The increasing demand for business process outsourcing is set to create a seller's market this year, according to a study by Gartner, a provider of research and analysis on the global information technology industry.
According to a Gartner global release, the worldwide BPO market is projected to grow eight per cent to reach $133.7 billion in 2005 from $123.8 billion in 2004.
Gartner analysts had predicted earlier this year that eight to 12 major BPO contracts, each exceeding $300 million, were likely to be signed between the fourth quarter of 2004 and the end of the first quarter in 2005. This is now turning into a reality. The analysts believe the demand for BPO will surge as more of these larger deals are signed.
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Says Lisa Stone, research vice president at Gartner: "The level of activity that we are seeing now reflects the fact that the value proposition behind BPO has been accepted by buyers. Through year-end 2005, prospective buyers will be energised, creating a seller's market."
Stone explains that prospective buyers should understand that, as rising demand materialises into more completed deals, the top vendors of BPO services will be focused on this newly acquired business. Thus, more vendors will be in a position to bid only on projects that have a high probability of resulting in a sale.
Adds Gartner principal analyst Robert Brown: "If a company is considering new BPO projects, it must begin to develop a BPO strategy and make decisions soon. Companies must consider if BPO offers them an opportunity to improve services without capital investment, offload non-core services or reduce operational costs. The sooner prospective buyers can start meaningful discussions with providers, the more likely they will be to get the BPO vendor's attention."
With the increasing demand for BPO, Gartner analysts said prospective buyers need to make sure that BPO providers have enough qualified personnel to meet the increased demand. Many new vendors will be coming into the market that lack particular domain expertise.
Stone illustrates that "Buyers should assess if their company's BPO opportunity is compelling from a vendor perspective.
"This can be analysed by evaluating whether the type of BPO offered aligns with the provider's strategic direction, and how committed the provider is to staying in that market."