THE Singapore Business Process Outsourcing (BPO) market is expected to grow at a healthy clip of 14 per cent this year to end at US$565 million, up from US$495 million in 2006, according to IT research agency IDC. The market will grow at an average annual rate of 12.7 per cent till 2011 to reach US$900 million.
The APEJ (Asia-Pacific, excluding Japan) BPO market, which was worth around US$7 billion last year, will be worth US$8.3 billion by the end of this year. The market will grow at a compound annual rate of 16 per cent till 2011 to reach US$14.8 billion, according to IDC.
Speaking to BizIT, Conrad Chang, IDC Asia-Pacific's research manager for BPO services research, said: 'We can essentially view the BPO market in the complex APEJ region as either matured or developing, and within that, English-speaking or non English-speaking - each with its unique needs and characteristics.'
He added: 'BPO end-users in APEJ are demanding solutions that address their particular needs and cookie-cutter approaches will not work in addressing region-specific issues.'
Finance and Accounting (F&A) and Customer Care are the largest BPO segments for Singapore due in part to Singapore's location as a financial hub and regional headquarters centre for many multinationals, Mr Chang noted. 'The main segments that are more open to BPO are the finance and banking sectors, along with manufacturing and high technology.'
Mr Chang also said that the government sector is starting to open up to outsourcing but is predominantly served by local companies such as NCS and SCS.
'Singapore is currently positioning itself as a strategic location for higher-level BPO activities to complement India, China, and the Philippines, rather than compete head-on for the more processing services type of outsourcing located in those countries,' Mr Chang noted.
He added that Singapore's strong judiciary system, excellent infrastructure and logistics hub make it a good location as a higher-level BPO centre for the region.
'Singapore should not aim to compete on the lower value type of outsourcing but position itself as a high value adding BPO centre, moving up the outsourcing value chain in areas such as R&D, consulting, advisory and project management,' Mr Chang said.
As many multinationals locate their Asia-Pacific headquarters in Singapore, the country will continue to house many influential BPO decision makers for the region, he said. 'In addition, Singapore's strong judicial system and a climate for ease in doing business will position the country well as a 'project manager' for many BPO engagements.'
Challenges facing Singapore in BPO are its small domestic market; its small pool of available talent compared with countries such as India, China, and the Philippines; and increasing competition from neighbouring Malaysia, Mr Chang said.
The IDC analyst pointed out that verticals such as F&A face stiffer competition and are very conscious about managing cost.
'There is also a lot of potentially administrative functions that could be better managed through outsourcing such as credit card billing and accounts payable. These back office functions tend to get outsourced as they are not considered core to the banking sector,' he said.
IDC considers F&A activities such as external audits and tax preparation as BPO, since these tend to get prepared by an external third party, consistent with IDC's definition of BPO.
'Due to more regulations and corporate governance (for example, Sarbanes-Oxley), the need for such BPO services will only increase in the F&A sector,' Mr Chang noted.
IDC tracks BPO consumption by firms, not BPO services provided by outsourcing companies. Also, a BPO deal is credited to the country where the contract is signed. Thus, if a deal is signed in the US and the delivery is done from Singapore, the dollar value of the deal would be credited to the US BPO market and not to the Singapore market.
Under the research agency's definition, BPO is distinct from normal processing services. Thus, outsourcing services such as cheque, credit card and bill processing are not considered to be BPO activity. IDC regards BPO as more strategic in nature and involves transformational activities that align a company's outsourcing engagements to corporate objectives.
'For example, an ongoing engagement by a retailer to hire a vendor to look at continuous pay incentives for sales staff would be considered a BPO engagement. Conversely, outsourcing services of processing benefits claim forms would not be considered BPO but processing services,' Mr Chang explained.
By its very nature, the processing services market is by far much bigger than the BPO market. For example, the processing services market was worth US$998 million in Singapore in 2006. This year it's expected to be worth US$1.09 billion, almost twice as big as this year's BPO market.
'Although processing services (business) is larger than BPO, it will not grow as fast . . . This is because as corporations become more mature in their adoption of outsourcing, they will move away from processing services in favour of more strategic BPO,' Mr Chang said. The Singapore processing services market is expected to grow at a compound annual rate of 7.2 per cent till 2011 to reach US$1.41 billion.
This article first appeared in BT on June 04, 2007
