
pharmaceutical companies to adapt to sudden changes in their sales
force needs.
* Expertise - Using a CSO can provide pharmaceutical firms with
sales force expertise in new geographic or therapeutic areas they wish
to expand into, but do not have the expertise in.
* Avoiding capital outlay - For some pharmaceutical companies,
particularly smaller ones, such an investment may be too risky or they
may not have the upfront capital required. Outsourcing the function to
a CSO offers a viable alternative.

BestShoring in Western domestic contact centers: Outsourcing is slowing
while BestShoring is emerging. Outsourcing is continuing to grow across
all vertical markets, and contact centers are no exception. However,
western domestic contact center outsourcing is slowing in the wake of
new business realities and offshore locations providing high levels of
customer service at a lower cost.

Many investors in the US and Western Europe have adopted to nearshore
model as a way of moving their operations to cheaper locations. Simply
put, they locate their facilities in relatively close proximity to the
markets they service (e.g. from the standpoint of US investors, Canada
and Mexico).

However to derive maximum profits from outsourcing, many are now using
the BestShoring strategy -- tailoring specific customer care needs to
locations that are best suited for these functions. BestShoring allows
the investor to save on the cost of domestically sourcing the work,
while at the same time removing the inflexibility of using only one
offshore location.

For example, many outsourcers are now locating administrative-to-mid
level customer care in offshore locations including India, Argentina
and the Philippines (which may account for 60% to 70% of total call
volume), while locating the high-end/value add work in nearshore
locations such as the Czech Republic or Egypt.

Europe's payment card market and outsourced card processing solutions:
The result of the changing market conditions and the improved approach
of US third party players mean that Europe's map of card processors is
starting to look very different than it did two years ago. One only has
to look at the number of new outsourced processing relationships that
have been signed over the last year. These include, First Data's
merchant acquiring alliances with ICS in the Netherlands and BNL in
Italy; Sociiti Ginirale's relationship with eFunds for international
card processing and euroConex's acquisition of Citibank Card Acceptance
in Europe.

In considering these recent, new relationships, as well as some of the
acquisitions that have been made over the last year (largely by First
Data International), it is clear that Europe is witnessing a second
wave of outsourced card processing solutions.

Energy Sector infrastructure and Business Process Outsourcing (BPO):
The most successful approach taken by mass market customer service
providers towards outsourcing has been to optimize systems in advance
of relocating specific tasks. This recognizes that there are economies
of scale from outsourcing a single entity rather than a number of
disparate systems. With the systems fully in place and functioning
effectively, this allows for a further round of cost savings beyond
those efficiencies that naturally fall out of a process optimization
process.

The UK domestic energy sector is one example of a deregulated industry
in which the costs involved in serving customers have been cut in
relative terms. Centrica is one example. Having invested in optimizing
systems and with full migration of accounts complete, it is now in a
position to seek to lower its costs of business processing. Centrica
already has 1,000 back office seats in India, with the scope to add
further headcount over time. Datamonitor estimates that the combination
of the systems investment and BPO will see Centrica's Cost-to-Serve
fall from 30.74 per customer to 21.86. At present, Centrica's policy is
to keep customer service operatives in the UK, but it is well placed to
deliver further cost savings should this change in the future.

Outsourcing of fleet management services in Europe: Datamonitor expects
Europe's market for outsourced fleet management services to reach 6.67
million vehicles by 2010 representing a 3.6 % growth over the 5.5
million vehicles in 2005. The 5% growth enjoyed during 2004 is expected
to slow, reaching 3% by 2010. This decline of market growth represents
a restriction in growth potential for fleet management companies.

Traditionally, fleet management companies have targeted outsourcing
services at customer segments where the penetration of outsourcing
services is already high. To maintain the currently high levels of
outsourcing with medium and large size corporate clients, Datamonitor
says companies need to adopt successful customer retention strategies -
costs involved in retaining a customer are far lower than those
incurred trying to expand the client base.