The global outsourcing market is poised to generate a well-deserved revenue accomplishment this year amidst the slow-paced and fragile recovery of the global economy, according to the 2010 year-end forecast report of Canada-based ICT research and advisory firm XMG Global.
The global outsourcing industry is expected to end 2010 with estimated total revenue of $425 billion or 13.9 percent higher than the $373.1 billion recorded in 2009.
According to XMG chief analyst Lauro Vives, “Despite a double-digit growth, this year’s accomplishment is relatively low as compared to last year’s 14.4 percent growth, indicative of slow investment expansions in offshoring destinations and conservative increase in outsourcing demand from the US and European region. This is expected as most of the outsourcing opportunities, pending due to recession, are just starting to obtain green lights this year.”
XMG further estimates the total revenue of the offshoring segment amounting to $124.41 billion equivalent to 29.3 percent of the total output generated by the entire outsourcing industry. India, China, and the Philippines remain the top three offshore destinations.
India maintains its lead capturing US$54.33 billion or 43.7 percent of the total. China is closing this year with $35.76 billion or 28.7 percent share while the Philippines will be bringing in $8.85 billion in total revenue or 7.1 percent share.
Assessing the industry’s achievement, China is gradually narrowing its revenue gap from India with a huge 30 percent growth compared to 14 percent of India. The Philippines is also doing well with 23 percent growth surpassing the 20 percent gain last year.
Vives added, “India’s weakening lead is due to the substantial efforts of China, the Philippines, and other offshoring destinations in building their capacity to attract significant amount of investment. While India continues to remain the leader, the rest of the offshore countries are now beginning to mature.”
Heading towards 2011, various country-specific strategies can be observed as outsourcing providers race to become the delivery location of choice. XMG Global foresees the rise of Latin American countries such as Mexico and Brazil doing more nearshore outsourcing business for the US market. These up-and-coming alternative outsourcing destinations have the potential to have respectable shares in the global market. Latin American countries will collectively post $8 billion total revenue this year which is expected to grow by 19-23 percent in 2011.
Furthermore, countries, such as the Philippines and Vietnam, will rely on government support stability and influence to further advance their outsourcing capability and extract larger market share. Outsourcing powerhouses India and China will continue to develop the necessary infrastructures, improve business environment and explore potential outsourcing locations within their national boundaries.
“Developing offshoring capabilities to participate in servicing the world has become a nation-building exercise for several countries,” added Vives.
Given the bright forecast on the global economy, more outsourcing deals and negotiations will be closed next year. XMG projects the total contract value for outsourcing deals could reach $17 billion in 2011 – up 42 percent from the this year’s $12 billion. The report cited that majority of these contracts are smaller deals and have shorter contract durations.
Vives concluded, “The distribution of outsourcing investments to different locations is merely a reflection of the new normalcy defined by improved business outlook and maturity of countries to deliver offshoring services.”