Trends and opportunities in BPO

A recetly released report identifies changes in trends and opportunities in the BPO market on a quarterly basis based on analysis of BPO contract value awarded quarterly. The report shows that the last twelve months have represented a steady recovery in outsourcing contract value awarded. Overall outsourcing contract value awarded increased 9% to $61.7b, while global business process outsourcing contract value awarded increased 17% to $17.8b.

However, business process outsourcing activity over the past twelve months has been much stronger in Europe than in North America. The authros are still seeing a strengthening of the pattern observed in 2006, with BPO growth in Europe being maintained and an accompanying relative level of stagnation in the North American BPO market.

Q1 2007 was the best first quarter for BPO contract awards in five years in Europe. The value of BPO contract awards in Europe increased 80% over the past twelve months while BPO contract value in North America declined by 15% over the same period. On a rolling 12-month basis Europe now accounts for 51% of global BPO contract activity, overtaking North America with a 40% share of BPO contract value over the period.

While the U.K. BPO market remains strong, the report identified an increasingly widespread adoption of BPO across Europe, particularly in Benelux and Central Europe which between them accounted for 13% of BPO contract value in Europe over the past twelve months. Nonetheless, despite this shift in emphasis to the European market, there may be some encouraging signs in North America as well as Europe. While North America BPO contract activity still has a some way to go to recover to the peaks of activity in Q1 seen there between 2002 and 2004, the level of BPO contract activity in North America in Q1 2007 was significantly better than in the first quarters of 2006 and 2005. If this level of improvement repeats itself during the next three-quarters in North America, then 2007 is likely to surpass 2005 and 2006 in North America and form something of a recovery in the BPO market there.

While BPO is taking place outside Europe and North America, notably in high cost economies such as Japan and Australia, and in support of infrastructure development in the emerging economies, the contribution to the BPO market from these additional markets remains at approximately 5% of the total market. The net result globally was the best first quarter for BPO contract awards since 2004, which in turn was the best year we have seen for BPO contract activity. One of the reasons for the improvement in levels of BPO contract value is the stabilization of contract values prompted by a comeback in industry-specific BPO contracts within the government and financial services
sectors.

During 2005 and 2006 we saw a steady decline in the average value of BPO contracts, particularly with the top 20 and top 50 contracts. This decline appeared to be the consequence of a decline in activity in industry-specific outsourcing contracts. However, industry-specific outsourcing has strengthened in the last quarter, and as a result the average contract value in the top 20 and top 50 contracts has stabilized. And at the same time, the market is experiencing a steady increase in the number of BPO contracts valued at $100m or higher.

The strength of the BPO market is generally dictated by the strength of two sectors: government and financial services. These sectors are important since they are the major source of industry-specific outsourcing contracts, and in particular multi-process business process outsourcing contracts with a strong industry-specific emphasis. Over the past twelve months BPO activity has strengthened in both these sectors, with government and financial services once again accounting for 60% of BPO contract value globally. At the same time the healthcare sector continues to remain a strongly emerging BPO opportunity particularly in North America. The manufacturing and retail sectors remain a healthy source of contracts for HR outsourcing, F&A outsourcing, and procurement outsourcing, and HR outsourcing continues to be a growth opportunity in both multi-process and single-process forms.However, the level of BPO contract activity in the manufacturing and retail sectors has fallen slightly overall over the past twelve months, though the retail sector in North America and the manufacturing sector in Europe have individually shown contract value growth.