The global outsourcing services market was valued at US$609.471 billion in 2019 and is expected to grow at a CAGR of 5.04% over the forecast period to reach a total market size of US$818.846 billion in 2025. The term ‘outsourcing’ refers to the process of finding new suppliers and different ways to secure the delivery of raw materials, components, goods, and services by way of utilizing knowledge, creativity, and experience of other suppliers not used previously. Outsourcing can viewed as a mechanism to reconfigure a firm’s value chain in an effective manner while allowing it to sustain the future market dominance. Competitive advantages can possibly be gained when products or services are produced more efficiently by outside suppliers. The outsourcing of selected organizational activities is an integral component of an enterprise strategy. There are variety of value chain activities that may be performed externally: logistics, maintenance, marketing and sales, service support, technology development, computer information systems, HRM, check processing etc. The study “New Directions in Finance: Strategic Outsourcing” on the basis of interviews with 50 global organizations plus a survey of 303 senior executives throughout USA and Europe documents a transparent trend towards using outsourcing as a competitive tool, instead of using it just as means of cost control. 85% of the executives surveyed outsource all, or a fraction of minimum one business function. Growing adoption of virtualizations across organizations has made cost-effective outsourcing services popular. Outsourcing works best when it turns out to be an outgrowth of re-engineering. Re-engineering means rebuilding the complete business process. Outsourcing can surely be an integral constituent of re-engineering, as a process of searching a vendor best suited to perform a specific task with greatest efficiency and highest quality. Re-engineered companies will therefore gain competitive advantages because they, through their planning, have already built the processes that turn out to be the best in terms of cost, quality and customer satisfaction.
In the new world economy, each firm is required to keep an eye on all of its expenditures. As such, cost reduction can be seen as the predominant motive for outsourcing. While outsourcing contracts usually set a target of 15% cost savings the real obtained outcome may average 9%, although fairly big portion of outsourcing partners may only get to their break-even point or find their costs increase. It does not seem hard to conclude that the in-house supply can often provide lower costs because suppliers are sometimes unable to match the expected economy of scale. Supplier needs to have access to the low cost locations and also to the required know-how so as to create a sourcing deal mutually profitable. Lower operational costs and savings drawn for personnel and asset cuts must be confronted with induced initial costs like those of the partner search, analysis and selection of potential vendors, contract management, negotiations and transaction costs that usually exceed the “out of pocket money” amounts. The widely perceived false conception is that outsourcing brings only profit-improving benefits. Lower cost can emerge as an outcome of terminating the in-house performance of the non-value adding activities and greater economy of scale achieved by vendors. Outsourcing enables the enterprises to concentrate on core activities that may be neglected on account of the dispersed management attention and offer time saving benefits in conjunction with the increased productivity resulting in the responsiveness to the market change. Through diversification organizations can invest in or buy activities and expertise they lack and find no interest in developing. Outsourcing enables managers to re-evaluate business processes and eliminate hidden costs, resulting in greater expenditure accountability because of agreed contractual terms obligatory to vendors that is difficult to be imposed on internal departments. Outsourcing also allows cash infusion through revenues generated by asset renting or selling. Companies cite the access to state-of-the-art quality of services as part of the main dominant motive that ends up in outsourcing.
Technology is on the list of the capital prerequisites to develop and sustain competitive advantages. The technology that fails to hold the key status may be sourced externally considering the expenses along with the rate of technological change, which usually occurs at a faster rate than the enterprise, can sustain internally. In times when an enterprise is lagging in technology must by all means be avoided, either by investing internally, or through external supply. Flexibility is an obvious advantage of outsourcing for companies that face seasonal or cyclical patterns of demand representing the choice to free company’s own productive capabilities. The contracting must make sure that the crest levels of demand are met on time. In such a situation the in-house and vendor’s capacity may be combined in order to fulfil the requests of enterprises which are in the critical situations. Besides the output volume the potential for improved flexibility may be manifested through the power to alter the solution portfolio in response to industry conditions. Rapid information exchange, instead of ownership of different stages of production enables companies to act in response to the product’s short life cycles and abrupt changes across a particular industry. Outsourcing, however, leads to numerous drawbacks. When the enterprise outsources some of its activity, it loses its control over those activities which may be a survival component in case of change in the underlying competition. Because of the loss of control of an outsourced activity, a corporation faces monitoring costs as a result of the fear of diminishing quality of products or services coming from the vendors’ attempts to slash cost. If bound by long-term contracts, vendors are less likely to follow the pace of the technological change and opportunities that arise, depriving the enterprise of more effective and more efficient services. Moreover, cuts in staff due to outsourcing can negatively impact the morale of the existing employees. Large employee layoffs are often very damaging for companies' image based on the outsourcing motive, advantages in outsourcing may be operational and/or strategic. Operational advantages usually provide short term benefits, mostly attributed to budget shrinkages, while strategic advantages offer reliable contributions in maximizing opportunities. The shortage of strategic planning within the outsourcing finalizing process is identified as a root of drawbacks in outsourcing especially when conducted with only one goal pursued: cost reduction. It can be considered as a necessity that outsourcing is strategically planned and performed systematically, considering all aspects, risks and stakeholders.
Rapidly digital transformation of organizations of different sizes has led to a rise in demand for outsourcing services worldwide. With growing adoption of cloud services, outsourcing services have become a simple yet effective cost reduction technique.
Although large corporations will continue to outsource huge projects to major service providers, the demand for outsourcing smaller projects will also witness a rise in the coming years which, in turn, provide a lucrative opportunity for flexible and specialized smaller service providers.
While cost reduction has, for long, remained one of the key factors driving enterprises of all sizes towards outsourcing, the market is poised to witness significant disruptions now on account of increasing uncertainties associated with the spread of the novel coronavirus disease. The pandemic has led many enterprises to lay off employees and implement hiring freeze in order to limit their workforce as much as possible. Since the duration of the pandemic is still unknown, and short-term, medium-term and long-term impacts of it are still shady, companies are preserving liquidity for tougher times. Since limiting workforce can be instrumental in preserving liquidity, enterprises are seeing this as a viable option. On the other front, companies are increasing their focus on increasing their productivity in order to increase their revenue generation which is key to survival. Hit on revenue generation across one company can cause it to lose its market share, which, in the medium and long run can be fatal for some companies. This is increasing the demand for outsourcing services among them, as this concept aligns perfectly both with cost-reduction and high-productivity goals. Presence of a good number of players offering tailored services for all enterprise sizes is increasing the adoption of outsourcing, thus propelling the market growth.
Geographically, the global outsourcing services market has been segmented into North America, South America, Europe, Middle East and Africa, and Asia Pacific. To give a clearer view, these regional markets have been further segmented into countries which account for a significant market share. Asia Pacific accounts for a significant market share on account of easy availability of resources at a lower cost, as compared to many other regions, across countries in this region. North America and Europe also account for a decent market share, and the market in these regions is expected to show a moderate growth over the projected period.
Prominent key market players in the global Outsourcing Services market include Accenture, Tata Consultancy Services Limited, Capgemini, IBM, Genpact, and Concentrix Corporation among others. These companies hold a noteworthy share in the market on account of their good brand image and product offerings. Major players in the portfolio management systemmarket have been covered along with their relative competitive position and strategies. The report also mentions recent deals and investments of different market players over the last two years.
Frequently Asked Questions (FAQs)
Q1. What are the growth prospects for outsourcing services market?
A1. The outsourcing services market is expected to grow at a CAGR of 5.04% over the forecast period.
Q2. What is the size of global outsourcing services market?
A2. Outsourcing Services market was valued at US$609.471 billion in 2019.
Q3. Which region holds the largest market share in the outsourcing services market?
A3. The Asia Pacific accounts for a significant share in the outsourcing services market on account of the easy availability of resources at a lower cost, as compared to many other regions, across countries in this region.
Q4. What will be the outsourcing services market size by 2025?
A4. The global outsourcing services market is expected to reach a total market size of US$818.846 billion by 2025.
Q5. What factors are anticipated to drive the outsourcing services market growth?
A5. The rapid digital transformation of organizations of different sizes has led to a rise in demand for outsourcing services worldwide.