Outsourcing demand and service delivery are growing in most major regions and countries of the world, but the reasons for that growth often differ significantly from market to market, new research from Information Services Group (ISG), a leading technology insights, market intelligence and advisory services company, has found.
Findings from the recently released ISG Momentum® Market Trends & Insights Geography Report® show that several of the most mature markets – including the U.K., the U.S., and others already steeped in outsourcing activity – currently have some of the best short-term growth potential.
Among the regional highlights covered in the report:
•Corporate restructuring following mergers & acquisitions contributed to increased outsourcing in North America. The regional outlook remains positive because many companies are preparing for growth and plan to use outsourcing to provide scalability plus support for analytics, mobile, Internet of Things (IoT) and other innovation programs.
•Regional outsourcing patterns within Europe are changing. The U.K., Germany and other northern and western European countries have traditionally been the strength of the regional market and continued to make heavy use of outsourcing in 2014. There was notable growth in the southern Europe subregion, where companies in Greece, Italy, Portugal and Spain are increasingly using outsourcing to reduce their costs amid challenging economic conditions.
•Outsourcing activity increased in the Asia Pacific region, where clients have less opportunity to gain from labor arbitrage than their western peers. Domestic outsourcing activity notably increased in India and China, and rebounded in Japan.
"We found that mature clients around the world were pursuing new ways to outsource in 2014, while new clients were attracted to outsourcing to give themselves more flexibility. The result was strong demand in many countries and regions," said ISG Chief Research Officer Paul Reynolds. "The global capacity to support outsourced services is also expanding. Clients have many viable options for service delivery, and many governments around the world continue to invest in skills development and infrastructure specifically to attract service delivery business."
Overall, 45 percent of the G2000 outsourced in 2014, spending an average of $88.0 million annually on outsourcing, the ISG report found. The ISG report is based on contract data through the third quarter of 2014 from companies in the Forbes® Global 2000 rank of the world's largest public companies.
Service delivery patterns are also changing as more countries emulate India's example and are making policy and investment decisions intended to attract outsourcing service providers. ISG also noted several regional service delivery trends:
•Nearshore service delivery from Latin America to North America continues to expand. Mexico remains the leading nearshore service delivery location, but service providers were investing in other countries and second-tier cities, often with government encouragement, to expand service delivery options in the region.
•Data privacy concerns are running high in Europe and clients are wary of offshoring. This has helped lead to expanded service delivery on the continent, including from Eastern and Central Europe.
•Meanwhile India, China, the Philippines and other countries in the Asia Pacific region continue to process a large amount of information technology and business process outsourcing work. Increasingly, service delivery in the region is supporting domestic clients, as outsourcing spending rose in the major markets of India, China and Japan.
ISG Introduces OVI Rankings
The latest Momentum Market Trends & Insights Geography Report for the first time includes ISG's exclusive Outsourcing Viability Index® (OVI) rankings. ISG has created two separate indices, one to rate countries on their market strength and the other to rate them on their suitability to support service delivery.
The ISG Outsourcing Viability Index – Opportunity considers outsourcing spending levels, growth potential, the competitive environment, economic and political stability and other factors to rate 25 countries on their attractiveness as markets for service provision.
The ISG Outsourcing Viability Index – Delivery Maturity ranks 25 countries on their ability to support service delivery for enterprise clients. The rankings are calculated from dozens of data points that are grouped into four dimensions: people, cost, infrastructure and business environment.
According to ISG's OVI, the U.K. is the top-ranked country for outsourcing opportunity and the U.S. placed second . Germany, Australia, France and India complete the top five (France and India tied). Even though the U.K. generates less outsourcing spending than the U.S., it earned the top ranking because it placed ahead of the U.S. on measures including short-term growth potential, competitive environment for outsourcing service providers, and overall friendliness to business.
Business costs, the talent pool and service delivery maturity weigh heavily in the ISG Outsourcing Viability Index – Delivery Maturity rankings. India's maturity as a service delivery location helped it to the top-ranked position, and the country also scored well for its people and cost structure. China was second to India despite some unfavorable cost factors and was followed by Ireland, Mexico and Russia.