US Treasury Secretary Timothy Geithner warned Americans this week that the country’s unemployment rate could get worse before it gets better.

In an interview with the ABC, Geithner admitted that “it is possible you’re going to have a couple of months when it goes up,” as out-of-work Americans see the economy recovering and try to return to the labour force.

“When they see a little hope that there may be jobs out there, they start to come back in again. And that can cause the measured unemployment rate to go up – temporarily.”

His comments come ahead of the publication of key July unemployment data on Friday, which is expected to rise to 9.6 per cent, from the current rate of 9.5 per cent.

Housing Slump

A lack of jobs means Americans aren’t buying houses. The number of contracts to purchase previously owned houses fell 2.6 per cent in June; indicating demand kept unravelling after the expiration of a homebuyer tax credit.

“We’re still seeing the after effects of the home buyer tax credit expiration,” said Dean Maki, chief US economist at Barclays Capital Inc. in New York, who forecast a decline in June pending home sales. “The comeback from the housing downturn is likely to be sluggish.”

Manufacturing softens

Even manufacturing, which led the US out of the economic slump, is cooling. Orders placed with factories declined 1.2 per cent, more than double the 0.5 per cent drop projected by the median forecast of economists surveyed.

“A downshift in the manufacturing boom is under way,” said Aaron Smith, a senior economist at Moody’s Economy.com. “This shouldn’t be taken as a signal of widespread weakening. Businesses still have expansion in their sights and will provide the fuel for growth.”

US factory orders slumped in June providing further evidence that the manufacturing recovery is slowing.

Manufacturing had been a bright spot in the US economic rebound, as firms rapidly rebuilt inventories depleted during the depths of the recession.

So the question is what options do companies in the US have?

1. Increase sales – that’s tough in a soft market where consumers are watching their pennies.
2. Provide better value and better customer service to maintain market share and not lose ground to better performing competitors.
3. Repackage and re-bundle their service offerings to induce customers to purchase (i.e. bakers’ dozen, sales promotions, etc.)
4. Cut costs and batten down the hatches and hang on until the market gets better.

There are probably more strategies that companies can adopt but this are the main ones.

So how can the BPO industry help firms through this period?

1. BPO firms are expert at selling, cross selling and doing promotional work.
2. Help companies who are shifting to different channels like online selling by being their cost effective order and sales department.

3. Challenge companies to understand what their core business is and show them ways that BPO companies can handle their non-core business processes more efficiently and cost effectively for them.

BPO firms need to engage with US firms to show them all of the ways that they can help and support them. They should be redoubling their efforts. Surely as night follows day companies that can get through this period will be leaner and better managed. Does it therefore not follow that they will have a better working relationship with their BPO provider and outsource more work as the economy picks up?

TPI Index Asia-Pacific, a business consultancy provider, released information on the value of contracts secured during the first six months of 2010. For the first half of 2010, Asia Pacific outsourcing providers secured only US$2.3 billion, which was less compared to the first half of 2009 and 2008.

Value of contracts first 6 months (in billion US$)

This year’s performance so far was caused by a decrease in contracts worth over US$200 million. Only one ‘mega deal’ was secured within the first half of this year. From the total contracts secured within six months, around 83 per cent were worth less than US$100 million.

% of contracts worth < US$100 million

Compared to the numbers of the previous years, 83 per cent is only for the first half of 2010.

Michael Rehkopf, TPI North Asia partner and director, said, “The Asia-Pacific market is very volatile and several deals have been put on hold.”

With the IT outsourcing sector, there was a considerable drop in value of contracts as well. US$6.6 billion in total contract value (TCV) is needed for the second half of 2010 to be at par with 2009.

According to TPI, financial services, media, manufacturing, and telecom services, which are usually strong markets, performed sluggishly. The Asia Pacific region needs to step up in securing deals for the next half of this year, preferably worth more than US$200 million to reach this year’s goal of US$11 billion.

In terms of BPO contracts so far, 18 were secured. This was almost an 80 per cent increase compared to 2009. Ten more contracts are expected to be finalised.

Australia and India took most of the pie. Australia got 42 per cent, while India got 32 per cent of the TCV.

IT Sourcing Europe highlights the key trends and challenges anticipated in the European IT Outsourcing (ITO) industry in 2010.

IT Sourcing Europe announced today the completion of its “European IT Outsourcing (ITO) Intelligence Report 2010: Central and Eastern Europe”.  This is a comprehensive study of the prospective Central and Eastern European (CEE) destinations for cost effective, yet highest quality outsourced development, and the factual capability of the CEE ITO providers to satisfy the rapidly changing business needs of their Western European clients.

Overall, IT Sourcing Europe’s Report shows that:

• Outsourcing to Central and Eastern Europe is expected to grow exponentially over the next 10 years;
• Investors and management anticipate 30% revenue growth in 2010;
• CEE, above all regions, is expected to leverage its competitive advantage in the high-growth areas of offshoring and nearshoring and possibly move ahead as the most attractive labour arbitrage alternative for Western European clients;
• Low labour costs are not necessarily the solution that Western companies are seeking in Outsourcing. The technological potential of young graduates in Ukraine or Poland is one of the primary reasons why Western companies choose to outsource to CEE.

Regarding the major ITO trends benchmarked in the Report, 2010 anticipates a significant change in the European IT Outsourcing landscape:

• More small and mid-sized organizations (SMOs) are expected to outsource their software/web development nearshore, compared to pre-crisis times.
• Additionally, buyers become more demanding and challenge their ITO partners to differentiate their position and value.
• Today’s Western European companies are seeking a combination of speed, cost management and growth supported by business agility and unprecedented technological innovation.
• Striving to evolve strategic long-term Outsourcing relationships, Western clients express readiness to move from project-based services and staff augmentation to more effective business models, able to handle core software development.

According to the Report, the following challenges will be facing Europe’s ITO industry in 2010:

• ITO suppliers in Central and Eastern Europe should be ready to respond to transformations caused by SaaS and Cloud Computing, adjust costs, upgrade delivery models etc;
• ITO suppliers will be forced to respond to client’s business demands through building capabilities to solve technical problems, expand services, and build consultative front ends and customized solutions for client’s differentiation.

There are more thought-provoking findings presented in the Report.

IT Sourcing Europe believes that its European ITO research will help Western European companies to make the right Outsourcing decisions and CEE ITO suppliers to better understand the ITO landscape of 2010 and to be better prepared for upcoming challenges.

IT Sourcing Europe highlights the major trends and challenges facing the UK IT outsourcing companies in 2010.

IT Sourcing Europe, a UK-based research company and nearshore IT sourcing advisor, announced today the completion of its UK IT Outsourcing (ITO) Survey 2010. The Survey was conducted in the frames of the IT Sourcing Europe’s All-European ITO Research and aimed to explore the current trends, challenges and problem solving strategies among the UK companies that outsource their software/web development function offshore, nearshore or within the United Kingdom. The Survey was completed by 250 IT decision makers of the UK-based businesses.

The Survey allows us to observe the following ITO trends among the UK outsourcing companies:

• Although most of the UK companies still outsource their software/web development offshore (at least 3 time zones away from home country), the number of companies outsourcing nearshore (maximum 2 time zones away from) is very close to and is likely to outnumber offshore outsourcers by the end of 2010;
• Top three reasons why UK companies outsource their software/web development are: to reduce operating costs, to accelerate time to market via flexibility and scalability and to free in-house resources for other business purposes;
• Web and Enterprise solutions remain the most outsourced ones among the UK companies;
• Most UK outsourcing companies partner with only one services provider;
• Low costs remain the key factor impacting the UK companies’ choice of the Outsourcing destination and vendor;
• The majority of the surveyed companies report 40%-59% actual savings from the outsourced development;
• Most of the UK companies believe that outsourcing their software/web development has been the right decision.

Among the most frequently cited challenges facing the UK outsourcers are:

• Delays in product delivery schedules;
• Poor communication with vendor’s project management;
• Cultural difference.

The Survey also finds that most of the UK outsourcing companies do not know the exact salaries of each of their team members on the outsourced development team. It means that their current IT Outsourcing engagement does not allow them to have 100% managerial control of project teams and costs associated with Outsourcing. It creates a huge barrier in the way of successful ITO adoption.

The Report arrives at more thought-provoking conclusions that generally shape the UK ITO landscape of 2010.

Now that the Tamil Tiger civil war is mostly behind it, Sri Lanka is poised for growth. The end of the 26-year conflict has opened the door for reconstruction and development projects in the North and East. The Sri Lankan stock market gained over 100% in 2009, one of the best performing markets in the world. Sri Lanka’s most dynamic sectors are now food processing, textiles and apparel, food and beverages, port construction, telecommunications, and insurance and banking. The outsourcing industry of Sri Lanka has earned US$275 million  in 2009 – the 5^th largest income in the global IT outsourcing industry.

Building upon this impressive achievement, the BPO industry aims for a target of US$2 billion revenue, not to mention the creation of 400,000 direct job opportunities and 300,000 indirect job opportunities. To achieve this goal within five years, Jayantha De Silva, IFS South Asia Vice President, advised, “Sri Lanka needs to increase the quantity of IT/BPO professionals without compromising on quality for the industry to grow.”

The growth rate in the industry was 23 percent during 2006/7 while the industry took a huge impact from the global recession in the past two years. Compared with other industries, the IT BPO industry has over 90 percent of value added to it.

Sri Lanka’s IT BPO industry still needs more qualified professionals. Presently, there are around 300,000 qualified professionals in the industry.

The SLASSCOM (Sri Lanka Association of Software and Service Companies) in partnership with ICTA (Information and Communication Technology Agency of Sri Lanka) has taken the initiative to boost the number of IT professionals. The two organisations are also working hand in hand to ensure that these professionals are highly qualified by giving them further education and training. De Silva says that the IT BPO industry is one in building awareness and desire as a career choice among school children while strengthening the capacities of their university students.

He also adds, “Sri Lanka can improve in IT BPO industry because it is not restricted to a specific geographical location. IT BPO can be developed even in non major urban areas once it is enabled with necessary infrastructure facilities such as broadband and electricity.”

This year, the Malaysian BPO industry is forecasted to grow at least 15 percent, according to AT Kearney, a global management consulting firm.

Located south of the Philippines, Malaysia is another prime outsourcing location in the Southeast Asian region. The country is home to a number of international BPO companies, like Scicom (MSC), Global and Vsource Asia. Malaysia offers unique advantages in government support, human capital, infrastructure, and domain expertise, which makes it an ideal destination for start-up BPOs.

Contact centers and BPO companies in Malaysia are growing in number, mainly because of the Malaysian economy’s resilience after the global economic crisis. The inflation rate in Malaysia is 2.4%, which is lower than most Southeast Asian countries.

The expected growth the Malaysian BPO industry faces its own challenges – scalability and saturated segments, to name a few. Despite these challenges, the Malaysian BPO industry has its own strengths, as Interactive Intelligence Inc.’s Asean regional sales director David Toh Yue Heng shares, “I foresee good growth in the outsourcing industry because it helps to drive down cost. We can speak multiple languages apart from English, Malay, Chinese and Tamil, and some even speak Japanese and Korean. Malaysia has all the ingredients to become a successful hub – skilled workers, resources and infrastructure as well as reasonable cost.”

“Competition is tough, especially in the low-end segment where India dominates. I suggest the government and the Malaysian BPO industry should work hand-in-hand to achieve their aims and attract external markets, such as the government sector, and inbound and outbound markets. Efforts by government agencies to improve the public delivery system has opened doors for call centre operators into this segment, since most of these agencies used telephones in communicating. I see opportunities here for the outbound market.”

Leading research company IDC is suggesting that the current economic downturn is playing a part in the accelerated adoption of BPO, and in particular, platform BPO. Platform BPO typically refers to business processing services based on a vertical or horizontal technology platform. This would suggest that we will see a lot more activity in the social media area where platform searching and applications is part and parcel of the market.

IDC is also saying that the BPO market in the Asia-Pacific region excluding Japan will grow at a five-year compound annual growth rate of 11.2 percent, from US$17 billion in 2008 to US$29 billion in 2013, IDC.

They predict the 800pound Guerilla, the Indian market will achieve 17 percent growth between 2009 and 2010, due in part to a strong domestic demand especially from the telecoms sector and mainstream uptake of BPO services. They also predict that the good times will be shared out around the region

Accounting and consulting firm KPMG have a related but different view and they are predicating that China, will become the new heavy hitter in the BPO mix. According to a new KPMG report, Inside the Dragon: Outsourcing Destinations in China the market will start to look more to China to satisfy its demand for outsourcing IT services, business processes and even R&D and other knowledge processes. “In the last three years, we have seen a dramatic change in the outsourcing scene within China,” says Egidio Zarrella, Global Partner, IT Advisory, at KPMG. “Our clients have been very surprised at the quality of infrastructure and even the English-language skills [in China].”

In 2007, says KPMG, China’s onshore and offshore outsourcing market stood at only US$7.5 billion. That figure nearly tripled to US$20 billion last year, according to the country’s Ministry of Commerce. By 2014, KPMG predicts, China’s total outsourcing market will stand at US$43.9 billion.

The Ministry of Commerce reports that the contract value of China’s offshore outsourcing reached US$14.8 billion in 2009, an increase of 153.9% over 2008.

The question is how will they do this?

Zarrella credits the Ministry of Commerce’s “1,000-100-10 Project” launched in 2007. The goal is to establish ten Chinese cities as outsourcing bases, attract 100 international customers to offshore in these cities, and assist in the development of 1,000 large and medium-size outsourcing vendors to meet the needs of these multinational clients. No matter which way you look at it the growth and the future are amazing.

Telecom service providers worldwide paid network equipment vendors US $50.4 billion in 2009 for outsourced services, according to a recent report from Infonetics Research.

Infonetics said that much of the growth in outsourced services is coming from the Asia Pacific area and EMEA (Europe, Middle East, Africa).

Infonetics also said it expects that segment of the outsourced services market to grow by a further 45 per cent by 2014.

Network maintenance, network build, network planning and design, and application service delivery are the biggest revenue-generating tasks that equipment manufacturers provide for telecom service providers, according to the report.