US Budget 2014 and the Future of Outsourcing

US Budget 2014

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With the economy picking up, the outsourcing market is budding in volumes of contractual activities. Previous years created an enervated environment, so marketers this year reinstate their faith in US Budget 2014, claiming that the enterprise will claw back control on the conservative market.

Due to macro-economic challenges companies had to adopt conservative spending approach, besides there was a retard in the manufacturing and the financial services in the US. However, in the last two quarters thawing approach was strongly prevalent, which some experts tagged as demand revival.

Therefore, the BPO industry across the globe set high expectations in 2014 as US is the largest market and fetches the industry the most business.

So let us take a quick look at the US budget and its impact on the Indian as well as global outsourcing landscape.

Data/Numbers That Are Going To Cheer Up BPO Sector

According to John Keppel of ISG, commercial outsourcing contracts with annual contract value (ACV) $5 million or more, jumped 13% in the fourth quarter of 2013, whereas the dropped total ACV 12%.

It makes clear that a shift from short-term anomaly to higher deal volumes and lower contract value will brings change in the outsourcing business.

We are going to share some numbers that are surely going to cheer the Indian outsourcing arena.

  • According to Everest Group, offshore outsourcing will go up in the coming year by 10% to 12% compared to 6% in the past year.
  • Moreover, according to IDC, US have shown 5% increase in the overall use of technology, which will help to shape positive business decisions.
  • Short-term considerations are going to keep their investments moderate, but we anticipate that the IT spends will continue to align by 13% and above.
  • Even brokerage also expects that NASSCOM will raise their sector forecast to 15% and above in the next FY compared to 12-14% that will stay until March 2014.

Outsourcing Scenario in 2014

Business Process Outsourcing has taken the center stage due to the rise in powerful arbitrage-led value proposition. After undergoing metamorphoses and due to high competitive intensity, state-of-the-art providers like Fusion and other big names in the BPO industry will look for more innovative and differentiated solutions.

This demand-supply push has brought BPO industry to an exciting inflexion point. For last three quarters, US respondents have been saying that outsourcing partners are able to meet their business objectives.

As a matter of fact, in order to drive organizational agility, encourage top-line growth, reduce operational cost and enjoy greater efficiency, 90% of companies today use some form of outsourcing.

On the other hand, BPO no longer serves one vertical – rather, it is an amalgamation of various verticals such as Financial and Accounting, HR Outsourcing, Mortgage Services, Insurance Claim Processing, Healthcare, etc. Each BPO verticals have some unique characteristics, and BPOs no longer work with that cookie-cutter approach.

Industrial Challenges

Customers of today especially prefer to use technology to research, or recommend or purchase product/services. With their keen interest in use of technology and keeping the customer traits in mind, outsourcing is surely going to enjoy faster growth in 2014.

Let us take a quick look at the outsourcing market, their demands and challenges and how BPOs are going to accomplish them.

MARKET
CHALLENGES
CHANGE IN TREND

RETAIL

  • Retailers need to re-engineer their linear supply chain
  • Use of advanced planning system to support the multi-channel service
  • Third-party service providers are going to add great convenience to customers with the click and collect facility
  • Use of flexible systems to redirect supply chain

BANKING

  • Putting an end to global bank
  • Use of fake banking apps
  • Mobile threats
  • Regionalizing of the bank to reduce global interdependency and prevent the glitch in countries economy
  • Use of two-step verification methods for safe use of mobile banking and other apps

PUBLIC SECTOR

  • Demands agile methodologies for their business
  • Will get modular products to encompass the complex frameworks and gain agility

F&A

  • Wants to improve financial transformation and performance
  • Use of cloud computing to increase automate propensity
  • Use of hybrid technology to consolidate high-end and transactional changes

INSURANCE CLAIMING

  • Demands modern cost reduction initiatives
  • Application development and maintenance
  • Generating innovative ways to cut on cost
  • Taking care of the analytics and the mobile development

Driving Growth and Meeting Challenges: Experts’ Opinion

In the post-recessionary period, we already observed some shifts in the demand for outsourcing to India and the Philippines. Companies now look at these BPOs, not as a tool to save on cost, but to gain strategic advantages and bring focused growth to their respective business.

This year the budget will work in favor of the Asian Outsourcing business as it reflects increased market maturity, client and provider collaboration and acceptance of standard delivery model. Well, 2013 has seen a soft industry pipeline, but 2014 will gradually bring much change making the pipeline strong.

With the change in competitive dynamics and increase in use of automated technologies, social, mobile or data analytics, the BPO industry can expect a bigger change in the outsourcing business this year.

Keeping high hopes and faith on technology, Fusion concludes their pre-budget opinion for 2014.