Outsourcing is the process of obtaining goods or services by a business firm from another firm. In such an arrangement, the firm that contracts the process is known as the client and the firm that delivers is known as the service provider or vendor. Outsourcing has been prevalent in the business world for ages. Initially this practice was primarily confined to the manufacturing industry wherein business firms in developed economies engaged in ‘contract manufacturing’ or ‘outsourced manufacturing’ to third world countries to reduce production costs.
Outsourcing in the services industry emerged much later. It started in the early twentieth century, with businesses hiring specialized agencies to manage their non-core functions such as legal, accountancy, taxation, public relations, and advertising amongst others to external service providers. Outsourcing non-core functions to external service providers allowed businesses to focus on their core business processes and reduced their operational costs leading to increased productivity.
In today’s business parlance, outsourcing refers to the practice of outsourcing non-core business functions of an organization to a third party business process outsourcing (BPO) services provider. Similarly, call center outsourcing is the process of contracting the management of voice based customer service processes to specialized call center outsourcing companies.
Call centers defined simply are workplaces wherein human agents receive or make outgoing telephone calls to existing or prospective customers of a company. Outsourced call centers are specialized call center outsourcing companies that manage inbound or outbound call center processes for their clients.
The modern day outsourcing industry began in the late 1990s with major advancements in the field of technology, telecommunications and wide scale spread of the internet. New age technology tools and advanced telecommunications networks reduced the cost of voice calls between nations and made it possible for organizations to deliver voice based support services to their customer from remote locations at a fraction of prevalent costs without affecting the efficacy and performance of the process. Realizing the potential of this business model to lower their operational costs, a majority of global corporations started setting-up their customer service centers in off-shore destinations like India, the Philippines, Eastern Europe and other low cost South East Asian nations. In the early days, most organizations operated on a captive off-shore call center model which meant they owned and operated the call centers in a low cost destination and reaped the benefits of low labor costs – ‘labor arbitrage’ – offered by these destinations.
Concurrent to these developments, a set of entrepreneurs in these low cost destinations began experimenting with a similar business model and started establishing third-party outsourced call center companies in these countries. Also known as non-captive BPOs, these companies provided outsourced call center services to multiple clients and were independently owned, as opposed to captives, which were owned and operated by a single company.
In the initial years, voice based call center processes was a major driver for the growth of the global outsourcing industry. Destinations such as India, the Philippines, Poland and Romania were the destinations of choice for most global corporations as they provided a large pool of highly skilled, educated, and ‘neutral accent’ English-speaking natives. Also, most of these resources were young and fresh out of college, which meant they could be hired at reasonably lower costs compared even to local labor markets. With all the right ingredients, the global business process outsourcing industry grew exponentially in the following years providing economic growth and employment to millions in these new geographies. It also brought about a paradigm shift in the manner organizations operated in an increasingly globalized business environment.
Global BPO Market Growth
The size of the global business process outsourcing market was estimated at USD 162 billion in the year 2015 according to a report by global research and consultancy firm Gartner Inc. The report stated that the BPO industry had grown at a compounded annual growth rate (CAGR) of 6.3% between 2001 and 2015 and was expected to grow at a compounded annual growth rate (CAGR) of 4 percent for the next five years till 2020. Another report, in the same year by Global Industry Analysts Inc. projected the global market for business process outsourcing services to increase to grow to USD 220 billion by the year 2020. The standalone market size of the global contact center industry, a subset of the BPO industry is estimated to reach USD 9.7 billion by the year 2019 according to a 2016 report by global research firm Technavio.
Statistics clearly prove that the global BPO industry is on a roll and continues to grow at break-neck speed. Amongst the various sectors that are expected to show tremendous growth are insurance, banking and financial services, technical support, telecommunications, consumer goods and retail, e-commerce, travel and logistics, manufacturing and public services and government. The United States would continue to be the largest market, for call center outsourcing services followed by Europe and Asia Pacific regions.
In a customer survey research report, published by Deloitte multinational professional services firm a majority of BPO customers listed availability of labor and cost of labor as a key determining factor in selecting new contact center locations for their business. This was followed by consumer demands, quality of labor, political climate, language skills, and proximity to client location, regulatory environment, tax laws, and time zone considerations.
The early 1990’s witnessed massive liberalization of the Indian economy. Government controls were eased and private and foreign investments encouraged. Several important sectors, previously under the strict regulation and monopoly of the state were deregulated. It led to an era of massive investments by foreign investors and the private sector in key industrial sectors in the country. The telecommunications industry in India was amongst the biggest benefactors of this new economic wave and contributed significantly to the economic growth of the country in the coming years.
Internet Protocol (IP) telephony, an advanced technology for voice calls introduced in the country during this period drastically lowered the costs of international voice calls. This new technology coupled with favorable government policies, a large talent pool and cheaper labor costs catapulted India as the leading business process outsourcing destination in the world. With several other added advantages, the BPO industry in India transformed itself into a multi-billion dollar industry in a short period of time and provided employment to thousands in the country. It also contributed significantly to the nation’s GDP and India became the go-to destination for every large global corporate wanting to reap the benefits of outsourcing.
In the following years, several new destinations like the Philippines, Romania, Costa Rica, South Africa have emerged in the global outsourcing map. But India, continues to regain its status as the dominant leader in the global outsourcing industry with a market share of 56%.
According to a NASSCOM report, India had more than 500 BPO companies/outsourced call centers/KPOs and 150 plus global shared services centers of major corporates. The standalone revenues of the BPO industry was estimated with at USD 18 billion in the year 2012 with projections for the industry reaching an upward of USD 50 billion by the year 2020.
Call center outsourcing that primarily includes voice based BPO processes had also registered significant growth in the country in spite of stiff competition from Philippines. The bundling of new age technologies like cloud based telephony and data analytics by call center outsourcing companies in the country resulted in these companies achieving an edge over competition in the market.