Asia Pacific to drive global services industry: Frost

• Uncertain global economy, struggle in Europe markets, sluggish US and developing market growth affected outsourcing industry
• Asia Pacific market outlook positive due to domestic growth potential and likely to gain further from global outsourcing

THE global services industry looks to maintain strong growth momentum heading into 2013, with the Asia Pacific market being a major driving force.
 
The region continues to be preferred locations of choice with India, China, the Philippines and Malaysia, followed by Indonesia, Thailand and Vietnam, Frost & Sullivan said in a statement.
 
In 2012, the complex and uncertain global economic conditions, persistent struggle in the Europe markets, combined with sluggish growth in the United States due to impacted elections, and similarly tamed growth in developing markets (China, India and Brazil) affected the outsourcing industry as a whole.
 
The Asia Pacific market outlook is prominently positive due to its domestic growth potential and with accelerated momentum, it is likely to gain further from global outsourcing, the analyst firm said.
 
However, Latin America (LATAM) is looked to benefit from the near-shore trend and is likely to come up as competitor to Asia Pacific destinations. With increasing focus on cost, rural sourcing is set to pick up with government interest.
 
According to Krishna Baidya, industry manager, ICT Practice APAC, Frost & Sullivan, “The large LATAM market is location-dependant and locations such as Brazil, Mexico, Chile, Colombia and Peru are likely to register outsourcing growth whereas destinations such as Guatemala, Costa Rica, Panama, Honduras are likely come up often while picking near-shore destination.”
 
“Global services providers are likely to set or expand their presence in those markets to take advantage of the market sentiment,” he added.
 
Changes in wage costs and shifts in currency in the volatile financial markets also affect location preference. Amid currency devaluation, Baltic States like Estonia and Latvia move up in the preferred destination list. Improving fundamentals and infrastructure has helped Egypt and United Arab Emirates (UAE) gain prominence.
 
Tech trends to drive change
 
Technology trends in cloud computing, mobility, social, big data and security will look to change the industry in 2013, with data security as the critical focus.
 
The trends offer new growth opportunity, potential of better productivity and lead to the development of new innovative business models, which will address the stiffened market competition.
 
There are also new opportunities for Business Process Outsourcing (BPO) as there is a fundamental shift in relationships between organizations and their customers, touch points and mode of communications.
 
Organizations will look to utilize a broad mix of service delivery options including shared services and cloud technology, with key emphasis on business value creation. Analytics capability will be a crucial component to future service revenue and to move up the value chain, Frost & Sullivan said.
 
Organizations will also continue to leverage on outsourcing to optimize operations and gain productive returns. However, they are likely to work on cost-savings; and be prudent about outsourcing services and savvier in contract negotiation.
 
Service providers will look to address such challenges and focus on relationship development with clients through enhanced value and quality service offerings.
 
Frost & Sullivan forecasts joint ventures, business outcome based pricing and revenue-sharing arrangements to become more commonplace in the near-term.
 
Innovative pricing and engagement models, along with the evolution of the delivery model, are also expected as competition in the market stiffens and pressure on profit margin rises.
 
Business relationships between outsourcer stakeholders and organizations will be looked to develop into more efficient partnerships.
 
The overall growth within the global services industry is expected as near-shore forecast is poised for acceleration. Offshore outlook is predicted to maintain its strong position while onshore forecast will be a major driving factor with continued domestic market growth in emerging nations, the analyst firm said.
 
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