The global outsourcing market will finish 2007 at US $297 billion, with an estimated growth rate of 19.31 percent, according to an independent market forecast by XMG. The forecast includes IT, BPO and call center services, and the onshore and offshore delivery of outsourcing services. The study shows offshoring beating market expectations. XMG analysts predict strong growth and turbulent conditions for global outsourcing through 2010.

XMG forecasts the total outsourcing market to reach US $450 billion by 2010.

"While it is no surprise that India and China continue to lead amongst the offshore countries, our study also showed a noteworthy insight to those following the growth of other offshore countries in Asia," said Lauro Vives, Founding President and Chief Analyst of XMG. "The Philippines is experiencing an unprecedented growth rate of 62% CAGR and will surpass Malaysia in 2007."

In 2006, Malaysia and the Philippines were neck-and-neck with 1.04% and 1.02% respectively of the share of the global revenue.

Additional highlights from the study on the performance of the top 4 Asian offshore countries include:

• India is estimated to capture US $34.1 billion in total revenue by year end 2007 at 29.5% CAGR. India will claim an estimated 11.5% share of the global market. XMG estimates India will continue to lead the offshore segment through 2010 with at least 15% share.
• China is estimated at US $13.1 billion by year end, growing at 47.9% CAGR. China is on track to have a 4.4% share of the global market, based on 2007 total revenue figures forecasted.
• The Philippines is expected to grow to almost US $4.1 billion, and 1.4% of the global market share.
• Malaysia is estimated to finish the year at US $3.6 billion, achieving 1.2% of the global market share.

Even with Malaysia’s 38% growth, the report showed that other countries are outpacing Malaysia primarily due to the country’s lack of available manpower to sustain the growth of its offshore and outsourcing industry.

"Locators are turning to other countries where there is headroom for further growth and expansion," said Vives. "This continues to show that the strategy for expanding offshore rests on the availability of manpower in that country. Our competitor intelligence report shows that the typical profile of offshore locators, whether service providers or captives, is to have the foresight that they can grow anywhere from 60% to 90% year on year unabated over the next two to three years."

XMG analysts saiad that Malaysia recognizes its limited manpower size, and have been steadfastly focusing on increasing revenue share through higher value services.

Turbulence ahead

Looking forward to 2008, the XMG forecast indicates continued strong growth in the offshore markets, citing the rising cost of operations and the continuing depreciation of the US dollar.

Other than China and Malaysia, the cost of operations in India and the Philippines is increasing due to wage rate hikes to retain people and the rise in real estate prices. Both India and the Philippines are estimated to experience continuing general wage increases of 11% and 8% respectively due to talent supply problems.

The spiraling effect of the US dollar and the accelerated appreciation of Asian domestic currencies such as the India Rupee and Philippine Peso is also a factor. "For every percentage point these currencies appreciate relative to the US dollar, we typically see the cost advantages affected by 20 to 30 basis points," said Vives.

About this study

Contact XMG for more information on this global market study, part of a year-to-end forecast conducted in the fourth quarter to estimate year-end performance of the global outsourcing market.

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