Human Resources Is Biggest Component of BPO Market in Asia Pacific, Says Gartner

Overall Asia Pacific BPO market growth to slow to 9 percent in 2006

STAMFORD, Conn., September 15, 2006 — Human resources business process outsourcing (HR BPO) now represents the biggest component of the overall BPO market in Asia Pacific, according to Gartner, Inc.

Payroll services, benefits administration and training and development are the most common HR activities outsourced in the region. The Asia Pacific (excluding Japan) HR BPO market is expected to reach US$1.3 billion in 2006, representing 24.7 percent of the total BPO market and an increase of 9 percent from US$1.2 billion in 2005.

The overall BPO market in Asia Pacific is expected to reach US$5.4 billion in 2006, an increase of 13.5 percent over 2005. Australia experienced growth rates higher than the Asia Pacific average for HR BPO, at 10 percent from 2005 to 2006. The total BPO market in Australia will expand from A$779 million in 2005 to A$855 million in 2006.

“HR has long been identified as a key area for outsourcing, usually for payroll and benefits administration services,” said TJ Singh, research director for Gartner. “As a back-office function, aspects of HR are often deemed core, yet non-critical functions and are often most companies’ first stop on the BPO journey. Payroll outsourcing is also a key area for small and midsize businesses that are often underserved by larger, more-strategic forms of BPO.”

HR BPO adoption is still in its early stage in most parts of Asia Pacific, and Gartner expects healthy growth rates to continue through to 2010. India’s domestic HR BPO witnessed the highest growth rate, an increase of 23 percent from US$97 million in 2005 to US$119 million in 2006. Besides Australia and India, HR BPO continues to grow significantly in China, Korea, Singapore, Taiwan, Malaysia (albeit from a lower base) and Hong Kong.

In the more mature economies of Asia Pacific like Australia, New Zealand, and to some extent Korea, Hong Kong and Singapore, cost continues to be the key consideration when evaluating HR BPO. However, with the emergence of China, India, Malaysia, Thailand and Taiwan, Gartner is beginning to see other drivers appear, like scalability, best practices, quality and higher service levels.

“Australian and New Zealand customers are second or third generation HR BPO users who are more likely to move towards more ‘comprehensive’ HR BPO engagements,” said Mr. Singh. “We will witness a gradual shift from discrete HR BPO engagements to more comprehensive HR BPO engagements as companies begin to appreciate the benefits of a comprehensive HR BPO engagement and as relationships between end users and service providers mature.”  

There are very few HR BPO companies in Asia Pacific that provide truly region wide coverage or multi country coverage. Some of the constraints are language, country specific statutory requirements and business coverage.

“We can expect to see greater demand for region wide or pan-Asian BPO services, including HR BPO,” said Mr Singh. “Most companies have multi country operations, but the challenge is to find a service provider that can provide comprehensive HR BPO across their foot print.”

In Gartner’s recent “Hype Cycle for Business Process Outsourcing 2006”, two other BPO services stand out for their potential transformational impact: core banking and comprehensive finance and accounting (F&A) BPO. However, they are both far from mature, with each more than five years away from mainstream adoption.

Figure 1: Hype Cycle for Business Process Outsourcing, 2006

 

The Hype Cycle assesses the maturity, impact and adoption speed of the key BPO offerings with a graphical representation of where they fall on the hype cycle. The report can be found on Gartner’s Web site at www.gartner.com/DisplayDocument?doc_cd=140117&format=html.

Through 2009, 50 percent of organisations involved in BPO relationships will experience cost overruns and unacceptable service delivery quality, according to Gartner, which analysts attribute to a lack of understanding of their specific BPO offerings in terms of market hype versus true market maturity.

“It’s clear that buyers across the market are experiencing consistent and pervasive hype concerning which processes and service providers can truly deliver on the promise of business process outsourcing,” said Mr Singh.

The overall worldwide BPO market is expected to reach US$134.7 billion in 2006, an increase of 8.3 percent over 2005.

Mr Singh says fear of losing control is a major obstacle to BPO adoption. “There is also the fear that, once a process is outsourced, it will be difficult to transfer it back if needed,” he said. “Gartner recommends that organisations carefully weigh up strategies that displace internal functions and staff.”

Gartner Dataquest's Business Process Outsourcing Worldwide program provides history and five-year forecasts for BPO by service line, by region and country. Additional information can be found on Gartner’s Web site at www.gartner.com/it/products/research/dataquest.jsp.

 

Contact:


Susan Moore
Gartner
+61 2 9459 4692
susan.moore@gartner.com


About Gartner:
Gartner, Inc. (NYSE: IT) is the world's leading information technology research and advisory company. Gartner delivers the technology-related insight necessary for its clients to make the right decisions, every day. From CIOs and senior IT leaders in corporations and government agencies, to business leaders in high-tech and telecom enterprises and professional services firms, to technology investors, Gartner is the indispensable partner to 60,000 clients in 10,000 distinct organizations. Through the resources of Gartner Research, Gartner Consulting and Gartner Events, Gartner works with every client to research, analyze and interpret the business of IT within the context of their individual role. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, U.S.A., and has 4,000 associates, including 1,200 research analysts and consultants in 80 countries. For more information, visit www.gartner.com.