Expansion seen for global outsourcing market: PwC

Competition increasing from new market entrants, growth in legal services outsourcing expected to be strong

TORONTO, Feb. 4 /CNW/ - Outsourcing providers around the world predict that demand for their services is expanding rapidly, and they are adding staff and investing in new services to meet expected growth, according to a new survey from Duke University's Offshoring Research Network and PricewaterhouseCoopers (PwC).

-   Overall, 62% of service providers said they plan to expand the scale
        of their existing offerings.
    -   70% of outsourcing deals in 2008 were renewed at the expiration of
        the first contract, down from 72% in 2007.
    -   Unrealistic client expectations and the lack of a client outsourcing
        strategy were the top reasons for contract terminations.
    -   "Near-shoring" has gained momentum among companies using or
        considering outsourcing services.
    -   Legal services outsourcing is growing at a rate of 40% annually in
        India, with about 110 legal services providers in the country. The
        Philippines and Sri Lanka provide 20% of legal outsourcing.
    -   Only 16% of Indian service providers see competitors from other
        emerging economies as a threat.

The survey of 514 outsourcing service providers in 50 countries found that the industry is transforming due to the emergence of new providers around the world and efforts of existing outsourcers to expand into new markets. Outsourcing companies in North America and India, which have long dominated the industry, are being challenged by competition from Latin America, Eastern Europe, and Asia, in service areas such as contact centers, business process outsourcing, and information technology outsourcing.

According to the survey, a large number of service providers expect to begin new software development and IT service contracts in the next 18 to 36 months. The number of service providers planning to offer new finance and accounting, human resources, and innovation services more than doubled from the previous year.

"Growing competition has transformed the outsourcing industry into a global race for market share," said John Chang, partner and national leader of the Global Sourcing Advisory group. "India's success as the world's back office has motivated other developing countries with well educated and under-employed populations to seek to duplicate their experience."

Although India remains the outsourcing market leader, other emerging economies are seeking to expand into the sector. Among those efforts, the Chinese government has designated 20 cities as outsourcing hubs in an effort to attract more international investment, while the Philippine government has declared outsourcing a priority industry. However, only 16% of Indian service providers see competitors from other emerging economies as a threat.

The survey also found that the economic crisis of 2009 reemphasized the importance of cost savings and efficiency improvement as the top strategic reasons for outsourcing, followed by access to qualified personnel.

Legal Services Outsourcing Emerging

The growth of legal services outsourcing has been strong and is likely to remain so, particularly in India, the survey found. Legal services outsourcing is growing at a rate of 40% annually in India, with about 110 legal services providers in the country. The Philippines and Sri Lanka provide 20% of legal outsourcing.

"The economic benefits of legal services outsourcing are undeniable; it provides the highest profit margins for services providers and as well as the highest cost savings for companies," Chang said. "The emergence of available outsourced legal services and the impact of the economic conditions have changed the perception of the legal industry, once regarded as too sensitive to be outsourced."

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For further information: Kiran Chauhan, (416) 947-8983, kiran.chauhan@ca.pwc.com