Looking Ahead
Outsourcing Shifts in 2009
Written by Peter Bendor-Samuel
Peter Bendor-Samuel is chief executive officer and founder of Everest Group, a strategic business advisory firm and global leader in outsourcing innovation.

Cost challenges. With the global economy still under challenging conditions, companies will place a stronger focus on cost reduction and the speed necessary to achieve it. This will influence increased adoption of pay-per-use pricing models as well as Software-as-a-Service (SaaS) offerings to decrease the total cost of delivering services.

With cost-optimization efforts increasing in 2009, more companies will move their work offshore. We believe non-Forbes-2000 companies will embrace offshoring much more rapidly than in previous years.

Focus on global sourcing. Outsourcing suppliers are improving their global sourcing capabilities to reduce dependency on a single region and decrease risk. Several global suppliers are establishing large delivery centers in Central America. Suppliers will also expand market share in the Philippines and Eastern Europe, and offshore-centric suppliers will expand their North American presence to provide onshore and near-shore services.

Deal size. Many buyers will engage in smaller-scope contracts and adopt a phased approach to implementing services. We will continue to see fewer large transactions, as buyers disaggregate the towers of work they bundled together in the past to achieve a greater cost benefit. Going forward, large deals will be transformational in nature, focusing for example on IT architecture or claims processing.

Outsourcing hits the mid-market. A significant trend in 2009 will be mid-market companies’ expanded adoption of outsourcing. Mid-tier companies struggle to remain competitive in a global marketplace. Although these firms had considered outsourcing in the past, appropriate solutions were generally lacking, or the price was too high because of the dearth of competition.

However, suppliers have now developed effective solutions to successfully serve midsize firms, and more suppliers have entered this market. For example, in midsize human resources outsourcing (defined as companies with 3,000 to 15,000 employees and outsourcing three or more processes), there were five suppliers focused on mid-market offerings in 2006 and nine in 2007 and 2008. In procurement outsourcing, new suppliers are winning the mid-range work, rather than the traditional leaders. Increased competition is driving down price and leading to faster adoption of outsourcing in the mid-tier.

A significant trend in 2009 will be mid-market companies’ expanded adoption of outsourcing.

Given the number of new players in this range, buyers need to be knowledgeable about the supplier landscape and understand suppliers’ strategic objectives in client relationships. For example, some suppliers are looking for growth accounts, others are looking for anchor accounts and some want “smart deals.”

Buyers also need insight into such factors as what worked successfully for other similar companies, risk or pricing models and location analysis. Most mid-range buyers cannot afford third-party advisors to provide market intelligence. However, they can take advantage of a new option in outsourcing support services.

Outsourcing Support Services (OS). A paradigm shift is taking place in the use of sourcing advisors assisting many organizations, not just mid-market companies. Many companies have gained internal capabilities through multiple outsourcing efforts over time. Others undertaking smaller-scope deals find there is not sufficient return on investment in full-time consulting assistance. These trends are also affecting in-house and external attorneys; clients are asking them for targeted information outside their purview or asking them to take on tasks that a sourcing advisor could do better.

With decreased use of full-time consulting services comes a recent trend toward increased demand from buyers for targeted information and advice in a different, more flexible model. Everest has created the Outsourcing Support Services offering to help companies with tools (such as a risk analysis toolkit and SLA templates), decision support (such as pricing model analysis and supplier intelligence) and workshops. Companies can use OSS components separately or in combinations as the need dictates and access them on a pay-as-you-go basis. OSS supports the outsourcing lifecycle from strategy planning through implementation, governance and contract renewal.

This new support model provides information enabling companies to mitigate risks, avoid missing opportunities for capturing value, ensure they know the pulse and evolving trends of the outsourcing industry, and help them manage and optimize their outsourcing efforts on their own.

MSC Malaysia Achieves Critical Mass of Multinationals and Outsourcing Providers

By Kathleen Goolsby

Hewlett-Pa ckard, the world’s second-largest IT outsourcing service provider, is expanding its facilities in Malaysia, building a 60-acre Global Campus in Cyberjaya, Malaysia’s “Silicon Va lley.” The campus includes a state-of-the-art next-generation data center for HP’s outsourcing services business, a professional center for internal global support functions and a call center to support enterprise business customers. The investment is in addition to an internal HP IT global application development and support center, which was announced last May.

Located near Kuala Lumpur, Cyberjaya is a key area among the technology cities of the Multimedia Super Corridor known as MSC Malaysia, the world’s hot spot for the global ICT industry. Cyberjaya is also the selected location for IBM Malaysia’s ASEAN Regional Contact Center, which provides strategic outsourcing helpdesk support to IBM clients in 70 countries.

Colorado-headquartered TeleTech, a global business processing outsourcing provider of solutions for every stage of the customer lifecycle, also recently announced it will establish its customer contact centers project — which will employ 10,000 people — in Malaysia.

More than 2,000 companies, including 80 multinationals, are serving the global market with outsourcing, shared services and research and development activities from Malaysia. These companies are leveraging the competitive advantages of the country’s skilled talent pool with domain expertise; world-class infrastructure; low-cost environment; stable economic, political and social conditions; and strategic location at the crossroads between the East and West. A.T. Kearney has consistently ranked Malaysia as one of the top three locations in its Global Offshore Attractive Index since 2004.

According to Doraisamy Balu, senior vice president and managing director of HP Asia Pacific and Japan, the campus in Cyberjaya reinforces HP’s position as one of the largest IT companies in Malaysia. “More importantly, the new facilities will allow us to address the business needs of our local and global customers through innovative HP technology and services,” says Balu.

The Malaysian government’s commitment to the rapid advancement of technology through its support of high-tech businesses, telecommunications and education has been the attracting factor for many multinationals to locate their global hubs in Malaysia.

Now in the second stage of Malaysia’s Vision 2020, MSC Malaysia has achieved critical mass and continues to attract other global leaders. Cisco is also on board and collaborating to develop i-City, an MSC Malaysia Cybercentre, into the country’s premier technology city with an integrated township, mall, hotels, office towers, apartments, data center and 50,000 knowledge workers.

MSC Malaysia is uniquely qualified to make a difference in outsourcing providers’ service delivery capabilities. Check it out and learn more about the ways your company can benefit and also play a vital role in the global development of ICT.