Financial Crisis Hits BPO Industry

ValueNotes reported this week on a significant reduction in the number of deals within the BPO industry. The number of deals dropped from 109 in the first quarter of 2007 to 78 in the first quarter of the current year. The second quarter of this year saw 58 deals compared to 101 in the same period last year.

While the generally accepted viewpoint is that financial pressures will result in an upturn in the BPO, KPO, and LPO markets, I don't subscribe to the contention that this will materialize in the short-term.

Outsourcing initiatives of any substantial scale, irrespective of whether they relate to BPO, KPO, ITO or LPO, require a major degree of investment on the front end in terms of time, effort, money, and firm or corporate wide buy-in. It is entirely normal for the due diligence, RFP and pilot project process, for a Fortune 500 company, or Am Law 200 firm, prior to engagement with an LPO, to take 6-12 months or more. Key stakeholders on the client side have their hands quite full at the present moment in time dealing with more pressing matters than embarking on new outsourcing initiatives. We may even in the short-term witness a number of existing initiatives being discarded while the markets are in such a state of turmoil.

The argument for outsourcing, however, is stronger than ever before. I have no doubt that in the medium to long term we will once again be reporting on record numbers of deals in the space