Offshore Outsourcing

Offshore Outsourcing’s Next Wave: How High?

By Steve Lohr

The New York Times, published February 14, 2008

Summary

The first wave of offshore outsourcing was in computer programming, sending software development and maintenance abroad, mainly to India. The next wave is shipping back-office business tasks overseas, like finance, payroll, claims processing, and procurement. That’s business process outsourcing, or BPO.

Just how much of this back-office work can be sent abroad, how quickly, is a matter of some debate. The labor-cost savings are still considerable — certainly on per-worker basis — despite a weak dollar and rising wages in nations like India. But these are also tasks, more so than programming, that often requires knowledge of specific industries, business practices, even local cultures. The customer-service travails of Dell, which put a lot of its call-center work in India and later brought much of it back, is a cautionary example.

The report done by Everest Research Institute, an outsourcing advisory firm, found that the addressable market for Indian BPO outsourcers will be $220 billion to $280 billion by 2012. Today, the report says, the total offshore BPO market is about $28 billion, with the Indian-sourced portion of that at $10.2 billion.

The current Indian BPO market is less than 5 percent of the potential market opportunity. So the Indian BPO market, including the big offshore arms of I.B.M., Accenture and others, should grow by 30 percent a year or more for a while.

Andrew Bartels, an analyst at Forrester Research, is skeptical about the overall cost advantage of offshore back-office work in India. He thinks that once the costs of managing and supervising offshore projects are included, the price difference is perhaps 30 percent, and falling. “There are real signs of the U.S. coming back as low-cost...