The global outsourcing services market was valued at US$620.381 billion in 2020 and is expected to grow at a CAGR of 5.54% over the forecast period to reach a total market size of US$904.948 billion in 2027.
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 the knowledge, creativity, and experience of other suppliers not used previously. Outsourcing can be viewed as a mechanism to reconfigure a firm’s value chain effectively while allowing it to sustain future market dominance. Competitive advantages can 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 a 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,” based on interviews with 50 global organizations plus a survey of 303 senior executives throughout the USA and Europe, documents a transparent trend toward 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 a minimum of one business function. The growing adoption of virtualization 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 for a vendor best suited to perform a specific task with the greatest efficiency and highest quality. Re-engineered companies will 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 target 15% cost savings, the tangible outcome may average 9%. However, a fairly significant portion of outsourcing partners may only get to their break-even point or find their costs to increase. It does not seem complicated to conclude that the in-house supply can often provide lower costs because suppliers can sometimes not match the expected economy of scale. The supplier needs to have access to the low-cost locations and also the required know-how 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 partner search, analysis, 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 are difficult to be imposed on internal departments. Outsourcing also allows cash infusion through revenues generated by asset renting or selling. Companies cite access to state-of-the-art quality services as part of the main dominant motive that ends up in outsourcing.
Technology is on the list of 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. 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 the company’s production capabilities. The contracting must ensure 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 fulfill the requests of enterprises that are in 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 activities, it loses control over those activities, which may be a survival component in case of a change in the underlying competition. Because of the loss of control of an outsourced activity, a corporation faces monitoring costs due to the fear of diminishing the quality of products or services from the vendors’ attempts to slash costs. 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 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 to companies' image based on the outsourcing motive, advantages of 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 a necessity that outsourcing is strategically planned and performed systematically, considering all aspects, risks, and stakeholders.
The rapid digital transformation of organizations of different sizes has led to a rise in demand for outsourcing services worldwide. With the 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, provides 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 a hiring freeze to limit their workforce as much as possible. Since the duration of the pandemic is still unknown, and its short-term, medium-term, and long-term impacts are still shady, companies are preserving liquidity for tougher times. Since limiting the workforce can be instrumental in preserving liquidity, enterprises see this as a viable option. On the other front, companies are increasing their focus on increasing their productivity to increase their revenue generation, which is key to survival. A 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. 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, the Middle East and Africa, and the Asia Pacific. To give a clearer view, these regional markets have been further segmented into countries that account for a significant market share. The Asia Pacific accounts for a significant market share on account of the easy availability of resources at a lower cost than 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 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 because of their good brand image and product offerings. Major players in the global outsourcing services market 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.
According to a press release by Bearing Point in October 2020, Rabobank, a Dutch financial services company, has opted to outsource some of its regulatory reporting operations to BearingPoint, a European consultancy business. The agreement comes at a time when banks are under greater pressure than ever to improve and streamline their regulatory reporting to supervisory boards and central banks. Rabobank will adopt Abacus360 Banking for European regulatory reporting, including CoRep and FinRep, in accordance with the European Banking Authority's (EBA) standards.
According to a press release by NTT Data on 13th April 2020, The International Association of Outsourcing Professionals® (IAOP) has included NTT DATA in its 2020 Global Outsourcing 100 list, which honours the world's greatest outsourcing service providers and advisers. NTT DATA was recognized in four categories for IAOP's 2020 program, which is based on a review of previous Global Outsourcing 100 program outcomes, in addition to being selected to the list. Customer References, Awards & Certifications, Innovation Programs, and Corporate Social Responsibility Programs are among the categories.
As reported by Wipro in a news release on 20th October 2020, Wipro Limited announced that it won a contract from Fortum, one of the leading clean-energy companies headquartered in Espoo, Finland, for Application Management (AMS) and Services Integration & Management (SIAM). Wipro will manage Fortum's application portfolio across hundreds of programs for more than 11,500 people in 18 countries as part of the five-year agreement, as well as provide 24/7 support for business-critical applications. Wipro will employ its Wipro HOLMES® Artificial Intelligence and Automation Platform to automate processes for a better end-user experience.
Impact of the COVID-19 pandemic
The COVID-19 pandemic led to a worldwide economic slowdown. Most major industries reported a decrease in demand and profits, due to the government implementing lockdown protocols. However, the outsourcing services sector saw an increase in demand. The impact of the outbreak had boosted the demand for standardized platform services that help BPOs handle complicated corporate procedures, opening up new market opportunities. Moreover, as governments around the world have started to relax the lockdown protocols, most major industries have reported the resumption of processes, which is expected to further increase the market demand.
|Market size value in 2020||US$620.381 billion|
|Market size value in 2027||US$904.948 billion|
|Growth Rate||CAGR of 5.54% from 2020 to 2027|
|Forecast Unit (Value)||USD Billion|
|Segments covered||Type, Enterprise Size, And Geography|
|Regions covered||North America, South America, Europe, Middle East and Africa, Asia Pacific|
|Companies covered||Accenture plc, Tata Consultancy Services Limited, Cognizant, Wipro Limited, HCL Technologies Limited, Capgemini SE, IBM Corporation, Infosys Limited, DXC Technology Company, NTT DATA Corporation, Genpact, Concentrix Corporation, Teleperformance SE, ExlService Holdings, Inc.|
|Customization scope||Free report customization with purchase|
Frequently Asked Questions (FAQs)
Q1. What are the growth prospects for the outsourcing services market?
A1. The outsourcing services market is expected to grow at a CAGR of 5.54% over the forecast period.
Q2. What is the size of the global outsourcing services market?
A2. Outsourcing Services Market was valued at US$620.381 billion in 2020.
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 than many other regions across countries in this region.
Q4. What will be the outsourcing services market size by 2027?
A4. The global outsourcing services market is expected to reach a total market size of US$904.948 billion by 2027.
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.
Tata Consultancy Services Limited
HCL Technologies Limited
DXC Technology Company
NTT DATA Corporation
ExlService Holdings, Inc.
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