BPO - European vendors need to rethink their strategy

One of the key findings from a recent research in Europe on IT services vendors is that Offshore BPO services provision is rapidly overtaking IT transformation as the main value driver in BPO deals, and this is going to have a significant effect on the vendor going forward. IT services vendors increasingly see offshore as enabling quicker, lower-risk cost reduction than IT transformation. And more European clients in both the private and public sectors are following this trend.

The volume of offshore resources, and experience in managing them, is important today, but it will be a key factor in the European BPO market tomorrow. It has been noted that in terms of BPO, the industry has split into three groups. First come the established Indian companies who have the strongest expertise and most scaleable offshore BPO resources. The second is the US-based IT services giants including IBM, Accenture, EDS and HP. These companies have all invested heavily in the past five years to ramp up their Indian resources- they also have the benefit of already employing significant numbers of service staff in other onshore, nearshore and offshore locations globally. This enables them to be more flexible and scaleable in offshore proposition.

Lagging behind both these groups are the European IT services. Most European IT vendors can only show off a few thousand staff in India, with many BPO vendors such as Capita, Xchanging, or Arinso having head count of their offshore employees in the hundreds. Now how they manage to scale-up these resources, and gain from its expertise effectively will be something to be seen in the next 10 years.

Building an offshore proposition will not be easy job for the European IT services. With added competition for resources in India, and the infancy state of other potential offshore locations, it will take many more years before an European offshore operation starts running successfully. The quickest route for European vendors will be from Mergers and acquisitions. The industry has already seen Capgemini acquire Kanbay, and Wipro acquiring several small European firms in support of its BPO strategy. Such Mergers and acquisitions will undoubtedly increase over the next few years, and European vendors must grab the opportunity either by buying offshore, or selling-up to an offshore-based player. If not, they could be out of the BPO race much before the dust settles