AUTOMOTIVE, MANUFACTURING, AND HIGH-TECH COMPANIES GETTING MORE AGGRESSIVE
IN THEIR USE OF OUTSOURCING, ACCORDING TO EQUATERRA MARKET ASSESSMENT

HOUSTON (April 5, 2007) – Driven by the pressures of global competition, companies in the automotive, manufacturing, and high-tech industries are more aggressively outsourcing their back-office information technology (IT) and business processes in order to reduce costs and improve their performance.

That is the key finding of EquaTerra’s just-released Perspective paper, Outsourcing Trends in the Automotive, Manufacturing, and High Tech Industries. The Perspective blends the findings from a recent North American market study conducted by EquaTerra with the insight of the firm’s expert sourcing advisors.

The three industries have all been longtime users of outsourced services in IT, call centers and customer relationship management, and finance and accounting, as well as contract manufacturing, logistics, application development, and engineering, EquaTerra noted. Now they are all embracing back-office IT outsourcing (ITO) and business process outsourcing (BPO).

 “Extreme levels of product innovation and operational efficiencies are prerequisites for North American firms to remain competitive in these industries against lower-cost emerging market rivals,” said Stan Lepeak, Managing Director of Research for EquaTerra. “Pressure has long been on production and blue-collar labor to become more competitive. Now that same pressure is on white-collar labor in back-office operations.”

The increasing demand was highlighted in the study findings regarding future outsourcing investment plans, which found:

• 32 percent of manufacturing and related organizations that had outsourced one or more process areas planned to expand outsourcing into new process areas.
• 38 percent planned to expand outsourcing into new geographies or business units.
• 29 percent planned to expand existing outsourced process areas.

In terms of measuring outsourcing success, 67 percent of companies surveyed in these industries identified cost reductions as the key means of measuring outsourcing success. Measuring customer satisfaction levels ranked second, cited by 46 percent of respondents, with improved process performance levels coming in third at 31 percent.

In EquaTerra’s view, back-office BPO will become more prevalent, with the emphasis shifting to extending outsourcing usage to more remote, global resources. For some companies, outsourcing to lower-cost markets such as India or China can help them enter those markets to sell their own goods and services. Smaller markets such as Central and Eastern Europe, however, will most likely remain primarily a source of services, EquaTerra said.

The Perspective paper notes that companies will also see opportunities to outsource less-common process areas. Examples include warranty services, service after sale, document service, and forms of “knowledge process outsourcing” (KPO) such as R&D and analytics. On the outsourcing service provider landscape, EquaTerra notes that large multi-national service providers are bundling their ITO and BPO offerings, and also extending services into others, such as R&D, logistics services, document services, warranty, and service after sales.

“As outsourcing becomes more pervasive and encompasses more back-office support as well as critical functional areas, outsourcing service providers will more closely resemble a critical member of a manufacturer’s supply chain rather than a traditional third-party support organization,” Lepeak predicted. He added that buyers will see a broader array of service provider options, but the number of service providers able to deliver large multi-function deals across multiple geographies will still be limited.