Offshore BPO to grow, despite reluctance

Companies have been cautious about outsourcing business processes to offshore service providers, but spending in this segment of the IT services market will continue growing, albeit moderately, in the coming years, according to Gartner.

Business process outsourcing (BPO) and traditional IT outsourcing both involve management of IT tasks, but BPO engagements go a step further by including the management of a business operation, such as payroll processing. Thus, in a traditional IT outsourcing deal, the services provider would, for example, manage a computer network, while in a BPO deal the provider would manage the network as well as business functions performed on that network, such as payroll processing. Meanwhile, offshore outsourcing refers to services provided to a client from abroad, often because the services cost less than if provided from the client's home country.

An example of an offshore BPO engagement would be a U.S. company outsourcing its payroll processing to a services provider in India. In fact, the U.S. is currently the biggest consumer and India the biggest provider of offshore IT services, including BPO.

Worldwide, offshore BPO spending is expected to reach US$1.8 billion this year, which would be an increase of 38 percent from last year, Gartner said this week in a statement.

The projected 2003 offshore BPO spending would be 1.5 percent of the world's total BPO market, a sign that companies still widely prefer to hire BPO providers located in their home countries. In fact, only 1 percent of 250 U.S. companies surveyed by Gartner in April said they are currently outsourcing BPO services offshore. The survey also found that 19 percent of respondents are considering offshore BPO within the next two years, Gartner said.

India is expected to nab 66 percent (US$1.2 billion) of offshore BPO spending this year, Gartner said. Although it dominates this segment of the market, Indian providers "should not get too complacent" because competition from English-speaking nations is beginning to heat up, Gartner said.

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