The outsourcing of operations such as payroll, human resources or IT, once one of the fastest growing types of FDI activity, has been in decline since 2010. Of the top 20 destinations for FDI into business process outsourcing (BPO), fDi Markets data shows that almost all recorded lower investment in 2014 than they did in 2010. The biggest slump was seen in Germany and France, where BPO investments were down by 80% in 2014 on their 2010 figures.
The only notable exception to the trend is Brazil, which saw 150% growth in 2014 when compared with 2010. Impressive as such figures may seem, these results are down to one company. In October 2014, Spanish process outsourcing and customer management company Atento announced plans to launch 10 projects across the country, creating more than 2000 jobs.
Another country to defy the BPO downturn is the US, which topped the table for receiving BPO projects in 2010, as well as in 2014, when it won 71 projects. The leading states for new BPO ventures in 2014 were Texas (12 new projects), Arizona (six projects) and North Carolina and Kentucky (four projects each). The biggest projects in terms of job creation were launched in Salt Lake City in Utah and Dallas in Texas. In May 2014, French customer services giant Teleperformance unveiled its plans to build a contact centre in Salt Lake City and hire an estimated 1000 people. Three months later, Aegis, a subsidiary of Indian conglomerate Essar Group, announced plans for a similar centre in Dallas, also estimating the headcount at 1000.
Down the charts
At the number two spot both in 2010 and 2014 is the Philippines, which last year received 16 new projects launched by 15 companies from five countries (the US accounted for 11 of the investments). The most popular destination for BPO operations within the Philippines was Manila and its surrounding area, which attracted six projects. This was followed by the Central Luzon region, north of the capital, and Western Visayas, a group of islands in the south of the country.
In a repeat of its position in 2010, the UK ranks third in the table of top BPO destinations worldwide for 2014, with 12 new projects secured. Scotland was the country’s top destination for BPO projects last year, ahead of the South-east and Northern Ireland. Essar, one of the top job creators in the industry in the US last year, had a similar impact upon the UK. In January 2014, the company announced plans to open a call centre in Glasgow, creating an estimated 2500 jobs. The second largest project in terms of jobs creation in the UK was announced in April in Belfast, where US business services firm Concentrix plans to open a technical support centre employing more than 1000 people.
Brazil rose from 12th to fourth in the ranking thanks to Atento’s investment, overtaking India, which ranked fifth with eight projects. India's score is surprising given the country was one of the pioneers and main beneficiaries of the outsourcing boom of the past few decades. According to analysis by Indian newspaper the Economic Times, the country's BPO industry has been in trouble since the global financial crisis and in the past five years has lost more than 10% of the global market share. This is mainly because of the emergence of cheaper BPO destinations such as the Philippines, Malaysia and Brazil.
Overall, 174 greenfield BPO projects were launched in 2014, compared with 227 in 2010. Investors from the US were behind 56% of those. Expert Global Solutions, the biggest US investor, was responsible for 18, focusing on North America (16 projects) and one in each in the Philippines and Panama. Convergys, the second most active US BPO investor, launched eight projects in 2014, mostly in Central America, while also venturing into the UK and Poland.
With 19 projects, India ranked as the second largest source of BPO FDI in 2014, ahead of investors from Spain and France, which were behind 13 and 12 projects, respectively. India’s most active firm was Cox & Kings, a travel company that launched six projects, all of them in the US. Teleperformance was the most active French BPO investor, and in the case of Spain, Atento, thanks to its big Brazilian expansion, came top of Spanish BPO investors in 2014.
A look ahead
Despite the industry-wide slowdown, analysts remain positive regarding the future of the BPO sector. India's National Association of Software and Services Companies predicts the Indian BPO market will grow at more than 10% in the short to medium term. Meanwhile, Dallas-headquartered management consulting firm Everest Group is predicting a similar pace of growth in the Philippines. Overall, according to the 2014-2018 forecast by US market researcher IDC, the global BPO market’s five-year compound annual growth rate will reach 5.6%. Yet, as IDC research director for BPO and engineering services Mukesh Dialani points out, the main beneficiary of the expected uptick in investments will be those who can adjust to changing market conditions.
"The BPO services market is undergoing considerable change, with buyers now expecting providers to offer automation and big data and analytics services along with traditional BPO services," he says. "BPO providers will have to up the ante to differentiate themselves by investing in automation, industry-specific talent and intellectual property, and truly global infrastructure by reducing dependency on offshore infrastructure.”