Gartner predicts end of BPO backlash by end-2004

Circuit EC / Mumbai

IT is not over yet, but the backlash on business process outsourcing (BPO) will soon be—this was the key message sent out by research firm Gartner during the two-day Gartner Summit 2003 held in Mumbai recently. A release issued by the research agency stated that by end-2004 the backlash against offshore IT service providers will have played its course and will not have a significant impact on the offshore/global delivery model of IT services and business process outsourcing.

While maintaining that the main reason for the backlash was the current economic downturn in the US economy, Gartner analysts are confident that Indian service providers will be able to manage the issue by becoming more ‘local’ in their operations in the market they operate in. "Indian companies should refine their hiring model to engage local citizens in local markets rather than employing predominantly Indian staff," said Dion Wiggins, a Gartner research director.

Elaborating on the BPO industry, Gartner stated that India has the potential to generate $13.8 billion worth of offshore BPO exports in 2007. For the current year, India’s revenue from offshore BPO will grow from slightly under $1 billion in 2003 and will represent 66 percent of the global offshore BPO market. This will be supplemented by significant additional revenue from internal company operations, and US firms setting up their own delivery centres in India. According to Gartner, the global offshore BPO business is expected to reach $1.8 billion in 2003, a 38 percent increase from the $1.3 billion generated in 2002.

Gartner estimates that the global IT services spend will cross $707 billion by 2007, recording a CAGR of 5.7 percent. The research agency states that the highest growth will be witnessed by APAC at 9.5 percent CAGR from 2003-2007, followed by Eastern Europe, the Middle East, Africa, Japan, Latin America, North America and Western Europe. A Gartner analyst said that the Indian IT services industry will be worth $13.1 billion by the end of 2004 and is pegged to grow at a CAGR of 29 percent from 2003-2007.

Predicting that the next couple of years will see considerable M&A activity among mid-tier service companies, Rolf Jester, vice president-research at Gartner Asia-Pacific, said, "IT service companies need to be focused in niche areas or get truly global in order to be profitable in this business." He also said that in the near future service providers could become branded entities, selling to other service providers in a value chain. "Even in services, companies will want to deal with a brand," predicted Jester.

In his concluding remarks, Bob Hayward, senior vice president for Asia-Pacific at Gartner, said that IT as an industry is going through a profound change. Stating that there is still a lot of innovation going on, Hayward advised companies to evangelise the appropriate and beneficial use of technology. "It’s not the company with the most technologies that will win but it is the company that makes the best use of technology to deliver business imperatives that will win," concluded Hayward.

Region-wise IT services growth

Top 20 IT software and services exporters from India (2002-03)