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Targeting the mid-market for outsourcing opportunities

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By Martin Conboy

BPO service providers love the big end of town and big deals  with scores of out-sourceable FTEs and straightforward labour arbitrage contracts with attractive margins. But in a saturated market, these lucrative deals are becoming harder to find. The reality is that there are only so many big deals in the market each year and it’s a feeding frenzy when the big players elbow each other out of the way as they vie for the prize. Clearly there can only be one winner, so BPO service providers are turning to the midmarket, which presents a different set of outsourcing challenges as well as opportunities.

The big end of town still powers and drives the market, but there is significant interest emerging amongst smaller organizations and the possible benefits that outsourcing may deliver.

A recent white paper developed by Datamark highlights that organizations operating on a global footing need to take full advantage of the lower-cost talent made available through increased globalization, better technology offered by today’s outsourcing suppliers, and the outsourcing delivery acumen demonstrated by a rapidly maturing supplier base.

However, it’s not only the big corporations that operate on a global basis, the Internet has expedited global opportunities for smaller business. And like their bigger competitors mid size firms are looking for ways to maintain growth while containing costs. It has become a much more level playing field and size does not matter.

BPO delivery models are now approaching a level of maturity and scale that can cater to medium sized organizations.  In Australia, there is less and less reluctance to the notion of offshore outsourcing. In all truth companies are a stand out if they don’t outsource.  The BPO value proposition has become better understood and accepted by organizations and common standards have emerged reducing the risks associated with outsourcing.

Currently, new Australian standards are being formulated, which will further encourage smaller businesses to move down the BPO path.

Midmarket organizations are looking to create business value by:

  • Achieving significant bottom-line savings
  • Increasing their ability to focus resources on core business objectives
  • Taking advantage of the business and technology value of engaging with third-party suppliers
  • Leveraging the power of the internet to reach broader markets
 

What will be particularly attractive to these clients are providers who have developed niche industry-focused solutions. Where, as “labour arbitrage” was a major value proposition for large organizations with large workforces, for smaller organizations with smaller workforces it is not going to offer as much value. Hence, the development of niche industry verticals that drive value beyond the cost savings delivered by accessing cheaper labour will be particularly appealing.

But reaching this market and delivering services does present a range of challenges. To many smaller players outsourcing is still relatively new and unexplored territory. These organizations will lack the internal resources to assess and manage their vendor relationships and the skills to negotiate the best deal.

The success of service providers will largely depend on what value they can deliver beyond labour arbitrage. Cost saving will always be a major consideration, but organizations will be looking for better technology solutions, domain experience and especially advice, and improved business processes.

The days when 500 agents inside a BPO vendor servicing one client are fast becoming a thing of the past. Most major vendors have between 10 and 20 major clients and will not take on projects with less than 30 FTEs. The new normal is smaller projects that need 5 or 10 FTEs so outsourcers will need adjust and look at how they can manage more smaller clients, without ramping up their servicing costs. Moreover, they will need to look at different service offerings beyond voice.

Vendors need to develop sales, marketing and promotional processes as well as delivery mechanisms to target this market. For those that succeed, they will open up new and lucrative markets. As the BPO market grows, it will continue to broaden its base with a wide variety of vendors catering for a broad range of industries and organizations of varying sizes.

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September 3, 2014
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