TRADITIONALLY, the demand for outsourced services comes from multinational corporations with operations across the region. However, increasing interest from Small and Medium Businesses (SMB) has been observed across the different countries in APAC.

In the face of a recession, these smaller players will find it increasingly difficult to compete with the behemoths in their fields, and will look to outsource processes to limit expense and tighten budgets. This is also in line with the realization that customer care is not solely the responsibility of larger organizations, and the only way to increase market share is to keep customers satisfied.

This trend was more evident in maturing countries such as Australia, where contact centres have been in existence, ahead of the other nations in the region. While other options such as hosted contact centres are present, outsourcing provides SMBs an effective means of having a fully operational contact center, without the hassle of staffing costs and pressures.

As outbound activity picked up in the past year, smaller organizations have turned to outsourcers to meet their telemarketing, as well as inbound needs. In the recent past, adoption from SMBs have shown significant increase, and all major players, which include Salmat, UCMS, Stellar, EDS, Teletech, Sitel, and Teleperformance are optimistic that the SMB market will continue to be a growing revenue stream for them.

India also saw some traction from the SMB market, as did China, but the percentage still remained relatively small, while Malaysia and The Philippines had even less take up from this segment. One common thread between the Asian countries was the type of transaction required, i.e. telemarketing and collection activity. Prior estimates forecasted a surge in SMB demand 2-3 years from now; this might well be revised down with the downturn and an increased pressure to cut costs across the board.

Transaction Trends

While all outsourcers offer both inbound and outbound transactions, there is a sharp contrast in the frequency with which these channels are used.

Mature markets, represented by Australia, saw helpdesk and technical support comprising most of the services requested by customers. In addition to this inbound traffic, the other markets also saw a steady flow of telemarketing and collection activity.

The underlying difference between the two market segments was the passing of the DO-NOT-CALL (DNC) legislation which took effect in Australia in 2006. DNC limits a contact centre’s freedom to make unsolicited calls to customers. As other countries adopt similar legislation, the contribution of the telemarketing service type may be hampered over time.

However, a continued influx of outbound activity in Australia suggests that companies may have found a loophole, which they exploited. The cause of this increased activity remains unclear, but it is unlikely that the trend will continue, as stricter laws may be enacted as a means of ensuring additional consumer protection.

Outbound services however, had more success in the domestic markets, as was observed in the markets of India, China and Malaysia. In the immediate term, the typically anti-cyclical collections service type will see growth. This will be driven by the turmoil in the BFSI sector and the subprime lending crisis in the USA. Customer service will also see slow to moderate growth while telemarketing will be hampered by reduced consumer confidence and rising prices.

Technology Trends

Automation and Self Service: The outsourced contact center landscape witnessed a movement from agent presence to automation. 2008 saw increased use of self service applications, such as IVR and speech technologies as part of the inbound portfolio. These self service applications had better traction in maturing markets where it was culturally acceptable to eschew person to person interaction in the interest of efficiency and time management.

Australia led the market in the use of self service applications, driven by increasing labour costs and a dwindling high quality workforce. IVR player Holly Connects and speech giant, Nuance Communications experienced a good year in 2008, with strong growth for the demand in self service applications.

Malaysia, India, the Philippines and China also experienced an increasing demand for IVR and speech technologies. However, the price premium associated with these products often put them out of reach of the SMB sector. As development of robust and accurate speech engines for regional language variations and dialects is still in progress in these countries, adoption at a domestic level remains low.

Indian speech developer, Talisma, has made considerable headway in the development of various Indian dialects, and is currently working with multiple IVR vendors to offer a total solution for companies tapping the domestic Indian market.

IP Migration and Unified Communications: Most outsourcers in the region have acknowledged the business benefits of an Internet Protocol (IP) platform and are in the process of migrating. Pricing pressure brought on by the current scenario may push back any plans for upgradation.

However, beyond the short term, outsourcers will have to start adopting hybridization strategies to move towards full IP as prices decrease and the feature set grows. Australia has been earmarked by vendors as a frontrunner for higher IP adoption. The Philippines will also see relatively heightened adoption in order to meet global customer requirements.

Unified Communications in the Contact Center is emerging as a key theme in the industry. In the context of the outsourcing industry, outsourcers are looking for tools that can make the agents more productive and hence cost-effective, and improve overall customer satisfaction ratings ? a key performance indicator for all players.

Unified Communications can play a key role in these two aspects by delivering solutions that can enable agents to get access to client expert resources outside the contact center, or even supervisors and other experts in other delivery centers to resolve customer queries at the first call.

While the talk of extending the contact center into the enterprise has been around for quite some time, with UC this can become a reality. Such solutions are still in their early stages of adoption, but are expected to see traction from the outsourcing sector.

Agent Performance Optimization: Analytics tools such as quality monitoring and performance management suites are seeing increased traction in the outsourcing landscape. Agent performance optimization (APO) is especially important as outsourcers strive to differentiate themselves competitively and demonstrate maximum cost savings for their clients.

Sadly, the price points for analytics tools are still fairly high, and so far, utilization has been seen mostly in Australia. Still, as prices continue to slide in the wake of vendor competition and discounts given, it is expected that adoption of these tools will grow. There is a case to be made for employing these tools in spite of their added cost even in a down economy ? the myopic goal of immediate cost savings may easily be achieved through reducing headcount, but optimum use of existing personnel is guaranteed to yield rich dividends in the future.

Growth Opportunities for Outsourcers in 2009-2010

The full impact of the economic slowdown will be felt by the outsourcing industry in the coming year or two. Outsourcers must be nimble enough to react to these incipient conditions and rethink business strategies if they are to maintain growth in the face of a slowing global economy. A few short term growth opportunities are presented below:

Flesh-out Existing Client Relationships: Since clients will no doubt face pressure to cut costs, existing contracts are unlikely to be in jeopardy. However, with new deals expected to dry up in the short term, particularly in certain sectors, outsourcers must attempt to delve deeper into existing accounts and leverage current relationships to maximize contract value.

Climb The Process Value Chain: In recent years, pure play vendors have seen their margins diminish rapidly with the advent of new market entrants and an increasingly commoditized offering. The large outsourcers were the first to differentiate themselves by offering data services and other business process outsourcing (BPO) services, a practice that has been widely adopted across the growth markets.

To continue to thrive in difficult times, outsourcers must ascend the process value chain once again and expand their offerings to include specialized knowledge processes like patent and copyright related services, business intelligence and analytics.

Pursue Domestic Markets: With offshoring activity expected to decline in the near term, outsourcers must look to domestic markets for growth. Markets like India represent a huge potential opportunity where nascent domestic demand, particularly in the SMB segment, has yet to be met.

New Service Launches: Given the high degree of investment in contact center technology and infrastructure, outsourcers can potentially look at launching hosted contact center services to target their existing customers who have internal contact centers as well as the domestic SMB market opportunity, especially in India, Australia, and the Philippines. This would help monetize their investments in technology, and potentially drive more business for their BPO services.

Consolidate: The recent merger of the India-based Aegis BPO with the Filipino outsourcer PeopleSupport might be the first deal in a series of mergers and acquisitions in the APAC region. Smaller players, especially those catering specifically to BFSI in the USA and elsewhere, may represent a valuable asset for larger outsourcers. The restructuring and rationalization of financial institutions worldwide may have to be mirrored in the outsourcing business as enterprises will move to consolidate multi-provider, multi-sourced relationships which have previously been the norm.

Maximize Efficiency through Self Service, APO: Now, more than ever, it is important for outsourcers to demonstrate cost reduction without compromising on business values or quality of service. Pressure on prices and margins may be on its way; outsourcers must be prepared to adapt by offering intelligent automation through voice portals and by employing agent performance optimization tools to ensure optimum utilization of the current workforce.

Conclusion

Given that the offshore outsourcing markets were in their infancy during the last global slowdown in 2001, this could very well be termed the first recession that the industry has had to deal with.

With no precedent to fall back on, it is difficult to predict how the customers, the vendors and indeed the outsourcers will react to the challenges ahead. Famed economist and Nobel laureate Amartya Sen recently commented that he did not believe that the current economic scenario would have any permanent impact on the outsourcing industry.

That being said, in the short term perhaps outsourcers will draw some comfort from the strong possibility that the outsourcing business will outperform most if not all of their customers’ businesses.

Frost & Sullivan believes that Asia Pacific region will continue to dominate in the offshore outsourcing landscape for voice as well as non-voice business process outsourcing. With established markets such as India and the Philippines, and emerging destinations such as Malaysia, China, and in the foreseeable future Vietnam, Asia Pacific contact center outsourcing market is set to grow at a compound annual growth rate (CAGR) of 14.0 percent from 2008-2011.

Domestic opportunity in India and China will also get attention from the currently offshore-centric players. Consolidation of players and geographic expansion within and outside the region is also expected to continue in the forecast period. By 2011, the opportunity in Asia Pacific for contact center outsourcing services is expected to cross $20.0 billion.

About the authors: Kunal Kakodkar is a Research Analyst at Frost & Sullivan’s ICT Practice and tracks the contact center applications, hosted contact center and outsourcing markets in Asia Pacific. Shivanu Shukla (sshukla@frost.com) is an Industry Manager at Frost & Sullivan’s ICT Practice. He leads the Unified Communications Practice and Contact Center Practice at Frost & Sullivan in Asia Pacific.

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