Business process outsourcing (BPO) is the contracting of services to an outsourced firm, enabling businesses to concentrate on and take responsibility for their core business activities and functions, ie the reallocation of resources, increased productivity, time on business- related strategies, enhanced value chain engagement, and a bolstered competitive advantage to reduce costs and increase profitability.

Other types of BPOs include offshoring and nearshoring. Offshoring refers to work done in another country with cost advantages, vendor’s expertise, economies of scale, and large and scalable labour pool, while nearshoring refers to work done by bordering and neighbouring countries with the same advantages.

The BPO services market can either be segmented by service type to include customer services call centres, finance & accounting, human resource management, or by vertical services — which will include BFSI (banking, financial services and insurance), health care, manufacturing, IT & telecommunication, and retail.

BPOs are referred to interchangeably as information technology-enabled services (ITES) because it is through technology, speed and infrastructure that outsourced companies are effectively and efficiently able to perform their role.

There are risks associated with the use of BPOs, namely data privacy breaches, underestimated running costs, quality control and communication issues, overdependence of service providers, unstable governments, cultural differences, and a lack of strategic alignment. However, these risks do not seem to outweigh the benefits, as over the last two decades BPO and ITES have become extremely popular for companies ranging from Fortune 500s to start-ups. Both these industries have also been extremely lucrative, attractive and have grown leaps and bounds, proving to be major catalysts for socio-economic transformation and economic growth.

In the 2016 Global Services Location Index (GSLI), AT Kearney studied 55 players in the BPO sector and ranked the forerunners in three categories of financial attractiveness, people skills and availability, and business environment. India was the world’s biggest outsourcing destination for financial attractiveness, business environment, human capital skills (talented, technical and English-speaking workforce) and availability. China was in second position for educational skills and governance, followed by Malaysia for its stability in financial attractiveness, people skills, availability, and business environment. In 2019, India is still the forerunner but is now followed by the Philippines (infrastructure, environment, and tax and regulatory costs), China, Mexico (financial attractiveness) and Brazil (currency devaluation).

In 2017, the BPO industry had significant concerns around increased skill shortages, increased trade protectionism, and political gridlock. However, there has been renewed and increased optimism about BPO market growth and reduced regulations. According to GDP Global — Economic and Business Development Consultancy, the BPO market is currently valued at an impressive US$1 trillion, where the size of the cross-border outsourced services trade between countries was estimated at US$88.9 billion per year in 2015. The largest share of this revenue (nearly 70 per cent) goes to the Asia Pacific (APAC) region, followed by Europe (10 per cent), Canada (9 per cent) and Latin America (9 per cent).

This growth is as result of new and innovative technologies like cloud computing, robotic process automation, and social media management tools that will effectively address market challenges, enhance product and services, and manage talent shortages — while helping keep operating costs low. Other major and emerging trends for BPO growth include multitasking to overcome skill shortage, start -ups becoming BPO customers, increased transparency, politics to affect investments and continued growth in top outsourcing countries. For example, India has seen an emergence of new job roles in cybersecurity, robotic process automation (RPA), mobile app development, and social media data science mobile app development to reduce the economy’s reliance on call centres.

The Philippines is now regarded as the leading call centre country, employing over 1.2 million people. Export revenues are expecting to grow 7-8 per cent in India, resulting in an additional 130,000 new jobs by 2021. In this year, Malaysia’s BPO market is predicted to reach 1.4 billion and grow at a compound annual rate of 7.9 per cent. Lately, there has been an emergence of the KPO (knowledge process outsourcing) sector to cater to new demands, offering more specialised roles in equity research, market research, and web design and development.

Experts predict that by 2022, Filipino BPO services will cover 15 per cent of the total global outsourcing market, and is expected to grow by 9 per cent annually over the next five years — bringing in over 7 million new jobs and US$40 billion in revenue.

According to the latest study by Market Research Future, the global BPO services market is projecting to expand at a CAGR (compound annual growth rate) of 11 per cent during the forecasted period of 2017 to 2023, and the valuation of the global market is poised to reach US$52 billion by the end of the assessment period.

On another note, some critics have cited that a new trend has emerged because of oversaturation and a reduction in business growth in the top outsourcing countries. Consequently, businesses are being forced to go in search of alternative cost-effective locations like Bulgaria, Romania, Egypt, Mexico and Colombia.

Paula Marcelle-Irish is ACCA’s head of business development and members.