In 2017, the largest markets for outsourcing services—the U.S., Germany and U.K.—will continue to provide the best potential for growth. Meanwhile, India and several of the other top traditional offshore destinations continue to provide the best environments to support service delivery.
These findings are from the 2016 ISG Outsourcing Viability Index (OVI) for Opportunity, and the Outsourcing Viability Index (OVI) for Delivery Center Maturity. Both indices are presented in the ISG Momentum® Market Trends & Insights® 2016 Geography Report, which provides global, regional, subregional and country-level data about outsourcing spending, penetration rates and other key metrics. The report includes in-depth profiles of more than three dozen countries that are large markets for outsourcing services and/or leading locations for service delivery.
The U.S., Germany and the U.K. ranked first, second and third respectively in the Opportunity OVI. Notably, outsourcing shows strong signs of expanding, despite the protectionist sentiment currently popular in each country. While very mature and highly penetrated, these markets continue to present tremendous additional business potential for service providers. Digitalization is driving outsourcing demand in each of the countries and in many others covered in the report. The U.S. market is strongly supporting robotic process automation (RPA) solutions and new, digital-oriented services for specific industries. Demand for digitalization is also strong in Germany, particularly in the manufacturing sector. In the U.K., meanwhile, digital disruption in the financial services industry has been a catalyst for transformational outsourcing engagements there. Notably, outsourcing shows strong signs of expanding in the U.S., Germany and U.K. despite the protectionist sentiment that has current popular appeal in each country. Japan ranks fourth in the Opportunity OVI top 10 followed by Australia, the Netherlands, India, France, Switzerland and Sweden.
India and China ranked first and second again in 2016 on the Delivery Center Maturity OVI. Mexico moved up one position to third and Malaysia rose two positions to fourth. Ireland fell out of the top five (to seventh) primarily because of rising costs, and Russia slid from third to fifth amid its stability and international relations concerns. The top 10 of the Service Delivery Maturity OVI includes five Asian countries, four from Europe and one from Latin America.
Skilled labor markets are tight in many service delivery hubs and personnel costs are rising, with China and Poland providing prime examples. Limited labor pools are leading service providers and outsourcing buyers to invest in more automation. Meanwhile, service providers are evolving to meet changing client needs. For example, the combination of growing demand for IT capacity and client reluctance to use offshore services is supporting a wave of new data center construction. Service providers are building new facilities close to their clients, even in mature, developed markets with high operational costs. In these cases, service providers are pursuing advances in automation and energy efficiency to keep costs down.
Client adoption of RPA and other emerging technologies like analytics—combined with continued strong demand for cloud and mobile solutions plus traditional outsourcing services—produced solid spending in most major regions of the world. The scope of opportunity is expanding, as is the set of service providers competing to serve outsourcing buyers. Contact me to find out how you can access the full ISG Momentum® Market Trends & Insights® 2016 Geography Report.