Trends in (offshore) outsourcing: transactional BPO s to sales process outsourcing

Abstract

Companies have come to see outsourcing as one key element in their sourcing strategy. Over the last 10 years, the Indian IT industry has established a dominant position in the global offshoring market by leveraging the local natural advantages -Access to engineering graduates (a well educated English speaking workforce) and wage arbitrage compared to the west. However, this business model, is now being challenged on multiple fronts - raising wages, alternative cost-effective locations like China, Philippines, South Asian countries and even the East European countries; and the entry of captive units who are rapidly expanding - MNCs like Accenture, IBM, Cap-Gemini are all capitalizing on the offshore cost advantage and strengthening their global delivery networks to complement their strong consulting expertise. Global sourcing is expected to move from non-core/back-end work to core services to core services like market research, direct sales, legal, engineering, animation, financial and accounting, competitive analysis, HR processes are expected to be increasing performed offshore given the cost and quality advantages. Indian players are looking to leverage the customer knowledge, domain expertise and process excellence gained by these BPO executions to help them move up the value curve by strengthening their end-to-end business processing service capability. The field sales force in most organization is considered as sacrosanct and is rarely addressed in the "Outsource V s. Own" discussion. However, today, outsourcing field sales is on the rise in the B2B domain (for 5MB and large companies alike). Field sales outsourcing in the B2B domain represents a real business opportunity for several businesses given the strategic and transformational outsourcing practices adopted to focus on the companies core competencies to create enough differentiators that will ensure the long term organizational survival success Its more of a need than an option for several organizations. The convergence in technology is making distance irrelevant and consumer decision making preference (including B2B) are changing with most customer being comfortable to do business using technology. This is aiding rapid growth of the Indian IT-ITES industry and also offers tremendous opportunities in setting global customers with a whole array of business process outsourcing solutions. Today, the B2B domain is struggling with (1) lower deal sizes, longer sales cycles, lower conversion rates and more skeptical customers. Lead conversion rates having sunk from one deal in 10 to as low as one in 100, resulting in sales and marketing cost escalation of 50-100% of revenue for some small high-tech companies, (2) The cost of field sales in increasing and sometimes revenues don't sufficiently compensate the cost associate with acquisition of new SJ\IB customers, (3) 51 % of 5MBs,currently outsource one or more of the marketing functions such as advertising or public relations or telemarketing, (4) With the number of big accounts hard to come by on a recurring basis, companies are focusing on the 5MB segment to ensure sufficient market seeding and long term success. With the 5MB segment exceeding 8Million - The field sales force is easily overwhelmed. So, companies are looking at innovative solutions to address their B2B sales challenges and are turning toward India. Several MNC captive centers that are in the process of transitioning their sales back-office operations to India are mastering this model internally. With the sales in the US economy of IT players staying flat, there will be additional pressures to cut costs - Making outsourcing of all non-core activities a necessity rather than an option. The Indian IT-ITES players (both the biggies and niche players) are within grasp of this immediate opportunity to become the "global sales process outsourcing back office" with their existing technical and domain capabilities. While the opportunities are tremendous, customers may look for more complete IT-ITES end-to-end solutions when making their outsourcing/offshoring decisions Sales Process Offshoring services may provide the right opportunity for the Indian players to extend their reach across the massive North America 5MB segment - 52%of whom are actively engaged in business process outsourcing and appear to be excited in trying out new BPO options with the estimated BPO revenue potential of USD 17B. J Dng term opportunities include the ability for these players to work closely with the field sales outsourcing execution vendors (either by partnerships, JVs or acquisitions)that will enable them to provide end-to-end sales process outsourcing solutions with the best of both worlds - reduced selling costs due to off-shoring, and increased domain and consultative expertise with onshore customer relationship building. The ability of the Indian players to refine the onshore-offshore model by developing business domain expertise will be critical to match the MNCs who are moving offshore for cost arbitrage and leveraging the technical skill availability. While the opportunities in the IT -ITES area are many, there are a few dark clouds -Increasing wages, scarcity of experienced resources/managers, and the emergence of other destinations that can dampen growth over the long term.