Gartner: Offshore business process outsourcing to grow

Worldwide, offshore BPO spending is expected to reach $1.8 billion this year

Companies have been cautious about outsourcing business processes to offshore service providers, but spending in this segment of the IT services market will continue growing, albeit moderately, in the coming years, according to Gartner Inc.

Business process outsourcing (BPO) and traditional IT outsourcing both involve management of IT tasks, but BPO agreements go a step further by including the management of a business operation, such as payroll processing. In a traditional IT outsourcing deal, the services provider would manage a computer network. In a BPO deal, the provider would manage the network as well as business functions performed on that network, such as payroll processing.

Offshore outsourcing refers to services provided to a client from abroad, often because the services cost less than if provided in the client's home country.

An example of an offshore BPO engagement would be a U.S. company outsourcing its payroll processing to a services provider in India. In fact, the U.S. is currently the biggest consumer and India the biggest provider of offshore IT services, including BPO.

Offshore BPO spending is expected to reach $1.8 billion worldwide this year, an increase of 38% from last year, Gartner said this week in a statement.

The projected 2003 offshore BPO spending would be 1.5% of the world's total BPO market, a sign that companies still prefer to hire BPO providers located in their home countries. In fact, only 1% of 250 U.S. companies surveyed by Gartner in April said they are currently outsourcing BPO services offshore. The survey also found that 19% of respondents are considering offshore BPO within the next two years, Gartner said.

India is expected to nab 66% ($1.2 billion) of offshore BPO spending this year, Gartner said. Although it dominates this segment of the market, Indian providers "should not get too complacent" because competition from English-speaking nations is beginning to heat up.

Copyright © 2003 IDG Communications, Inc.

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