Plunkett Research reports 10 of the most prominent trends affecting the outsourcing and offshoring industry today. These trends highlight various segments of the industry that have potential for growth, as well as advances in outsourcing and offshoring that are making it easier to for the industry to expand. This and more is revealed in Plunkett’s Outsourcing & Offshoring Industry Almanac, 2010 edition.

Outsourcing will be an approximately $500 billion global industry in 2009, with the largest portions created in three broad areas: 1) logistics, sourcing and distribution services; 2) information technology services, including the creation of software and the management of computer centers; and 3) business process outsourcing (BPO) areas such as call centers, financial transaction processing and human resources management. CEO of Plunkett Research, Jack Plunkett states, "For decades now, fully developed nations, such as the U.S., have been shifting to knowledge-based economies as automation takes over domestic factory floors and much of manufacturing shifts overseas." Plunkett continues, "The biggest advances in developing nations are yet to come. Recent studies have forecast that, from 2007 through 2014, an estimated 1 billion people throughout Asia will enter the middle class for the first time, and middle class income levels may rise significantly. However, the global economic slowdown of 2008-2009 will put a damper on this progress, as outsourcing sectors and offshore employment centers suffer from a slow market."

Plunkett’s 10 trends affecting the Outsourcing and Offshoring industry:

1) BPO and KPO: White-Collar and Professional Tasks Are Offshored to a Growing Extent – BPO, which includes services such as human resources management, billing and purchasing, as well as many types of customer service or marketing activities, depending on the industry involved, is one of the fastest growing segment in the offshoring sector. KPO, or knowledge process outsourcing, refers to the use of outsourced and/or offshore workers to perform business tasks that require judgment and analysis. Today, offshoring includes the use of foreign workers to handle routine white-collar and professional tasks. For instance, the Indian firm, Computer Patent Annuities, plans to employ 1,200 Indian lawyers by September 2009 and 2,000 by the end of 2010. Forrester Research estimates that by 2010, 35,000 U.S. legal jobs will be moved offshore, and 79,000 by 2015. Additional white-collar and professional tasks rapidly moving offshore include jobs in financial services such as banking and insurance. As many as 1 million U.S. back-office financial services jobs may move overseas over the mid-term.

2) Health Care Goes Offshore, Medical Tourism and Clinical Trials Thrive in China, India and Elsewhere - Many people might assume that certain professions could never be outsourced, such as the work of health care professionals. This is not entirely true. For example, in a practice called teleradiology, medical technicians and physicians in India and elsewhere are analyzing x-rays and CAT scans performed in the U.S., diagnosing American patients and relaying results back to American hospitals. Another growing trend in health care offshoring is conducting clinical trials in countries outside the U.S. A recent study reported that in 2007, only 54% of the roughly 26,000 FDA-regulated chief scientists conducting trials were based in the U.S. (compared to 86% in 1997). A new business sector is opening up, one that manages medical tourism. For example, MedRetreat, a medical tourism agency based in Odenton, Maryland, partners with hospitals in Argentina, Brazil, Costa Rica, El Salvador, India, Malaysia, Mexico, South Africa, Thailand and Turkey to provide cosmetic, dental and medical procedures to U.S. patients. The company schedules procedures, arranges flights and hotel stays and assigns guides to facilitate the process.

3) From India to Singapore to Australia, Nations Compete Fiercely in Biotech Development - While pharmaceutical companies based in the nations with the largest economies, such as the U.S., U.K. and Japan, struggle to discover the next important drug, companies and government agencies in many other countries are enhancing their positions on the biotech playing field, building their own educational and technological infrastructures. Not surprisingly, countries such as India, Singapore and China, which have already made deep inroads into other technology-based industries, are making major efforts in biotechnology, which is very much an information-based science. Firms that manufacture generics and provide contract research, development and clinical trials services are already common in such nations (in India alone, clinical trials spending may reach as much as $1 billion annually by 2010). In most cases, this is just a beginning, with original drug and technology development the ultimate goal. In addition to fewer restrictions, many countries outside of the U.S. have lower labor costs, even for highly educated professionals such as doctors and scientists.

4) Outsourcing & Offshoring in Eastern Europe, South America and the Middle East on the Rise - As wages rise in India and China and hiring becomes more difficult or more expensive, some firms seeking outsourced services providers are turning to other countries such as those in Eastern Europe, which offer certain advantages such as easier to access for some clients. Eastern Europe overall was expected to generate about $2 billion in outsourcing revenues in 2007. Analysts expect growth of up to 30% by 2010. Likewise, countries in Latin America, such as Brazil, Chile, Nicaragua and Costa Rica, are hoping to cash in on the outsourcing boom. These countries are geographically closer to the U.S. than India and China and offer lower labor costs. Spanish language-speaking employees can be a great advantage in some circumstances. In the case of Brazil, it initiated a five-year suspension on export taxes for IT hardware and software beginning in 2005.

5) R&D in China Becomes a Major Factor - There are three trends at work in the growth of R&D in China. The first is that the government of China has an aggressive goal for the nation’s R&D investment, with plans to foster growth to 2.5% of GDP by 2020, up from about 1.5% in 2008. In comparison, U.S. spending in 2008 accounted for 2.6% of GDP. Second, many Chinese companies are enjoying escalating success in the global marketplace. Next, hundreds of non-Chinese companies of many types have set up serious research labs in China. This includes companies such as Microsoft, Nokia, GE, Intel, Nortel and Roche.

6) The Vast Majority of Shoes Sold in the U.S. Are Now Made in China - U.S. retail stores specializing in shoes sold $23.2 billion in goods during 2008, per U.S. Census Bureau reports. This was down from $27.1 billion during 2007. More than 98% of the 2.2 billion pairs of shoes purchased by Americans are imported, and China is the largest supplier by far. Major Chinese shoe manufacturers include Yue Yuen Industrial Holdings Ltd. (which had about $4.9 billion in 2008 sales), Li Ning Co. Ltd. ($977 million in 2008 sales) and Belle International Holdings Ltd. ($1.6 billion in 2007 sales). While a handful of manufacturers, such as Allen-Edmonds (a high-end maker of men’s shoes with about $100 million in annual sales), are able to maintain factories in the U.S., domestic manufacturing is all but dead.

7) Many Industry Sectors Seek Consulting and Outsourcing Income, Competing with Pure Consultancies - Manufacturers and service companies of many types now believe that they can achieve significant growth by offering consulting services. These consulting services are frequently offered in conjunction with complementary business offerings. For example, manufacturers of complex machinery or components may offer consulting services to enable clients to best determine what to order and how or where to use the products. This is big business, and it’s a huge change in the consulting industry. For example, value-added services, including consulting and outsourcing, account for more than one-half of IBM’s $103.6 billion in annual (2008) revenues.

8) Original Design Manufacturing (ODM) Booms - For many years, the world of manufacturing has been acquainted with the concept of original equipment manufacturers (OEMs). Today, however, engineering and R&D enter the picture, as many OEMs are evolving into “original design manufacturers” (ODMs): contract manufacturers that offer complete, end-to-end design, engineering and manufacturing services. ODMs design and build components or products, such as consumer electronics, that client companies can then brand and sell as their own. For example, a large percentage of notebook computers, cell phones and PDAs are made by ODMs. ODMs are the ultimate result of the convergence of several trends at once, including offshoring, globalization, value-added services, contract manufacturing, outsourcing and design collaboration via the Internet.

9) Globalization and Worldwide Collaboration Fuel the Research Efforts of Major Corporations - Globalization is deeply affecting the corporate world at all levels. This can be seen in everything from the inexpensive consumer goods flooding into the U.S. from manufacturers in China to the growing business that American software makers have found overseas. There are legions of extremely well-educated scientists and engineers in areas such as India, China and Eastern Europe who can be hired for salaries that are significantly below those of their U.S.-based peers which make globalized research efforts extremely attractive. One of the hottest spots for U.S. firms to open foreign research centers is the city of Bangalore in India. Initially a center for writing software code, Bangalore’s supply of highly educated, English-speaking residents has enabled the city to evolve into a truly world-class research and development center. The labor pool is not only high-quality but also low-cost.

10) Hi-Tech Manufacturing Collaboration Spans the Globe - Outsourcing has truly globalized the manufacturing of a wide spectrum of items from laptop computers to jumbo jets. As varying countries hone their expertise and cut costs for different components, it has become commonplace for parts of high-tech machines to be manufactured thousands of miles apart and then shipped to a central location for assembly. Take, for example, the manufacturing of laptop computers. Taiwanese computer manufacturer Quanta Computer, Inc. is one of the largest builders of laptops because of its system of collecting parts from around the world and assembling them at low cost in Taiwan. There are certain countries that specialize in certain components. For instance, for hard drives one can look to Japan, China, Singapore and the U.S.; and for memory chips, one can turn to South Korea, Taiwan, Japan or China.

Additional information is available in "Plunkett's Outsourcing & Offshoring Industry Almanac 2010," as well as on our web site, www.PlunkettResearch.com.

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