India is the pre-eminent location for offshore business process outsourcing delivery but is being increasingly challenged by the Philippines, a new survey by a research company has concluded.

The Philippines government, Nelson Hall research firm said, recently announced its intention to develop and promote the country as a hub in the delivery of customer contact centre, medical transcription, animation, BPO and shared financial services.

It said Mexico is an important delivery centre for North American service provision, and South Africa for service delivery aimed at the European market.

China is also challenging India, offering lower staff costs but only limited language capabilities, the research firm said.

Offshore BPO, it said, today accounts for only two per cent of total business process service delivery contract value worldwide and is only expected to rise to six per cent of the total by 2008.

John Willmott, founder of Nelson Hall, said, "Workers displaced by offshoring, technological advances or downsizing have very legitimate reasons for concern. But the public, business and government communities need to know that a full 98 per cent of today's total contract value for outsourced business process service delivery remains on domestic soil."

According to Nelson Hall, nearly 60 percent of work done offshore is in customer management services such as technical support for software and hardware products, telemarketing, and basic customer care such as order taking.

Some 64 percent of offshore work overall is voice-based, with 85 percent of customer management services being voice-based. Most offshore processes today involve basic data entry or are rules-based, the research firm said.

The firm predicts that the offshoring of "judgmental" processes -- more complex processes requiring agents to make informed decisions to fulfill requests -- and "analytical and expert services" -- highly complex processes requiring specialist knowledge and expert judgment -- will only increase to 10 percent of offshore BPO activity by 2006.

Nelson Hall's market analysis found that the popular belief that call centre jobs are highly valued by offshore workers is actually a misconception.

In fact, the firm found that staff attrition rates within BPO centres in India average 22 per cent per annum, with attrition rates in voice-based services hitting 30 percent.

Although average attrition rates in the United States and Europe are higher, these figures indicate that offshore delivery centres suffer from the same human factors as anywhere else.

To combat these high attrition rates and ensure consistent service delivery quality to their clients, BPO companies are actively striving to raise the understanding and value of their company brand within the community, and introducing incentive-based pay structures and "quality of life" initiatives for workers, it said.

Regardless of the many challenges associated with offshoring the delivery of business processes, the potential of 40 percent to 60 percent cost reductions is highly compelling to prospective buyers, especially in the commercial sector, the research firm said.

The financial services industry accounts for 45 percent of total offshore BPO delivery contract value as these organisations seek to reduce costs in an increasingly competitive environment. Other significant opportunities exist within manufacturing and telecom sectors.

While tremendous opportunities exist for offshore service providers, it said, they are unlikely to reap the rewards if they take an arms-length approach to their in-country operations.
 
Governance of offshore BPO delivery is critical, with companies requiring strong escalation procedures and the ability to closely monitor their in-country operations.

To address this, it said the major multi-national service providers are typically incorporating offshore delivery capability as one element of a geographically distributed delivery capability.

And many "pure play" offshore service providers recognise the importance of local on-site account managers or governance teams in all in-scope countries.