By Dan Berthiaume
The US economy is not in great shape. I will not delve into exactly where we are in the “recovery” (or if one has even started), but I think a general statement that times are tough for many Americans is pretty easy to defend. One major economic issue affecting millions of Americans is jobs, or lack thereof.
And pundits and politicians across the ideological spectrum are singling out BPO as a major cause of an official unemployment rate that remains well above 8%. For example, in December 2011 four US lawmakers (three Democrats and one Republican) proposed a bill that would penalize companies attempting to move call center jobs overseas. The idea behind these types of actions is that BPO is some sort of fad or attempt to take advantage of lax regulations, and that there is some sort of debate in the business community over whether BPO is a useful tool.
To put it politely, hogwash. While members of the news media and politicians may discuss the evils of BPO as a “job killer” or discuss strategies to prevent companies from outsourcing business processes to lower-cost providers, there is no debate about the merits of BPO within the US business community whatsoever. BPO is a routine means of reducing costs and increasing efficiencies used by almost every major US corporation and many smaller ones as well, and it shows no sign of abating. But don’t just take it from me; take a look at what advisory services company Information Services Group (ISG) says about the growth of global BPO during 2011.
ISG: Total Contract Value of Global BPO Rises 3% in 2011
According to the ISG Global TPI Index, which covers global BPO contracts valued at $25 million or more, the total contract value (TCV) of commercial outsourcing contracts in 2011 reached $95 billion, a 3% increase from 2010 and the highest total reached since 2005. In addition, the number of new BPO contracts signed during 2011, 870, set a new record and was well above the average of 690 contracts signed during the five previous years.
Furthermore, BPO contract growth during Q4 2011 grew an even stronger 7%, suggesting that interest in BPO is increasing during 2012 and we may well see another record-setting year. And a recent white paper from Capgemini, “BPO in Manufacturing: Catching the New Wave of Innovative Services,” forecasts growth in use of both supply chain and finance & accounting BPO by manufacturers of about 10% in the next few years, and also predicts manufacturers will increase their use of social media BPO.
While all of these figures represent global activity, clearly this type of growth would not be possible without substantial contributions from US companies sending work overseas.
BPO Doesn’t Have to Mean Offshoring
So despite all the “controversy” surrounding BPO in the media and political worlds, inside the business world where BPO is performed there is no controversy at all. One other hidden truth of BPO that is worth pointing out is that outsourcing does not always equal offshoring. Increasingly, companies both inside and outside the United States are outsourcing business processes to providers located right here in the good old US of A.
For example, according to “Insourcing Jobs: Making the Global Economy Work for America,” a report authored by Matthew Slaughter of the Tuck School of Business at Dartmouth, insourcing has led to 2.7 million jobs for American workers since 1987, with the total number of American workers hired by foreign companies standing at 5.4 million as of the end of 2002.
And for a current example of insourcing success, look no further than GalaxE.Solutions, a New Jersey-based provider of platform and business process transformation services to clients in a number of industries, including healthcare, which has discovered an outsourcing solution that it says combines the best aspects of onshore and offshore BPO. Since early 2010, GalaxE.Soltuions has been processing high-level pharmaceutical benefit transactions at a delivery center in Detroit, allowing the company to obtain onshore service levels at offshore prices.
By the time GalaxE.Solutions discovered Detroit, other companies including QuickenLoans and Compuware had already formed the nucleus of a new downtown IT hub, and the local government and educational community were highly supportive, indicating Detroit may develop as an “insourcing” center for the US.
Furthermore, a fall 2011 report from Boston Consulting Group suggests that demand for domestic managed services could rise in areas including vehicles and auto parts, electrical equipment including household appliances, and furniture, as a result of manufacturing jobs returning to the US from China. BCG says factors such as rising Chinese wages and the appreciation of the Chinese yuan against the US dollar could return as many as 2 million to 3 million manufacturing jobs to the US by 2015.
BPO is neither an object of controversy in the business community nor a bogeyman responsible for a wide-ranging global economic collapse whose precise causes are still being debated by top economists. The main BPO debate US companies should be pursuing is: Does BPO make sense for us as a way to increase competitiveness, decrease costs, and encourage growth, ultimately allowing us to contribute more to the economic good?