SIZE OF THE OBPO PHENOMENON

It is the global scale of the OBPO phenomenon that makes this both an interesting and important research topic. This section utilises published sources to derive an estimate of the OBPO market. Comparable estimates of the size of the global BPO market (i.e. combining both domestic and OBPO) vary widely in published academic papers, ranging from $1.2 trillion per annum (Yang, Kim, Nam & Min, 2007) to $140 billion (Willcocks et al., 2009) to $127 billion per annum (Whitaker, Mithas & Krishnan 2011). One possible explanation for the wide variation in estimates is that some sources appear to combine both global ITO and BPO. There may also be problems of definition of the phenomenon under study that contributes to the wide variations, and this is addressed further in section 2.4 below.

Analysis of the varying estimates of the global BPO market that have been published in academic references also indicate that these are often based on primary data sourced from industry consultants such as Gartner, IDC, Everest or McKinsey, or an industry association such as NASSCOM in India and/or Business Processing Association Philippines (BPAP). Consulting firms that derive revenue from BPO activities may have an inherent bias towards inflating estimates of market size and rates of growth, so this data needs to be treated with caution.

Variations in definitions of what is included in the category of global BPO services will also impact on estimates of market size. For example, Gartner base their estimates of global BPO services on BPO activities in vertical markets including banking, financial services and insurance, human resources, procurement, back-office administration, legal call centres and customer service. Not included in Gartner’s definition of BPO are activities such as content creation (e.g. publishing and printing services), animation and medical transcription.

The Indian industry association NASSCOM (National Association of Software and Services Companies) has applied considerable effort over more than a decade to develop and report accurate data for the size of the ITO and BPO market in India. At various times, NASSCOM has also worked with research firms such as McKinsey and Everest to apply greater independence and rigour to the task of deriving accurate forecasts for ITO and BPO market size. However, NASSCOM reports that it experiences difficulty in deriving accurate valuations for the work performed in India by captive BPO operations (also known as “Global In-house Centres”) as these are not usually members of NASSCOM. Refer to section 2.5 for a further discussion on OBPO engagement models (also referred to in some academic articles as OBPO “governance modes”).

The research firm Everest has developed a database on captive BPO operations in India, and the data published by Everest since the 2009/10 Financial Year has been used as an initial

basis to estimate the value of BPO activities performed in India through captive operations. In Table 2.4 below, figures are provided over an eight-year period in order to illustrate both the historical rate of growth in the OBPO industry and also the persistence of the captive model. Based on forecasts provided by Everest, a forward-looking forecast is also provided for FY20. (www.everestresearchinstitute.com).

Utilising data and analysis primarily obtained from Willcocks and Lacity (2009), Lacity et al., (2008) and Willcocks et al., (2009) and Oshri, Kotlarsky and Willcocks (2015b) as baseline sources, and updating using additional data from NASSCOM and Everest Research Institute (www.everestresearchinstitute.com), the global market for BPO services in 2009/10 was estimated at $250 billion. The OBPO component in the same period was estimated at $85- $90 billion. OBPO delivered by service providers in India (including both captives and third- party vendors) was estimated at $30-$35 billion in FY10, with captive operations contributing $6.25 billion and third-party vendors $23.75 billion.

By 2013/14, Everest Group estimated that the global OBPO component had grown to $137 billion, with a compound average annual growth rate over that 5-year period of 8%-10% (Everest, 2015). The same research ranked the leading service provider destinations for performing OBPO as follows:

1. India

2. The Philippines

3. Central and Eastern Europe (predominantly Poland) 4. China

5. Mexico

Refer to section 2.6 and table 2.8 below for more detail on major OBPO locations.

In summary, the global scale of the OBPO phenomenon is already large and forecast to continue to grow strongly. Hence this is a phenomenon requiring significant research focus. The table below summarises estimated OBPO global market size. Everest and other analysts report that Global In-house Centres (or “captive operations”) have represented about 30% of OBPO activity across that period.

Financial Year Third-party contracts Global In- house centres (GIC)

Total market GIC as a

percentage of total FY 10 $60b $25b $85b 29% FY 14 $97b $40b $137b 29% FY 16 $113b $47b $160b 29% FY17 $120b $51b $171b 29% FY18 $127b $55b $182b 30% FY20 $140b $64b $204b 31%

[Note on table 2.4: Everest estimated the Global In-house Centre service provider industry in 2013/14 to represent approximately $40 billion. The methodology utilised to calculate the value of OBPO performed in GIC was primarily based on reported head count employed in these centres, which clearly is an inexact measure. Everest reported 1,723 GICs in operation in FY14. These figures reported by Everest appear significantly higher than estimates provided by Oshri and van Uhm (2012) who reported an economic value in 2009/10 of $12.3 billion based on 500 GIC in 34 countries employing over 440,000 professionals. Oshri and van Uhm (2012) appear to have based their estimates on primary data sourced from NASSCOM, and have mainly focused on GIC operated by large multinational companies (e.g. global Fortune 500). Figures for FY16 – FY20 in Table 2.4 above are based on estimates from Everest and NASSCOM (NASSCOM Indian IT-BPM Industry FY16 Performance and FY17 Outlook, February 2016, and NASSCOM Catalyzing the Ecosystem for a trillion dollar digital economy, February 2018)].