Philippines cited as One of the Top Shared Services and Outsourcing Destination
Frost & Sullivan, a global growth consulting company, launched a study on Global Shared Services and Outsourcing (SSO) at the Frost & Sullivan Global Sourcing Asia Pacific Summit. According to the study, the global SSO market was estimated to be worth US$930 billion in 2006 and is forecasted to grow at a CAGR (compound annual growth rate) of 15 percent (2006-2009) to reach a market size of US$1,430 billion by end-2009.
The study outlines the global SSO activity across seven major industry verticals based on a survey of Fortune 500 and Forbes 2000 companies. The top three verticals by SSO spending in 2006 were the banking, financial services and insurance (BFSI) sector at US$273 billion, technology/ICT sector at US$233 billion, and the healthcare industry with an estimated SSO spending of US$130 billion. BFSI together with the technology vertical constitute over 50 percent of the total spend on SSO.
The other verticals covered include transportation and logistics (US$113 billion), energy (US$84 billion), fast-moving consumer goods (FMCG – US$59 billion), and media and entertainment (US$39 billion).
The key drivers for SSO continue to be cost benefits through standardization, leveraging benefits of scale, and cost arbitrage. The study also observes that SSO operations, which is an integral part of business architecture, needs to adapt to vertical specialization models for businesses to achieve higher productivity and profitability.
Verticals such as transportation and logistics, energy, FMCG, and media and entertainment, for example, have developed effective SSO operating models for non-core functions such as IT services, finance and accounting, HR services, procurement, customer support and call centers. Sectors like healthcare, today, even outsource core research and development (R&D) functions, and this is likely to continue for a few years as healthcare companies try to find new drugs and reduce operating costs. Telecom companies in countries like India have outsourced network management, a function considered core for telecom operators.
The global SSO study reveals that India remains the top destination for SSO operations across these seven verticals, followed by China, Ireland, Singapore, Malaysia, Mexico, Czech Republic, Poland, the Philippines and Canada. Emerging destinations for specialized functions are also developing, such as Russia for high end software development, and Dubai for BFSI services.
Key factors in determining choice of location include costs, availability of skills and IP regulations. Inherent factors such as low labor costs and abundant supply of skilled manpower have ensured India as a prominent top-of-the-mind location for SSO investments. India’s SSO market is now experiencing consolidation and SSO providers are maturing and moving up the value chain, expanding their onshore presence to strengthen their global delivery capabilities.
Beleaguered however with high attrition rates, poor infrastructure, rising wages, and the appreciation of the Indian Rupee against the US dollar, India is faced with increasing threat from China which is fast emerging as an attractive location for outsourcing IT, R&D and procurement services.
A stable country coupled with excellent infrastructure and low attrition rates, Malaysia makes for an ideal SSO hub that is still not leveraged by many. A strong player in the BFSI, transportation and logistics, and energy verticals, Malaysia is also developing into a hub for technology companies with recent SSO investments by the likes of Dell, Satyam and IBM.
The Philippines, which is another preferred location for SSO activity, specializes in back-office operations for IT and IT services. The country is home to over 60 BPO service providers with an estimated 22,500 full-time employees involved in back-office services, raking-in revenues of US$180 million in 2005 from this segment alone. Several notable SSO centers in the Philippines include HSBC’s BPO delivery center, Citigroup’s Shared Services Center (SSC), Dell’s SSC, Safeway’s SSC and Global eXchange SSC. Several companies like IBM and Sykes have moved their SSO operations out of India to the Philippines.
The Global SSO study was launched in conjunction with the Frost & Sullivan Global Sourcing Asia Pacific 2007 Summit where some of the region’s thought leaders on outsourcing and offshoring converged to discuss the SSO industry. The summit gave both the macro- and micro-economic perspective of SSO to business owners, and in-depth evaluation of the best SSO models and hubs for various industry sectors.