BPO Market to Grow to $1.2 Trillion by 2006

The worldwide business process outsourcing (BPO) market is undergoing rapid transformation. The drive to leverage technology, the progression of the xSP model, the arrival of Web services, and a more cost conscious customer are in combination, causing major shifts in BPO service provision and adoption. According to a new special study published by IDC, worldwide spending on BPO services totaled $712 billion in 2001. IDC projects the worldwide BPO market to grow to $1.2 trillion by 2006. This number is based on IDC's forecast of 10 business functions including: Human resources; Logistics; Procurement; Engineering; Marketing; Sales; Facility Operations and Management; Administration; Legal; Finance and Accounting.

Business process outsourcing (BPO) as a business concept is not new," said Romala Ravi, program manager for IDC's Supply Chain and Logistics Management Services research program. "The use of external service providers in areas such as facility operations, finance, accounting, logistics, legal services, marketing and customer care go back a long time. However, new technologies, delivery models, and a more demanding end-user are forcing both old and new players to reevaluate their current strategies, and this is leading to a transformation of the BPO landscape."

As traditional function-specific BPO providers continue to evolve their service portfolios to position competitively in today's technology-driven economy, new entrants in IT service providers and pure-play technology companies are causing the BPO landscape to expand and converge, IDC's study shows. IDC believes service providers looking to play in the BPO space can expect the following:

* There will be an accelerated pace of industry consolidation and service convergence which will stabilize the BPO market and strengthen the BPO value proposition.

* BPO providers will expand their services first along the value chain of their respective functions, and then to other complementary business functions, eventually positioning themselves as multifunction BPO providers.

* Organizations, faced with competitive and cost pressures will be compelled to focus on their core competencies and look for external help in non-core areas.

* Access to latest technology, as well as the need to optimize technology investments will drive BPO adoption.

* BPO growth will accelerate across all business functions. However, the maturity of BPO within each segment will determine the rate of growth.

From a regional perspective, IDC's report indicates that the Americas, with U.S. in the lead, will continue to account for 60% of the worldwide BPO opportunity, although EMEA and Asia/Pacific will experience faster growth.

"While the BPO market is forecast to grow to $1.2 trillion by 2006, this should not be viewed as the real market opportunity," cautioned Jessica Goepfert, IDC program manager and co-author of this study. "Uncovering the real opportunities will require providers to define their role, choose specific segments within the overall BPO market, define a value proposition that is aligned with your strengths and the market requirements, and partnering strategically for where the market is going within each corporate function."

This IDC report, Worldwide Business Process Outsourcing Forecast and Analysis, 2002-2006, (IDC #27504) presents a five-year forecast for the worldwide business process outsourcing market. The report identifies and quantifies the market opportunity for BPO services and recommends strategies for service providers to take advantage of these opportunities. In addition to the forecast, this document reviews global market trends, drivers and inhibitors. It also delves into the market conditions, drivers and inhibitors for each business function. The report concludes with guidance for service providers to aid their efforts toward establishing or expanding their service mix and competitive presence and to capitalize on opportunities that are in line with their current positions and strengths.