Outsourcing can be a political hot button, as companies register complaints about sending jobs overseas and consumers gripe about incompatible language problems when they seek technological help. But like it or hate it, the truth is that outsourcing has saved American companies billions of dollars in labor costs, and it is here to stay.
It’s estimated that outsourcing will be a $507 billion global industry by the end of this year, the bulk of business in logistics, sourcing and distribution services, information technology services and business process outsourcing (BPO) areas such as call centers, financial transaction processing and human resources management.
Our Spotlight Stock today is a BPO company. The BPO industry consists of companies hiring third parties to fulfill specific business functions (or processes), including internal business functions such as human resources or finance and accounting (like ExlService Holdings), and front office outsourcing, which includes customer-related services such as contact center services.
The BPO industry began when manufacturing companies—looking for cheaper labor—started moving their operations to foreign lands, particularly to China, but the sector has expanded to multiple industries—and countries—today.
India has now far outpaced China, who has seen its competitive advantage pressured by many other countries, including the Philippines, Poland, Ireland and Costa Rica. The following chart shows the top five global regions for outsourcing.
The outsourcing industry in the Philippines is growing by leaps and bounds, rising 20% in 2012, and forecast to reach $25 billion by 2016, and accounting for some 10% of the country’s GDP.
The business process outsourcing services industry has prospered in the past five years as the economic recovery strengthened and the finance, accounting, credit card services, insurance and human resource industries saw rising revenues. As well, increasing wages and health insurance expenses caused companies to seek BPOs to help mitigate those costs.
Research firm Gartner says that the top 25 BPO providers hold 52.9% of the market share. According to Accenture, the top 10 outsourcing companies in the world are:
•24/7 Customer
• Automatic Data
• Accenture
• BMR Managed Services
• Advanced Contact Solutions
• Capita Plc
• Affiliated Computer
• ExlService Holdings—our Spotlight Stock
• Amrutanjan
• Exult Inc.
There’s no doubt about it—outsourcing is a necessary part of the profit equation for thousands of companies here and abroad. And for investors, as demand for their services escalates with the improving economy, outsourcing may provide some profitable opportunities.
