Offshore Outsourcing’s Next Wave: How High?

The first wave of offshore outsourcing was in computer programming, sending software development and maintenance abroad, mainly to India. The next wave, well underway, is shipping back-office business tasks overseas, like finance, payroll, claims processing, procurement and the like. That’s business process outsourcing, or BPO, in nerd talk.

Just how much of this back-office work can be sent abroad, how quickly, is a matter of some debate. These are chores that are semi-automated, a blend of technology and human skills. The labor-cost savings are still considerable — certainly on per-worker basis — despite a weak dollar and rising wages in nations like India. But these are also tasks, more so than programming, that often require knowledge of specific industries, business practices, even local cultures. The customer-service travails of Dell, which put a lot of its call-center work in India and later brought much of it back, is a cautionary example.

A report presented this week to India’s big software and services trade association, NASSCOM, concludes that the offshore BPO can grow explosively for years to come. The report done by Everest Research institute, an outsourcing advisory firm, found that the addressable market for Indian BPO outsourcers will be $220 billion to $280 billion by 2012. Today, the report says, the total offshore BPO market is about $28 billion, with the Indian-sourced portion of that at $10.2 billion.

Rod Bourgeois, an analyst , who conducts joint research with Everest, notes that this means the current Indian BPO market is less than 5 percent of the potential market opportunity. So the Indian BPO market, including the big offshore arms of I.B.M., Accenture and others, should grow by 30 percent a year or more for a while.

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