Outsourcing firms face challenges from new entrants: PwC

After being market leaders for a long time, outsourcing firms in India and North America are now faced with increasing competition from new entrants amid rising demand for services globally, a survey says.

The survey by PricewaterhouseCoopers (PwC) and Duke University’s Offshoring Research Network stated that the outsourcing industry is transforming due to the emergence of new providers around the world and efforts of existing outsourcers to expand into new markets.

“Outsourcing companies in North America and India, which have long dominated the industry, are being challenged by competition from Latin America, Eastern Europe and Asia in service areas such as contact centers, business process outsourcing, and information technology outsourcing,” the survey revealed.

Although India remains the outsourcing market leader, other emerging economies are seeking to expand in the sector.

“Growing competition has transformed outsourcing industry into a global race for market share. India’s success as the world’s back office has motivated other developing countries with well educated and under-employed populations to seek to duplicate their experience,” PwC Managing Director Charles Aird said.

However, only 16 per cent of Indian service providers see competitors from other emerging economies as a threat, the survey added.

Among the efforts being made by other emerging countries to capture market share, the Chinese government has designated 20 cities as outsourcing hubs in an effort to attract more international investment, while the Philippines has declared outsourcing a priority industry.

According to the survey, overall, 62 per cent service providers said they plan to expand the scale of their existing offerings.

Moreover, the number of service providers planning to offer new finance and accounting, human resources and innovation services more than doubled from the previous year.

The survey also found that the economic crisis of 2009 reemphasised the importance of cost saving and efficiency improvement as top strategic reasons for outsourcing, followed by access to qualified personnel.

Moreover, unrealistic client expectations and the lack of an outsourcing strategy for them were top reasons for contract terminations.

“Near-shoring” has gained momentum among companies using or considering outsourcing services, it added.