The offshore outsourcing industry has been a game-changer for businesses worldwide, and the year 2023 is no exception. This article will delve into the latest trends in offshore outsourcing, the technologies enabling these trends, and the implications for businesses, particularly SMEs in Australia and New Zealand.
Outsourcing is a strategic decision that involves transferring some business functions or processes to external service providers. Outsourcing can help organisations achieve cost reduction, operational efficiency, innovation, and customer satisfaction. However, outsourcing also entails risks such as loss of control, quality issues, cultural differences, and security breaches.
Latest Trends in Offshore Outsourcing
The global outsourcing sector has been growing steadily in the past decade, driven by the adoption of disruptive technologies such as cloud computing and robotic process automation (RPA). According to a report by Deloitte, the outsourcing market value is expected to increase from USD 688.4 billion in 2020 to USD 971.2 billion in 2023, with an annual growth rate of 12%. The most outsourced functions include IT, administration, and business processes, which account for more than 70% of the total market share.
In Australia, outsourcing is also a prevalent practice among various industries and sectors. According to a survey by Deloitte, about 80% of Australian organisations have some form of outsourcing in place, and more than 40% plan to increase their outsourcing scope or spend in the next two years. The top in-demand offshore roles for 2023 include software and applications programmers, legal services, and administrative assistants. These roles require specialised skills and knowledge that are scarce or expensive in the domestic market.
Automation and AI: Key Players in Today's Businesses
AI and RPA have emerged as significant trends in the offshore outsourcing industry. These technologies have increased efficiency and accuracy, improved customer service, and are expected to continue to be in demand in the coming years. The COVID-19 pandemic has accelerated the adoption of digital technologies, including AI and RPA. These technologies have helped businesses adapt to lockdowns through remote work and online operations.
AI and RPA offer several benefits for SMEs. They can improve operational efficiency through process improvement and optimisation. They can also drive transformation by promoting the development of new business models.
Let’s take a moment to reflect on the year 2023. It was a time when one in every three organisations had integrated generative AI tools into their regular business functions. This wasn’t just a trend; it was a transformative shift in how businesses operated. Australian businesses, in particular, saw the fruits of this shift. On average, each AI-enabled solution implemented led to a revenue growth of $361,315. That’s no small change! It’s a testament to the power of AI in driving business growth.
The optimism among businesses was palpable. Over 80 per cent of businesses surveyed were not just hopeful but expected their revenue to grow year-on-year. And what was at the heart of their growth strategies? Technology. The CSIRO found that, on average, respondents reported time savings of 30% across all AI-related initiatives. This is a clear indication of how AI and RPA can streamline operations and boost productivity.
AI and RPA offer several benefits for SMEs. They can improve operational efficiency through process improvement and optimisation. They can also drive transformation by promoting the development of new business models.
The surge in digitalisation during the pandemic has saved many firms, helping them adapt to lockdowns through remote work and online operations. High levels of digitalisation have helped shield productivity and employment from the shock, with the most digitalised industries experiencing significantly smaller losses in labour productivity and hours worked than less digitalised sectors.
Wage Arbitrage Remains to be the Biggest Driver of Offshoring
Wage arbitrage remains the single largest source of savings when offshoring operations. For instance, businesses in Australia can hire up to five employees in the Philippines for the price of one onshore. According to a recent report by the Australian Industry Group, the average annual salary for a software developer in Australia is $104,000, while in the Philippines it is $18,000 (before overhead costs).
However, wage arbitrage is not the only benefit of offshoring. Offshoring also allows businesses to access a larger and more diverse talent pool, improve operational efficiency and flexibility, and reduce risks associated with local market fluctuations. Offshoring can also enhance innovation and competitiveness by enabling businesses to leverage global best practices and technologies.
The Philippines Remains to be a Top Offshore Outsourcing Destination
In the context of offshore outsourcing, the Philippines has been a top destination. Despite slipping three spots in the global ranking, the Philippines continues to be the business process outsourcing (BPO) engine of Asia. It is home to over 1,000 BPO firms that employ over 1.2 million people. The drop in ranking was primarily due to the rise of nearshore capability centres like Mexico and Colombia, which are closer to the United States.
The Philippines has been a leading destination for outsourcing and offshore services for many years, thanks to its competitive advantages in terms of cost, quality, and talent. Some of the factors that make the Philippines an attractive option for businesses looking to outsource are:
- The large pool of skilled and educated workers who can speak fluent English with a neutral accent. The Philippines has one of the highest literacy rates in Asia and a strong educational system that produces graduates in various fields such as engineering, IT, accounting, and healthcare.
- The low cost of labor and operations compared to other countries. The Philippines offers lower wages, taxes, and overhead expenses than many of its competitors, allowing businesses to save up to 60% on their outsourcing costs.
- The cultural compatibility and adaptability of the Filipino workforce. The Philippines has a long history of colonialism and globalization, which has shaped its culture to be more open, flexible, and customer-oriented. Filipinos are also known for their work ethic, creativity, and resilience in the face of challenges.
- The supportive government policies and infrastructure that facilitate the growth of the outsourcing industry. The Philippines has enacted laws and incentives that encourage foreign investments, protect intellectual property rights, and ensure data security. The country also has a robust telecommunications network, reliable power supply, and modern transportation systems that enable smooth operations and connectivity.
These are some of the reasons why the Philippines remains to be a top destination in outsourcing and offshore services. As the global demand for outsourcing continues to rise, the Philippines is well-positioned to meet the needs of various industries and sectors with its diverse and dynamic offerings.
GSI, has been successful in engaging its Philippines-based staff. We achieved an impressive 87% engagement rate and a low staff turnover of 10%. This success can be attributed to our commitment to creating a positive work environment and providing opportunities for growth and development.
Emerging Technologies
As we look towards the future of the offshore outsourcing industry, particularly in the context of the year 2023 and beyond, it’s clear that emerging technologies will play a pivotal role in shaping the trends and dynamics of this sector.
One such technology is Generative AI (GenAI). GenAI technologies have the capability to generate new versions of content, strategies, designs, and methods by learning from large repositories of original source content. This technology is driving widespread adoption across enterprises, including the outsourcing industry. The potential applications of GenAI in outsourcing are vast, ranging from automating routine tasks to generating innovative solutions for complex problems.
Another technology that is set to impact the outsourcing industry is Digital Twins. These are technology-enabled proxies that generate a digital representation by mirroring the state of physical or virtual assets, processes, persons, or organizations. They can provide valuable insights and predictive analytics, enhancing decision-making in outsourcing. For instance, a digital twin of a business process could help identify bottlenecks and inefficiencies, enabling businesses to streamline their operations and improve productivity.
Autonomous Unmanned Aerial Vehicles (UAVs), or drones, are also gaining traction in the outsourcing industry. While these autonomous flying machines are mostly used for asset inspection, they are also being used to help deliver small packages. This could revolutionize logistics outsourcing by enabling faster, more efficient delivery of goods.
Smart Spaces are another emerging trend that could impact the outsourcing industry. These are physical environments where humans and technology-enabled systems interact in increasingly open, connected, coordinated, and intelligent ecosystems. This could lead to more efficient and collaborative workspaces in outsourcing hubs, enhancing productivity and fostering innovation.
Spatial Computing is a computing environment that combines physical and digital objects in a shared frame of reference. It could enhance collaboration and productivity in distributed outsourcing teams by enabling seamless interaction between team members, regardless of their physical location.
Finally, Model Compression, a set of techniques that reduces the size of a trained neural network for deployment on small devices or to increase a central system’s capacity, could optimize AI models used in outsourcing services. This could enable more efficient use of resources and improve the performance of AI-powered services.
In the modern context, offshoring and outsourcing have emerged as strategic tools that can provide significant benefits to small and medium-sized businesses in Australia. By leveraging the offshore outsourcing industry trends, businesses can access a global talent pool, reduce operational costs, and focus on their core competencies. The advent of emerging technologies has further enhanced the efficiency and effectiveness of outsourcing, making it a viable and attractive option for businesses of all sizes. As we move into 2024 and beyond, the offshore outsourcing industry is poised to become an even more integral part of the business landscape, offering opportunities for growth, innovation, and success. For Australian businesses, embracing these trends could be the key to navigating the challenges of the future and achieving sustainable growth.
