2007 trends in the outsourcing, shared services and offshoring market

As the outsourcing industry moves into 2007, higher priority must be placed on staying cost competitive and staying ahead of global trends in the sourcing market. Companies have made a huge investment in their sourcing projects and want them to turn out successful. The following predictions of the market should prove useful to suppliers and buyers in all stages of the sourcing life-cycle.

The opinions expressed below aren't necessarily shared by IQcatalyst and presented here for your consumption and use.

Trends for 2007:

1. Because of a tightening U.S. labor supply in technology, accounting and other processes, U.S.-based companies will accelerate their outsourcing strategies to stay competitive

2. Contrary to prevailing opinion, cost of labor in India will remain neutral when compared with wage inflation in the U.S. The offshore trend will not subside

3. Contrary to prevailing opinion, China will still lag other markets, mainly India, as a destination for English language driven BPO, or shared services centers due to language, low national birthrate, Intellectual Property and other legal issues. The exception will be those companies who have a market strategy to sell into the China market, which will override the former comments

4. New areas of Eastern Europe will open up and should be evaluated as local authorities jump on the outsourcing, shared services and offshore boom

5. The "location" decision will become more challenging due to shifting political and threat profiles

6. The major Private Equity firms will again review acquisition and rationalization of the large outsourced provider market. The fact that no deals were done in 2006 does not mean they have lost interest

7. Outsourcing of procurement will gain momentum in 2007 as certain providers begin to achieve true scale and market share as others continue to challenge them.

8. Indian providers will continue to grow their global presence and win even more complex deals. The challenge will be to move from their high margin man-time "voice" pricing to true outsourcing price structures

9. Throughout next year, the thriving U.S. providers begin to fall into one of two groups:

* "The Transformers" -- Those that offer transformational outsourcing as a result of taking on multiple process silos, thereby gaining enough mass to affect change.
* "OAP providers" -- Those who focus on single functional areas, often within a single vertical market, and offer outsourcing as a product (OAP).

10. Shared services centers, where clients choose to outsource to a center owned by the company, will continue to represent as much as half of the offshoring activities with Indian providers starting to participate more and more, creating hybrid solutions eventually poised for outsourcing. U.S.-based outsourcers will lag in adopting this solution area.

11. Knowledge Process Outsourcing (KPO) will grow significantly over next 3 years and generally go to captive centers, or be outsourced as a part of hybrid transactions. Research and Engineering will grow significantly as an off-shored service.