CBI Trade Statistics:

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CBI | Market Intelligence Product Factsheet Cloves in Germany | 1

CBI Trade Statistics:

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CBI | Market Intelligence Trade Statistics Business Process Outsourcing (BPO) | 2

Introduction

EU companies are increasingly open to outsourcing business processes (BPO). Demand for BPO services is largest in the United Kingdom, the Netherlands, and Scandinavian countries. Due to language similarities, France offers opportunities for companies from North and East Africa, while Spain offers opportunities for companies from Latin America. The segments with the best opportunities for BPO providers from developing countries (DCs) are finance and accounting, contact centres, document management, human resources, and social media.

Promising markets

The EU market consists of 28 countries that all have different characteristics. Some countries are more promising for DC BPO providers than others. Three elements where your opportunities in the different EU markets stem from are:

 Openness towards international outsourcing;

 Market size;

 Language.

Northern EU countries are most open towards international outsourcing

In general, Northern EU markets such as the United Kingdom, Scandinavian countries (Sweden, Denmark, Finland, and Norway) and the Netherlands are most receptive to international outsourcing (Figure 1). However, as the BPO market is maturing, other markets in western, central, and southern Europe are expected to become more open to international outsourcing as well, such as Germany, France, and Spain.

Figure 1: Openness of EU countries towards international outsourcing, 2014

Source: Industry experts

The United Kingdom and Germany have the largest markets

The United Kingdom and Germany have the largest BPO markets in the EU (Figure 2) and therefore offer opportunities. Although German companies are quite open to international outsourcing, many prefer nearshoring (outsourcing to foreign providers within the region, for example in Poland or Romania) to offshoring (outsourcing to foreign providers outside the region, for example in Asia) due to language and cultural similarities. Medium-sized markets are Scandinavian countries, the Netherlands, Spain, and France.

Tips:

 Focus on one or two EU priority countries. Be aware that product, price, promotion, and distribution strategies might differ in each EU country, unless you target similar countries (Scandinavian countries, for instance). It is therefore important that you research your priority markets carefully.

 When deciding on your priority target market(s), keep in mind the openness towards international outsourcing, market size, and language.

Tip:

 Focus on the United Kingdom, Scandinavian countries and/or the Netherlands as these countries are most receptive to international outsourcing.

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CBI | Market Intelligence Trade Statistics Business Process Outsourcing (BPO) | 3 Figure 2: Level of openness towards international outsourcing versus BPO market size, EU regions, 2014

Source: TPI index (measures commercial outsourcing contracts with an annual contract value of € 3.78 million or more) and interviews with industry experts

France and Spain can offer good potential in case of language matches

Language also plays an important role in BPO, especially in the contact centre, data-related services, and human resource segments. A language match can therefore also offer opportunities for DC BPO providers.

United Kingdom DACH (Germany, Austria, Switzerland) Scandinavia (Norway, Sweden, Finland, Denmark) BeNeLux (Belgium, Netherlands, Luxemburg) France Southern Europe Eastern Europe Medium High Low Tip:

 When targeting Germany, approach the market through a German-speaking employee or a German contact person in order to minimise language and cultural differences.

Tip:

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Market developments

EMEA has the largest outsourcing market

The EMEA region (Europe, Middle East, and Africa) has the largest outsourcing market, representing 55% of the global annual services-outsourcing contract value according to TPI. This is a 70% increase since 2008, which shows that EMEA is clearly a high-priority target for outsourcing providers. The value of BPO outsourcing contracts with an annual contract value of € 4 million or more signed in the EMEA region in the first half year of 2014 was 18% lower than in the previous half year, reaching a value of € 0.9 billion. However, this is probably the result of an increase in the number of smaller BPO outsourcing deals (with a value below € 4 million). More EU companies are adopting a multi-vendor model, which means they have several smaller contracts with different providers.

Increased openness towards BPO

As competition in the global market continues to rise, companies and organisations of all sizes are increasingly open towards outsourcing as a way to reduce costs and improve efficiency, particularly with regard to IT and business processes. EU companies and organisations outsource IT services the most. This underlines a more mature market for Information Technology Outsourcing (ITO) than for Business Process Outsourcing (BPO). However, in the most mature EU BPO markets, between 6-15% of BPO was outsourced in 2013 (Figure 3). This demonstrates that there is still a great potential for growth.

Figure 3: Outsourcing of BPO for the EU markets that are most open to international outsourcing, in %, 2013

Source: Ernst & Young

75% 80% 85% 90% 95% 100% Outsourced In-house Tip:

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Outsourcing is forecast to grow

The services outsourcing market including BPO, is expected to grow. Growth is expected to be highest in Norway (Figure 4). Most companies and organisations that are already outsourcing services indicate that they will extend their current outsourcing contract once it ends (45%). This shows that they are either satisfied with the services delivered or that the costs involved in switching providers are too high. Another significant proportion (41%) intends to execute a selection process in which their current service provider will be included. Furthermore, standardisation of services and solutions in the cloud will make it easier to switch providers. This means that there are possibilities for new entrants.

Figure 4: Prediction of outsourcing for the EU markets that are most open to international outsourcing, in %, 2013

Nearshoring is preferred over offshoring

The majority of outsourced BPO services are outsourced to providers within the same country (onshoring). When outsourcing to foreign providers, nearshore locations (countries within the region, for example eastern EU countries) are preferred over offshore locations (countries outside the region, for example Asian countries), except for companies and organisations in the United Kingdom and Norway (Figure 5). Nearshore locations are generally preferred because of their proximity and language and cultural similarities. However, as prices in nearshore countries are rising, providers in these countries are becoming less competitive for offshore providers.

0% 20% 40% 60% 80% 100% Finland Sweden Spain UK Germany Netherlands Denmark Norway Increase Stay the same Decrease

Tip:

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CBI | Market Intelligence Trade Statistics Business Process Outsourcing (BPO) | 6 Figure 5: Location of BPO for the EU markets that are most open to international outsourcing, in %, 2013

Drivers and risks for outsourcing

Cost reduction continues to be the principal driver for outsourcing

The main reason for outsourcing in 2013 remains cost reduction, continuing a well-established trend (Figure 6). This is primarily driven by continued economic uncertainty. Efficiency improvements and the focus on core business are other main drivers. The search for cost reduction offers interesting opportunities for DC BPO providers, since they can generally offer their services at a much lower rate than providers in the EU.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Offshore Nearshore Onshore Tips:

 If you are located offshore, try to limit the possible disadvantages of being offshore by providing excellent means of communication, availability in the required time zone, and good security and privacy measures.

 Partner with nearshore BPO providers, as Eastern European companies are driven to look for cheaper destinations. Many DC BPO providers have not yet recognised this opportunity.

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CBI | Market Intelligence Trade Statistics Business Process Outsourcing (BPO) | 7 Figure 6: Most important reasons for outsourcing for the EU markets that are most open to international outsourcing, in %, 2013

Dependency on external service providers is seen as the main risk

When companies and organisations outsource, a number of risks have to be addressed. Dependency on the external service provider is perceived as the most important risk, followed by loss of control and impact on quality (Figure 7). Although companies and organisations face many risks when outsourcing services, they are apparently capable of managing these risks, because they are continuing to outsource.

23 24 26 33 42 0 5 10 15 20 25 30 35 40 45

Access to specific knowledge, expertise and tools Reduction in headcount objectives Improved focus on core business Efficiency improvements Improvement in cost level or reduction

Tips:

 Emphasize in your marketing message how your company can comply with cost reduction, efficiency improvements, and a focus on core business.

 One of the main reasons for bringing services back in-house is the failure to achieve the expected cost savings. Therefore, consider working with flexible, output-based pricing models.

 Apart from cost reduction, focus on offering added value. Cost reduction is especially a driver for first generation outsourcers. However, second generation outsourcers are increasingly looking for added value. They are looking for providers that will act as business partners who will thoroughly familiarize themselves with the outsourcers’ business and help drive efficiency and development.

Tips:

 Consider offering a trial project to potential EU buyers to showcase your capabilities and to gain trust.

 Make sure you obtain extensive knowledge of your customer’s company, for example through knowledge transfer sessions at the beginning of a partnership.

 Study the business culture of your customer to better understand his local culture and avoid (cultural)

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CBI | Market Intelligence Trade Statistics Business Process Outsourcing (BPO) | 8 Figure 7: Most important risks for outsourcing for the EU markets that are most open to international outsourcing, in %, 2013

Outsourcing destinations

Continuing advances in technology and communication infrastructure are facilitating the access of companies and

organisations to skills at locations across the globe that were previously inaccessible. The Global Services Location Index of A.T. Kearney tracks the contours of the offshoring landscape to deliver ITO and BPO in 51 countries across three

categories: financial attractiveness, people skills, and availability and business environment (Figure 8). Figure 8: Country rankings A.T. Kearney Global Services Location Index, 2014

Source: A.T. Kearney

Asia

Asia is the dominant outsourcing region for ITO and BPO according to A.T. Kearney’s Index, with 6 countries in the top 10, including India, China, Malaysia, Indonesia, Thailand, and the Philippines. Bangladesh is a new entrant who entered this year’s index in 26th_{place. South East Asia’s maturing ‘Outsourcing Brand’, improving macro-economic environment, and}

0 10 20 30 40 50 60

Loss of knowledge Loss of confidentiality Impact on quality Loss of control Dependency on external service provider

0 1 2 3 4 5 6 7 8

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expanding domestic markets continue to draw the attention of EU services buyers, including BPO buyers. South East Asia is expected to remain the most important region for BPO.

Latin America

Latin America is also performing well, with 2 countries in the top 10: Mexico and Brazil. Other countries in the ranking are Chile (13), Costa Rica (24). and new entrant Colombia (40).

Europe

Especially Eastern European countries, such as Bulgaria, Poland, Lithuania, Romania, and Estonia, are popular outsourcing destinations for services. They are getting more attention as respective cities continue to develop their ITO and BPO landscapes, especially in Poland. Furthermore, for EU buyers, communication with Eastern European companies is

perceived as easier than with offshore companies due to the small time difference and the number of cultural and language similarities. This is very important, as many offshored projects fail due to simple communication problems. Legal and financial issues are also much simpler, as many of those countries are EU members.

Middle East and Africa

some countries in the Middle East and North Africa are doing quite well, as they benefit from their proximity to Europe and a large talent pool. Egypt is a good example thereof, but it has dropped in popularity due to prolonged political turmoil.

Success factors Bangladesh

Between October 2010 and June 2013, the NTFII Bangladesh project was implemented by a partnership between ITC and CBI. The objective of this project is to brand Bangladesh as a Global IT Sourcing Destination. In 2014, Bangladesh surfaced on the A.T. Kearney list in 26th

place. Among the main success factors for this development are:  Communicating positively: focus on strengths

 Implementing a branding roadmap to position Bangladesh

 Articles in newspapers

 Using consultancy companies (e.g. KPMG)

 -> Whitepaper Bangladesh Beckons, ‘An emerging destination for IT/ITeS outsourcing’

 Working with brand ambassadors

 Mobile marketing: Bangladesh exporter directory app

 Social media support

 Trade fairs: consistent use of logo and tagline Tips:

 Benchmark your competitiveness against BPO providers from other countries, both nearshore and offshore, and analyse their best practices. Check the A.T. Kearney Global services Location Index for a complete overview of the top ITO and BPO destinations. Using your competitors as resources can help you discover what they are doing right or wrong. This can help you identify ways to differentiate yourself from them.

 Positive country branding is very important to increase awareness of your country as a BPO destination. However, you cannot do this alone. You need the public and private sector. You are therefore recommended to join forces with other BPO stakeholders in your country and together lobby for joint country-branding campaigns,

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Promising segments

Facilities management and legal services are the segments that are outsourced the most by business processes companies (Figure 9). However, legal services are mostly outsourced to onshore providers due to the knowledge of local legislation they requrie. According to industry experts, finance and accounting, contact centre services, HR services, digitisation services (part of document management), and social media are the segments that offer the best opportunities for DC BPO providers.

Figure 9: Outsourcing of business processes for the EU markets that are most open to international outsourcing, in %, 2013

Source: A.T. Kearney

Finance & accounting among the highest growth segments

Finance and accounting is the BPO segment that is showing highest growth according to industry experts. Within finance and accounting outsourcing, accounts payable and receivable, transactional outsourcing, and general accounting are outsourced the most. Although innovation and analytical value are appreciated, the main reasons for adopting finance & accounting outsourcing have reverted back to cost reduction and standardisation of processes.

The contact services segment continues to grow

The contact centre segment continues growing, driven by the rising interest in outsourcing as a way to reduce costs. Services offered include round-the-clock support services through e-mail, chat, and voice. Most outsourced services within the contact service segment are IT helpdesk and employee contact services.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Sales

Procurement Knowledge processes HR services Finance and accounting Marketing Production and development Design and engineering Call centre and customer support Logistics Payroll services Facilities management Legal services In-house Outsourced Tip:

 Specialise in a specific BPO segment for a specific industry, for example contact centre services for the finance and banking industry or finance and accounting services for the retail industry. When selecting your focus segment and industry, do not only look at market size and (future) demand, but also at your company’s own experience in this segment.

Tips:

 Focus on transaction-intensive processes such as payroll and accounts payable and receivable as they are outsourced the most.

 Anticipate on the needs for cost reduction and standardisation of potential customers by offering finance & accounting solutions that comply with these needs.

Tips:

 If you are located in a different time zone, use this to your advantage as time zone differences could mean extended availability for EU companies and their customers.

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HR outsourcing is also awakening interest among smaller companies

The emergence of cloud-based human resources platforms and Software as a Service (SaaS) have opened up human resources outsourcing to small and medium-sized enterprises (SMEs). Within human resources, payroll, benefits, recruitment, and learning are outsourced the most. Human resources outsourcing is expected to continue to evolve and grow.

Digitisation services in saturation phase

There are still EU companies that have a lot of information on paper needing digitisation. Furthermore, institutions such as libraries, museums, and archives are under great pressure to digitise cultural heritage. The EU digitisation services market offers opportunities for DC providers, as digitisation is labour-intensive work that generally can be done by DC providers at a much lower price than EU providers. However, this is a segment that is becoming saturated and is therefore seen more as a promising segment in the short term (1-2 years) rather than in the long term. It is therefore important to focus on promising services in the long term, such as social media services.

Social media outsourcing is gaining market share

A relatively new segment that is gaining market share is social media outsourcing. The volume of content on social media such as Facebook, blogs, and review sites is growing rapidly. Organising this content is a time-consuming process. As a result, an increasing number of companies are outsourcing social media services to specialised BPO providers. Asian countries such as India and the Philippines, for instance, are a popular destination for social media outsourcing by companies in the United Kingdom.

Refer to CBI’s Product Fact Sheets for insights into promising product-market combinations related to finance and accounting, contact centre services, digitisation, and social media.

For all CBI’s BPO-related market intelligence documents, go to CBI’s ‘Market Intelligence Platform for BPO’. Tip:

 Have a clear understanding of national labour laws and regulations in your target segment.

Tip:

 Make sure you have a clear understanding of the copyright limitations and other important regulations on digitisation.

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CBI Market Intelligence P.O. Box 93144 2509 AC The Hague The Netherlands www.cbi.eu/market-information [email protected]

This survey was compiled for CBI by Facts Figures Future in collaboration with CBI sector expert Harry van Geijn