INDUSTRY REPORT OD4794

Business Process Outsourcing Services

Reliable source: An improving economy is expected to boost industry revenue

Dmitry Diment | November 2019

IBISWORLD.COM 1-800-330-3772 [email protected]

Business Process Outsourcing Services November 2019

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Contents
ABOUT THIS INDUSTRY..................................3 COMPETITIVE LANDSCAPE.......................... 22
Industry Definition............................................................ 3 Market Share Concentration.......................................... 22
Supply Chain.....................................................................3 Key Success Factors...................................................... 22
Major Players................................................................... 3 Cost Structure Benchmarks........................................... 23
Main Activities.................................................................. 3 Basis of Competition...................................................... 23
Similar Industries............................................................. 3 Barriers to Entry..............................................................24
Related International Industries....................................... 3 Industry Globalization.................................................... 25

AT A GLANCE...................................................5 MAJOR COMPANIES......................................26

Key Statistics Snapshot................................................... 5 Major Players................................................................. 26
Key Trends....................................................................... 5 Other Companies............................................................27
SWOT in the Industry........................................................5
Executive Summary.......................................................... 5 OPERATING CONDITIONS........................... 29
Industry Structure.............................................................6
Key Industry Data............................................................. 7 Capital Intensity..............................................................29
Major Players................................................................... 8 Technology & Systems................................................... 30
Products & Services Segmentation..................................8 Revenue Volatility........................................................... 31
Regulation & Policy........................................................ 31
INDUSTRY PERFORMANCE.............................9 Industry Assistance........................................................ 31

Key External Drivers......................................................... 9 KEY STATISTICS.............................................33

Industry Performance.....................................................10
Industry Data Timeseries............................................... 12 Industry Data.................................................................. 33
Annual Change............................................................... 33
INDUSTRY OUTLOOK................................... 13 Key Ratios.......................................................................33
Additional Resources..................................................... 34
Revenue Outlook............................................................ 14 Industry Jargon.............................................................. 34
Industry Life Cycle.......................................................... 14 Glossary......................................................................... 34

PRODUCTS & MARKETS................................15

Supply Chain...................................................................15
Products & Services....................................................... 15
Demand Determinants....................................................17
Major Markets................................................................ 18
International Trade......................................................... 20
Business Locations........................................................ 20

Legend
Icons are used throughout the report to indicate impact on the industry.

Negative impact
Neutral impact
Positive impact
Business Process Outsourcing Services November 2019

About This Industry

Industry Definition Operators in this industry provide third-party outsourcing services on a contract basis. Clients can
outsource specific operations and business functions, including both back and front office tasks, to
companies in this industry.

Supply Chain Supply Industries Demand Industries

Art & Office Supply Manufacturing - Healthcare and Social Assistance

Computer Stores - Manufacturing

Office Supply Stores - Retail Trade

- Information
Commercial Leasing
- Finance and Insurance
Internet Service Providers

Major Players Accenture

Main Activities The primary activities of this industry are:

Providing outsourcing services for work related to finance and accounting functions

Providing outsourcing services for work related to human resource functions

Providing outsourcing services for customer relations management

Providing outsourcing services for sales fulfillment and order management

Providing outsourcing services for document management

Providing outsourcing services for supply chain management and engineering functions

The major products and services in this industry are:

Industry-specific business process outsourcing services

HR business process outsourcing services

Customer relationship management business process outsourcing servic

Financial and accounting business process outsourcing services

Similar Industries 54161b - HR Consulting in the US

This industry provides advice to businesses for structuring human resource and personnel policies,
employee benefits, compensation systems and salary administration.

56111 - Human Resources & Benefits Administration in the US

This industry provides a range of day-to-day administrative services to clients, such as assistance with
billing, record keeping, personnel, physical distribution and logistics.

56141 - Document Preparation Services in the US

This industry provides letter or resume writing; document editing or proofreading; typing, word
processing or desktop publishing as well as transcription and other secretarial services.

56142 - Telemarketing & Call Centers in the US

This industry provides telemarketing services on a contract or fee basis, using the telephone or email to
promote clients' product or services, solicit contributions or gather information.

Related International L6741-GL - Global HR & Recruitment Services

Industries Companies in the Global HR and Recruitment Services industry provide outsourced human resource and
employment placement services. These services include selecting and placing permanent and temporary
staff, employee leasing, listing employment vacancies and outsourcing management of personnel-related
administrative functions, such as payroll and employee benefit administration.

N78.300 - Human Resources Provision in the UK

Human resources providers manage resources relating to employees. They complete tasks and duties
for, and provide information to, client businesses relating to employees, payroll, employee tax
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contributions and other issues. However, they are not responsible for management and supervision of
employees. The provision of HR software is not included in the industry.

56111CA - Human Resources & Benefits Administration in Canada

This industry provides a range of day-to-day office administrative services to clients, such as assistance
with financial planning, billing and record keeping, personnel, physical distribution and logistics. This
industry also furnishes general or specialized management services on a day-to-day basis and on a
contract or fee-for-services basis. These businesses do not provide any actual operating staff to clients
to carry out management or operational activities.

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At a Glance
Key Statistics Total Revenue Annual Growth Annual Growth
Snapshot 2019 2014-2019 2019-2024

$130.9bn 2.1% 1.9%

Profit Margin Wages as a share of Revenue Number of Businesses
2019 2019 2014-2019

13.3% 56.7% 2.6%

Key Trends There has been a surge in state legislation increasing the minimum wage

Improvements in the broader domestic economy have helped support the industry's expansion
Many states now aim to prohibit the outsourcing of public service jobs and functions

The industry is reaping the benefits of changes within the healthcare industry

Increased demand for BPO services from downstream markets will support revenue

Robot process automation is not yet considered a serious threat

SWOT in the
Industry

Strengths Weaknesses Opportunities Threats

Growth Life Cycle Stage Low & Steady Barriers to High Revenue Growth Low Revenue Growth
Entry (2019-2024) (2005-2019)
Low Volatility
None & Steady Level of Demand from Low Revenue Growth
Low Imports
Assistance professional, scientific (2014-2019)
High Profit vs. Sector and technical services
High Product/Service Low Outlier Growth
Average
Concentration
Low Performance Drivers
Low Customer Class
Concentration Corporate profit

Low Capital Requirements

Executive Business process outsourcing (BPO) is a form of subcontracting that

Summary
involves the delegation of specific business functions to third-party
service providers.

Outsourcing functions through the process of hiring another company to handle business activities to
achieve maximum savings, increased efficiency and a greater return on investment. BPO services are
distinct from information technology (IT) outsourcing, which hires a third-party business to conduct IT-
related activities such as application management and data center operations. Moreover, BPO is often
divided into two main categories. The first category is back office outsourcing, which includes internal
business functions such as billing or purchasing. The second category is front office outsourcing, which
includes customer-related services such as marketing or tech support.

The Business Process Outsourcing Services industry has fared well over the five years to 2019, supported
by an improving economy and rising revenue in the human resource, finance and accounting, customer
relations management and insurance sectors, which collectively generate a large portion of BPO
business. Additionally, rising wages and increased operating costs associated with the passage of
Patient Protection and Affordable Care Act (PPACA) prior to the current period helped drive employers to

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BPO companies as a method of cost control. As a result of these factors, industry revenue is forecast to
increase at an annualized rate of 2.1% over the five years to 2019, to reach $130.9 billion, including a
2.0% boost in 2019 alone. Moreover, increases in downstream demand have facilitated a rise in industry
profit over the past five years.

Over the next five years, minimum wages at the state level will continue to rise. According to the National
Conference of State Legislators, as of January 2018, 18 states boosted minimum wage rates. As a result,
29 states and the District of Columbia currently have a minimum wage higher than the federal minimum
wage of $7.25 per hour. Moreover, the healthcare sector will encounter an upsurge in costs due to the
continued aging of the population as seniors compose a larger portion of the domestic population. In
response to these trends, companies will continue to pursue outsourcing to reduce personnel
expenditures and offset escalating back office costs. This is expected to encourage a 1.9% annualized
increase in industry revenue over the five years to 2024, leading revenue for the industry to reach $143.5
billion.

Industry Structure Level Trend Level Trend

Life Cycle Growth Regulation Level Light Increasing

Revenue Volatility Low Technology Change Medium

Capital Intensity Low Barriers to Entry Low Steady

Industry Assistance None Steady Industry Globalization High Increasing

Concentration Level Low Competition Level Medium Steady

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Key Industry Data

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Major Players

Products & Services

Segmentation

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Industry Performance
Key External Drivers

o Corporate profit

Corporate profit measures the amount of profit earned across all industries within the United States. An
increase in corporate profit enables businesses to spend more on outsourcing, directing added work to
specialized companies and contributing to greater industry revenue. Corporate profit is expected to
decline in 2019, representing a potential threat to the industry.

o Number of businesses

The number of businesses refers to the total number of businesses within the United States with one or
more employees. A rise in the total number of businesses increases the amount of businesses that may
potentially use industry services. Therefore, an increase in the number of businesses translates into
higher industry revenue. The number of businesses is expected to increase in 2019, representing a
potential opportunity for the industry.

o Number of people with private health insurance

Rising demand for private health and medical insurance facilitates an increase in BPO services. As
health and medical insurance provisions have become increasingly complex, demand for outsourced
specialization in these services has also risen over the past five years. In addition, an increase in
business healthcare expenditures may encourage companies to hire overseas to avoid further costs.
The number of people with private health insurance is expected to increase slightly in 2019.

o Demand from finance and insurance

Finance, banking and insurance companies constitute the greatest demand for BPO services.
Companies in these industries are responsible for large amounts of sensitive client and proprietary data.
As a result, many employees are required to conduct essential back-office functions related to record
maintenance, settlements and regulatory compliance. Companies in these sectors have increasingly
outsourced many of these functions, supporting industry revenue. Demand from finance and insurance
companies is expected to increase in 2019.

o Demand from professional, scientific and technical services

Companies in the Professional, Scientific and Technical Services sector contract BPO operators to
source labor for document management, communications oversight and other administrative functions.
As demand from companies providing professional, scientific and technical services improves, BPO
Services industry revenue consequently increases. Demand from professional, scientific and technical
services is expected to increase in 2019.

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Industry Performance The Business Process Outsourcing Services industry has expanded
favorably over the five years to 2019.

The improving US economy, coupled with rising revenue from all of the industry's key client markets, have
helped support business process outsourcing (BPO) sales. Additionally, employers within these sectors
and industries have experienced escalating expenses due to wage increases and rising health insurance
costs, and have contracted BPO service providers as a means of controlling these expenditures. Overall,
industry revenue is expected to grow at an annualized rate of 2.1% over the five years to 2019 to total
$130.9 billion, including a forecast 2.0% boost in 2019 alone.

Increasing demand

One of the primary benefits of using BPO services are the cost savings associated with wages and health
benefits. According to the latest Employment Cost Index report released by the Bureau of Labor Statistics
in June 2019, the largest portion of employers' costs is consumed by wages, accounting for nearly 70.0%
of costs. The remaining 30.0% of employers' costs is consumed by benefits, including health-related
benefits. These expenditures have ultimately benefited the industry over the five years to 2019, as
companies have hired BPO services in an effort to cut back on employment-related costs.

Recently, there has been a surge in state legislation increasing the minimum wage amount. As of January
2018, according to the National Conference of State Legislatures, 18 states boosted minimum wage rates
based on the cost of living or previously approved legislation or ballot initiatives. As a result, 29 states
and the District of Columbia currently have a minimum wage higher than the federal minimum wage of
$7.25 per hour. Many states also correlate minimum wage to the Consumer Price Index, a measurement
of the prices paid by consumers for a defined basket of common goods and services, which means that
any growth in prices will yield an increase in minimum wages.

Moreover, the implementation of the Patient Protection and Affordable Care Act (PPACA) has required
employers to provide affordable health insurance for all full-time employees. According to a 2014 survey
by the American Health Policy Institute (latest data available), the additional cost of the healthcare law for
large companies ranges between $4,800 and $5,900 per employee. The healthcare law also added
mandates and fees, as well as other regulatory burdens, which are expected to have cost large employers
anywhere between $163.0 million and $200.0 million over 2016. The industry has directly benefited from
these two developments as companies, particularly those with many employees, have increasingly turned
to BPO as a means of reducing labor and health insurance costs.

Improving conditions

Improvements in the broader domestic economy have also helped support the industry's expansion.
Industries that are primary sources of BPO revenue, such as finance, accounting, credit card services,
insurance and human resource service providers, have prospered over the past five years. For example,
demand from the finance and insurance industries, which is an amalgam of commercial and investment
banking, brokerage, insurance and credit card issuing industries, is expected to increase an annualized
2.3% over the five years to 2019. To manage expanding workloads, these industries will continue to
contract BPO services.

Moreover, increases in downstream demand have facilitated a rise in industry profit over the past five
years. Profit, measured as earnings before interest and taxes, for the average BPO services company, has
risen marginally from 12.4% in 2014 to an expected 13.3% in 2019. Greater demand and improving
profitability have enticed new entrants over the past five years, leading to an increase in the total number
of BPO companies. Overall, IBISWorld forecasts the number of industry enterprises to expand at an
annualized rate of 2.6% over the five years to 2019 to total 150,232 companies. Many of these companies
are small, independently owned businesses, as this industry exhibits low barriers to entry and minimal
initial start-up costs. However, large multinational companies, such as Accenture PLC, are among the
industry's largest players. More companies and greater demand for BPO services have also precipitated
an increase in industry employment. As a result, the number of employees in the industry is expected to
increase an annualized 2.6% during the five-year period to reach 1.0 million workers. Employment in this
industry, as other consulting industries, comprises mainly well-educated, knowledgeable workers, and as
a result, wage costs as a portion of total industry revenue are relatively high.

Over the past five years, the healthcare sector, including healthcare administrative companies in
particular, has continued to emerge as a key client market for the industry. Companies that deal with
healthcare administration have experienced a dramatic increase in back office services as a result of the

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implementation of the PPACA prior to the outset of the period. This legislation required the healthcare
sector to change polices concerning inclusion, reductions in the cost of care, accountability for care
outcomes, efficiency and transparency. The act has also significantly increased the number of individuals
receiving health insurance. Constituents of healthcare delivery, including payers, providers,
pharmaceutical companies and managed care organizations, have required substantial reorganization,
and consequently, sought outsourcing services as a method of controlling associated costs, particularly
toward the earlier half of the current period.

Pending legislation

Many opponents of BPO services claim that the outsourcing of back office and customer service jobs has
denied millions of Americans the opportunity to earn wages. This anti-outsourcing sentiment has grown
in recent years in particular, and many states now aim to prohibit the outsourcing of public service jobs
and functions. Prior to the outset of the current period, the FCC announced its intention to create 100,000
call center jobs over 2013 by making domestic operating costs competitive with offshore rivals. This plan
involved using advancements in broadband technologies to enable call centers to hire employees that
can work from home. Such a plan would save operators expenses such as rent and utilities, and
effectively reduce cost differences between offshore and onshore work. More recently, the Bring Jobs
Home Act was introduced in the US Senate, which, if passed, could have far reaching implications for the
private sector. The legislation would grant businesses a tax credit for up to 20.0% for insourcing
expenses created for businesses that relocate within the United States. Moreover, the legislation will
deny this tax deduction for a business's outsourcing expenses incurred in relocating a US establishment
overseas. While this bill and subsequent bills have died in prior sessions of Congress, any future
legislative incentives designed to return outsourced jobs to the United States could present problems for
the industry over the coming years.

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Industry Data Revenue IVA Establishments Enterprises Employment Exports Imports Wages
Domestic
Demand
Corporate
Profit
Timeseries ($m) ($m) (Units) (Units) (Units) ($m) ($m) ($m) ($m) ($b)
2003 86,907 57,098 111,722 104,774 846,908 N/A N/A 48,512 N/A 1,280
2004 91,313 60,503 118,412 110,444 868,589 N/A N/A 51,417 N/A 1,521
2005 95,559 65,485 123,488 115,265 911,215 N/A N/A 55,146 N/A 1,703
2006 96,900 74,443 131,476 119,829 981,969 N/A N/A 63,086 N/A 1,828
2007 98,067 75,538 139,962 130,186 964,325 N/A N/A 64,555 N/A 1,658
2008 100,432 70,717 133,700 125,760 835,091 N/A N/A 58,334 N/A 1,364
2009 101,862 70,517 140,418 131,638 860,117 N/A N/A 59,272 N/A 1,460
2010 104,298 72,408 138,066 129,356 830,166 N/A N/A 59,778 N/A 1,799
2011 107,293 76,165 138,284 129,065 831,205 N/A N/A 61,981 N/A 1,845
2012 110,355 81,915 140,780 131,949 879,775 N/A N/A 67,745 N/A 1,997
2013 112,557 76,020 140,544 130,860 881,798 N/A N/A 61,545 N/A 1,976
2014 117,831 78,998 141,470 132,040 905,536 N/A N/A 63,314 N/A 2,046
2015 122,342 84,537 146,016 136,283 948,002 N/A N/A 68,926 N/A 1,969
2016 124,841 86,913 150,630 140,589 977,949 N/A N/A 70,334 N/A 1,901
2017 127,140 89,353 154,690 144,505 997,470 N/A N/A 71,846 N/A 1,861
2018 128,250 90,779 157,457 147,173 1,008,865 N/A N/A 72,691 N/A 1,884
2019 130,861 92,993 160,723 150,232 1,027,809 N/A N/A 74,226 N/A 1,873
2020 132,904 95,077 163,600 152,945 1,043,150 N/A N/A 75,460 N/A 1,892
2021 135,467 97,315 166,440 155,609 1,059,968 N/A N/A 76,870 N/A 1,908
2022 138,053 99,437 168,980 157,949 1,077,006 N/A N/A 78,299 N/A 1,920
2023 140,713 101,894 172,004 160,755 1,097,309 N/A N/A 79,932 N/A 1,940
2024 143,456 104,430 174,861 163,391 1,117,687 N/A N/A 81,587 N/A 1,959

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Industry Outlook
Revenue for the Business Process Outsourcing Services industry is
expected to continue its upward trajectory over the five years to 2024,
rising at an annualized rate of 1.9% to reach $143.5 billion.

Revenue will continue to be supported by increasing wage pressure, as companies with a large number of
employees struggle to contain costs. However, the industry may suffer somewhat as an increasing
number of business processes are automated to save on costs. For example, computers are being
increasingly used to handle calls, while in the accounting sector, more standardized processes, such as
accounts receivable and payable, are handled by computer programs. While automation is not perceived
as a serious threat to the industry in the near future, the opportunity exists for business process
outsourcing (BPO) companies to include some level of automation as part of their overall offerings,
providing a growth opportunity for the industry.

Demand drivers

The industry has already begun to reap the benefits of the comprehensive changes within the healthcare
industry. Compliance with regulations of the Patient Protection and Affordable Care Act (PPACA) has
generated substantial revenue for the industry as the act had extended healthcare coverage to
Americans. Processing and servicing these individuals will continue to involve significant work influxes.
However, with the individual mandate getting repealed as part of the comprehensive tax system overhaul
by the current administration, the number of people with private health insurance is forecast to stagnate
over the five years to 2024. This is because a portion of the population that previously signed up for
insurance in recent years under the mandate is expected to choose to opt out of being insured over the
next five years as fines for being uninsured are eliminated. Consequently, this stagnation in the number
of individuals with private health insurance is expected to somewhat constrain demand growth for BPO
services from the healthcare sector.

However, another crucial factor driving growth in the US healthcare provider outsourcing market is the
International Classification of Diseases (ICD) conversion reform. In healthcare, coding systems are used
to differentiate diagnoses and procedures in all treatment settings. Diagnostic and procedural codes are
connected to every system and business process in health plans and provider organizations, including
reimbursement and claim processes. Healthcare providers, as of October 2014, have been mandated to
change from the ICD-9 form to the ICD-10 standards. Additionally, the World Health Organization (WHO)
published major updates to the ICD standards with its ICD-11 conversion in June 2018, with the final draft
expected to be submitted for official endorsement in 2019. The continued shortage of skilled personnel,
particularly medical coders in the United States, will encourage significant outsourcing. Moreover,
demand for outsourced services in the US pharmaceutical industry has increased significantly in recent
years as pharmaceutical companies adopt downsizing and consolidation strategies. This pharmaceutical
outsourcing trend is expected to persist during the outlook period.

Increased demand for BPO services from downstream markets, such as finance and insurance and
pharmaceuticals, will support the industry's revenue expansion during the outlook period, further fueling
employment and enterprise growth. Over the five years to 2024, the number of companies in the Business
Process Outsourcing Services industry is expected to increase at an annualized rate of 1.7% to reach
163,391 operators. Additionally, an increase in the number of industry players will propel an increase in
employment and wages. Consequently, total wage costs for the industry are expected to increase at an
annualized rate of 1.9% during the outlook period to reach $81.6 billion. Nevertheless, rising industry
wage costs and other factors will constrain industry profit, which is expected to grow slowly during the
next five years.

Changing landscape

Robot process automation is software that drives existing enterprise application software. The software
(robot) sits on servers and connects via virtual private network (VPN) with the client's user software. It
interfaces with the desktop to pick up parts of processes and route them to completion. Two developers
of these systems, ISOFT and Blue Prism, have created robot processors that use advanced software and
algorithms to capture and interpret existing applications and process transactions, manipulate data and
trigger responses. These robot-processing systems can complete some routine tasks and operations
previously done by humans, and are particularly applicable to back office functions. Interest in these

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systems has primarily stemmed from the finance, accounting and paralegal fields. Nevertheless, robotic
automation will encounter several challenges, one of which is the fact that it is a relatively novel system
with a small number of the vendors promoting its use. Also, not every business process is suitable for
automation. For example, many business processes require human perception and judgment based on
years of experience. Over the next five years, robot process automation is not yet considered a serious
threat. However, this may change with future advances in technology and artificial intelligence.

Revenue Outlook Revenue IVA Establishments Enterprises Employment Exports Imports Wages
Domestic
Demand Corporate
($m) ($m) (Units) (Units) (Units) ($m) ($m) ($m) ($m) Profit ($b)
2019 130,861 92,993 160,723 150,232 1,027,809 N/A N/A 74,226 N/A 1,873
2020 132,904 95,077 163,600 152,945 1,043,150 N/A N/A 75,460 N/A 1,892
2021 135,467 97,315 166,440 155,609 1,059,968 N/A N/A 76,870 N/A 1,908
2022 138,053 99,437 168,980 157,949 1,077,006 N/A N/A 78,299 N/A 1,920
2023 140,713 101,894 172,004 160,755 1,097,309 N/A N/A 79,932 N/A 1,940
2024 143,456 104,430 174,861 163,391 1,117,687 N/A N/A 81,587 N/A 1,959

Industry Life Cycle The life cycle stage of this industry is Growth
Life Cycle Reasons The Business Process Outsourcing Services industry is in the growth stage of its economic life cycle.
o Industry value added is expected to
Industry value added (IVA), which is used to measure an industry's contribution to the overall economy, is
grow at a faster rate than the projected to grow at an annualized rate of 2.8% over the 10 years to 2024. Comparatively, the US
overall economy
economy is expected to increase an annualized 2.1% during the same 10-year period, indicating the
o Industry employment and industry is slightly outpacing the broader economy. Generally, a faster IVA rate compared with economic
enterprises are expected to expand
over the 10 years to 2024 development is indicative of an industry in its growth phase.
o There is a moderate level of
Over the 10 years to 2024, the industry is expected to benefit from an uptick in demand as wage
technological change in the
industry differentials between the United States and other developing nations, coupled with increased projected
healthcare costs for businesses, encourage companies to source labor overseas, driving demand for BPO
services. This growing acceptance of industry services is expected to push industry employment and
enterprise growth upward. The number of companies in the industry is expected to increase at an
annualized rate of 2.2% over the 10 years to 2024 to total over 163,000 operators.

This industry is also characterized by a moderate level of technological change, which focuses primarily
on the use of computer systems to reduce administrative costs. BPO companies are still evolving, and
although the majority of BPO operators primarily employ a lift and shift approach and merely shift a
client's existing people and process using wage cost differentials as their only metric, more BPO
companies have performed transformation and standardization for clients, while some have invested in
new technology to enhance process flows, analytics and delivery.

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Products & Markets

Supply Chain

Products & Services

This industry provides third-party services to companies seeking to

outsource parts of their business operations.

Excluding information technology (IT) systems, operators assume the responsibility of noncore
processes such as customer relations, finance and accounting and human resources. During the previous
economic downturn, many companies focused on short-term goals and avoided committing to longer-
term strategies such as outsourcing. However, with a sustained macroeconomic expansion over the past

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five years, operators are experiencing growth across all product segments as demand for outsourcing is
renewed.

Industry-specific business process outsourcing services

Accounting for an estimated 59.3% of annual industry revenue in 2019, industry-specific outsourcing is
the highest revenue-generating service segment for industry operators. This segment comprises wide
reaching services that are customized for companies on an industry-to-industry basis. These services
include warranty management, sales fulfillment and order management, document management, public
service processing, communications, supply chains and engineering services. As the domestic economy
expanded over the past five years and many other downstream sectors, such as information technology,
grew in turn, this segment experienced an increase in demand. For example, over the five years to 2019,
corporate profit is estimated to grow at an annualized rate of 2.0%. With increased profit, companies feel
more comfortable making long-term decisions such as outsourcing operations. As a result, demand for
this segment's services increased over the past five years, leading this segment to rise as a share of
industry revenue.

Customer relationship management business process outsourcing services

Operators in this segment provide business process outsourcing for customer care, technical support
and help desk, call centers, social and media practices, sales and marketing efforts and customer
analytics. Globally, the customer relationship management service segment is growing at a faster rate
than its US counterpart. This is due in large part to the maturity of the US calling center sub-segment.
Most major US companies have already outlined or executed plans for call center support; thus, the
opportunity for growth is limited. Consequently, revenue generated from this segment is expected to have
declined slightly as a share of industry revenue relative to other segments, accounting for an expected
17.8% in 2019.

Human resources business process outsourcing services

Human resources (HR) outsourcing involves the third-party completion of personnel processes such as
talent acquisition, talent development, current employee services and compensation. HR outsourcing has
expanded as a share of industry revenue over the five years to 2019, generating an estimated 14.6% of
annual revenue in 2019. This segment is able to differentiate itself from others because it is relatively
more insulated from periods of economic decline.

During periods of economic growth, companies seek to acquire and develop talent to increase
operational capacity. Furthermore, companies are consistently seeking cost advantages, which can be
provided by HR outsourcing. Segment services such as payroll, benefit and retirement planning are time-
consuming processes with sizeable overhead costs. Consequently, companies are constantly seeking to
reduce these costs and enable HR departments to focus efforts on more productive processes.

While growth in HR outsourcing is expected to continue, the segment will experience threats from
improving technology. The HR service environment has undergone considerable change over the past
decade in light of continual technology improvements. This poses a threat to HR outsourcing providers
because their contracts tend to last seven to nine years, which means that in the years to come, there will
be a mass expiration of policies. When this occurs, clients will be presented with the options of renewing
their service, negotiating a new contract or choosing a different option. If HR technologies and software
become a more attractive substitute, segment operators will endure increased competition.

Financial and accounting business process outsourcing services

Over the past five years, demand for finance and accounting (F&A) outsourcing has risen as businesses
focused on more long-term strategies over the past five years in light of improved macroeconomic
conditions. Initially, many companies took steps to avoid outsourcing financial and accounting processes
in fear of service providers not being equipped to handle the complexity of their operations; however, over
the past five years, companies have sought these services out with the aim of reducing operational costs.
In 2018, this segment is forecast to account for 8.3% of annual industry revenue. Generally, demand for
these services are highest in the telecommunications and high-tech, utilities and energy and banking
industries.

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Demand Determinants Demand for business process outsourcing services are largely
determined by changes in the broader economy, new regulations and
technological innovation.

These factors affect each segment differently and industry operators are increasingly moving toward a
more industry-based structure. Consequently, demand for industry services is dependent on how these
three factors affect a client's industry.

Generally, the decision to outsource business operations is part of a long-term strategy. During economic
downturns, small to midsize companies focus more on short-term strategies to survive unfavorable
conditions. As it concerns industry services, companies employ a wait-and-see strategy or simply seek to
restructure outsourcing contracts. This results in increased demand for shorter contracts, overall price
reductions and smaller deals. Additionally, the specialized nature of this industry exposes different
operators to industry-specific risks. This was most noticeable in during the previous economic downturn
when financial service clients began to consolidate and change corporate strategies in response to
troubled markets. Operators servicing these clients experienced an increase in contract terminations and
overall revenue declines. However, as the economy recovered and corporate profit increased, banking
and investment services companies returned to their long-term strategies of outsourcing. The same
process occurred in the other markets serviced by industry operators, such as accounting and legal
services. Ultimately, changes in the economy, for better or worse, have explicit effects on demand for
industry services.

Economic changes affect the industry across most service groups. Regulations, however, primarily affect
industry-specific services. One such example is the shifting regulations in healthcare and their effects on
BPOs. In the healthcare sector, the medical loss ratio describes the portion of healthcare expenditure
dedicated to administrative costs. The Affordable Care Act requires healthcare providers to maintain a
ratio in which 80.0% to 85.0% of healthcare spending is dedicated to non-administrative costs, while this
ratio currently stands at an estimated 70.0%. The act however, does not describe how these ratios are to
be met, which is where business process outsourcing will prove to be most beneficial. Healthcare BPOs
offer a way to reduce administrative expenditures so that the required medical loss ratio is satisfied.
Furthermore, the Affordable Care Act requires billing and electronic exchanges to be standardized across
organizations. In this regard, healthcare BPOs have the document management expertise needed to
standardize the exchange of information for healthcare providers.

Lastly, the changing technological environment within this industry is supporting a new stream of
demand for outsourcing services. More businesses are embracing data analytics as it pertains to
efficiency and market trends. Subsequently, BPOs are investing in technology to offer vertically
integrated solutions. For example, providers of call center outsourcing have experienced a move toward
software platforms that track customer behavior and provide analysis on market trends. Other service
segments are experiencing increased demand for network security and interface accessibility, as industry
operators continue to seek out new technologies. Thus, changes in available technology enable operators
to expand into untapped markets and generate demand for new services.

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Major Markets

Business process outsourcing (BPO) services are applicable to all

organizations and businesses in the United States.

With an expanding domestic economy, organizations across most sectors are focusing on higher-value
services by outsourcing more administrative processes. The services offered by this industry are most
beneficial to industries with high levels of documentation and research and development.

Banking and insurance

Combined, banking and insurance institutions constitute the largest portion of industry demand,
accounting for 23.3% of total industry revenue in 2019. In the years following the financial crisis, banking
and insurance industries are facing higher levels of scrutiny and demand for more customer-focused
services. Over the past five years, a continuation in these trends have driven these industries to seek out
analytics-based solutions, a service that is largely dominated by BPOs. In the banking market specifically,
increased demand for real-time responses, customer service and compliance checks are driving demand
for added front office solutions such as marketing, call center services and finance and accounting
outsourcing. During the five-year period, the majority of demand from banking and insurance companies
has stemmed from larger institutions; however, small and midsized companies are also increasingly
seeking industry services.

Pharmaceutical companies and healthcare providers

Pharmaceutical companies, life science operators and healthcare providers are estimated to account for
11.0% of industry revenue in 2019. For pharmaceutical companies, research and development (R&D) is a
core process that requires high levels of expenditure and long periods of time to develop new products.
Increasingly, the pharmaceutical industry is being pressured to increase the speed of innovation, reduce
the operational cost to develop a drug and to make products more affordable. In response,
pharmaceutical companies are demanding industry-specific services such as clinical trials, sales
management and compliance checkers. Meanwhile, healthcare providers are encountering different
circumstances as they adjust to changing regulations. With the adoption of the Patient Protection
Affordable Care Act prior to the outset of the period, healthcare providers have turned to business
process outsourcing services to help reduce operational costs and handle the increased demand for
customer service. The changing regulatory environment for pharmaceutical companies and healthcare
providers will provide a steady stream of future revenue for industry operators.

Other industries

Consumer packaged goods and manufacturing account for an expected 5.5% and 16.4% of industry

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revenue, respectively. These industries require a high level of compliance and operational efficiency;
consequently, both are large users of industry services. In addition to providing cost saving solutions,
industry operators are also providing vertically integrated solutions to enable companies to focus on
higher-value processes, such as research and development. This trend is being observed across other
sectors such as the software and telecommunications, retail and energy and utilities industries. The
public sector, however, historically accounts for less than 5.0% of industry revenue, as federal, state and
municipal governments and agencies, unlike the private sector, have been slow to adopt the
infrastructure and make investments in outsourced professional services.

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International Trade Exports in this industry are Low and Steady

Imports in this industry are Low and Steady

Given the nature of this industry, there is no international trade recorded by the United States
International Trade Commission. However, business process outsourcing services are increasingly
becoming a larger component of trade in services with other countries. Industry services are a significant
portion of India's trade in services with the United States, the largest user of outsourcing services from
the developing world. International companies often encounter several barriers to entry, however. For
example, the Bank Service Corporation Act grants federal bank regulators the right to exam and regulate
third-party providers of outsourced services to FDIC-insured banks.

As for the exportation of industry services, most small and midsized operators service the domestic
market as they lack the ability to operate on a global scale. For those that do have the operational
capacity to work in several countries, services are generally fulfilled in the domestic market because they
require country specific knowledge in areas such as business environment, legislation, regulation and
procedures. Consequently, many major players in this industry have operations abroad but retain the
majority of their operations in the domestic market.

Business Locations

The distribution of BPO establishments generally reflects the dispersal of the US population, with
increased establishment concentration near key demand markets such as financial services and
insurance companies, large corporations and healthcare providers. Overall, BPO companies are most
highly concentrated in the Southeast, with the Western and Mid-Atlantic regions also containing a
significant volume of industry establishments.

The Southeast is home to the largest concentration of industry locations, accounting for an estimated
26.2% of total establishments in 2019. In large part, this percentage reflects the distribution of people
across the United States as the Southeast region accounts for more than one-quarter of the US
population. Within the region, Florida accounts for the largest proportion of industry establishments, with
9.6% of total locations in 2019. Florida also houses a significantly large portion of call centers and human
resource services for industry operators, mirroring the distribution of residents, as Florida is the largest
state by population in the region.

The Western region is the second-largest region by industry establishments, accounting for an estimated
18.0% of locations in 2019. California is a hub for software and high-tech companies, which account for a

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sizable portion of total industry revenue. Furthermore, these software companies tend to invest heavily in
research and development, making the state an attractive destination for providers of vertically integrated
solutions. As a result of these factors, California is home to the largest concentration of industry
establishments of any individual state, containing an expected 12.9% of the national total in 2019.

The Mid-Atlantic region holds an estimated 17.7% of industry establishments. The banking sector, which
provides an estimated one-fifth of demand for industry services, has several companies with operations
in this region, mainly New York City, with New York containing 6.8% of total establishments. Additionally,
the telecommunications sector has major operations in New Jersey, resulting in 3.0% of establishments
being situated in this state.

Outside of Chicago, Detroit and Texas, there is little proximity to major markets in the Great Lakes and
Southwest regions. Generally, energy and utilities companies generate slightly more than 5.0% of total
industry revenue. Moreover, Texas, which accounts for 8.2% of industry establishments, is a large market
for these companies. This is especially true for Houston, which constitutes a large portion of the state's
energy market.

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Competitive Landscape
Market Share Concentration in this industry is Low
Concentration

The Business Process Outsourcing Services industry is characterized by a low level of market share
concentration. Although there are large multinational companies within this industry that generate
sizeable annual revenue, many have operations overseas. Furthermore, there are many small industry
operators comprising this industry, which reduces the overall market power of each large player. In 2019,
IBISWorld estimates that the four largest companies operating in the industry will collectively represent
11.7% of annual industry revenue. However, the largest players in this industry, such as Accenture PLC
and Conduent Inc., maintain an extensive presence globally, which gives these companies a sizable
advantage in the domestic market. Over the five years to 2024, market share concentration is expected to
rise as companies begin to focus on long-term strategies such as outsourcing. Despite increasing
demand for industry services, consolidation among the larger companies will result in the smaller
business accounting for a lesser portion of total industry revenue.

Key Success Factors IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:

 Access to quality personnel management: To provide industry services and remain competitive,
service providers need to have access to high-quality personnel management.

 Ability to quickly adopt new technology: Service providers need to constantly find new and better ways
to apply the increased functionality and flexibility of technology, to improve services and pass on
savings to customers.

 Accessibility to consumers/users: Successful service providers offer products with an accessible

client user interface through the use of web-based technology.

 Ability to manage external (outsourcing) contracts: Third-party providers need competent contract
management skills to have secure and ongoing business relationships with clients.

 Economies of scale: Given the nature of the industry, operators must be able to achieve economies of
scale to offer cost savings to companies.

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Cost Structure
Benchmarks

Profit

The average industry profit margin, defined as earnings before interest and taxes, is expected to account
for 13.3% of revenue in 2019. Industry profitability is sensitive to changes in both the number of clients
and demand for industry services. Over the five years to 2019, industry margins have expanded
marginally as higher corporate profit levels enabled businesses to spend more freely on industry related
outsourcing services. Additionally, an increase in the total number of businesses in the United States over
the past five years expanded the potential pool of clients for BPO services, benefiting industry demand.
These trends are expected to continue over 2019, which will lead to a historically high industry margin.

Wages

Representing an estimated 56.7% of annual revenue for the industry in 2019, the single largest expense
for industry operators is wages. Industry operations are highly labor intensive, typically requiring a
significant degree of interaction with clients. Indeed, average wages are high for the industry, reaching
over $70,000 in 2019. In addition, BPO companies market their services through direct sales and are
often compensated by commission. Over the past five years, wages as a portion of industry revenue have
increased, up from 53.7% in 2014, as BPO companies began to offer pay raises and more incentive-based
payouts. However, an increased reliance on technology and new software, which enables certain tasks
and services to be carried out online, has mitigated a greater rise in industry wages.
Purchases

Purchases are expected to account for 1.1% of industry revenue in 2019. Industry businesses typically
require the procurement of software, communication equipment and other related office products.
Moreover, reimbursing agents for expenses, such as travel, are included in this segment.

Marketing

Marketing expenses are relatively low for the industry. In 2019, the average operator is anticipated to
allocate 0.1% of annual revenue to marketing costs.

Depreciation

Meanwhile, depreciation in this industry is relatively low, estimated at 1.1% of industry revenue in 2019,
and includes investment in office equipment and building locations. Depreciation has risen slightly as a
share of industry revenue during the current period, up from 0.9% in 2014, as operators increased capital
investments in software platforms and other digital technology.

Rent

Rental costs are expected to account for a 0.6% share of industry revenue in 2019. Rental costs in this
industry largely vary depending upon enterprise size. Small companies, for instance, can provide services
from home while a larger company will likely need to use office space, which raises rental costs.

Utilities

On average, utilities expenditure is quite minimal for industry operators, consuming a negligible share of
annual revenue. In 2019, this is expected to account for 0.9% of industry revenue.

Other Costs

Additional expenditures incurred by industry businesses include accounting, insurance, bank service and
legal fees. These costs collectively consume the remaining share of annual revenue.

Basis of Competition Competition in this industry is Medium and the trend is Steady

The Business Process Outsourcing Services industry comprises many

small enterprises.

With the industry's strong performance over the five years to 2019, the number of operators will continue
to increase. The combination of a large number of enterprises, low barriers to entry and minimal market
share concentration is equated with high levels of competition. However, competition in this industry is
moderate. This is attributed to the specialized nature of industry services and the ability of operators to

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enter niche markets to avoid high levels of competition.

Internal competition

Traditionally, industry operators compete on the basis of cost, service offerings and quality of service.
Companies are increasingly competing on a more technological level as demand for vertically integrated
solutions grows. As outsourcing technologies become more advanced, the number of services offered by
industry operators is expected to increase. Consequently, industry operators must consistently look to
update their software if they wish to attract and retain buyers. Additionally, the length of service contracts
in this industry has multiple effects on how operators compete. When competing for a contract, BPO
operators place more emphasis on offering a wider range of services than competitors at a lower price
point. In this way, quality of services greatly influences how prospective buyers view companies. Once a
contract is signed, however, the company is essentially guaranteed payment for up to seven years, with
client contracts typically being longer-term within this industry. This lessens the adverse effects of price
changes and quality perception in the short-run. The length of the contract, however, ensures that
companies perform due diligence before committing to a service provider. Furthermore, once a contract
expires, the buyer has the option of renewing, choosing another company or keeping services in-house; it
is at this point that perception of quality and price becomes the deciding factor.

External competition

In-house departments and international companies with offshore labor generate the majority of external
competition for operators in this industry. Users of industry services are all capable of performing their
business processes in-house. With technological advancements, departments such as human resources
are increasingly able to effectively perform industry services, thus lowering the maximum price a BPO
can charge. Consequently, unless industry operators remain ahead of the IT curve, they can encounter
diminishing demand for services. Moreover, the cost of doing business abroad is lowered as newer
communication systems are introduced, as demonstrated by the decrease in the average cost of
maintaining a phone line to the United States. As these costs decrease, the attractiveness of lower cost
international operators increases. This is especially true for the customer relationship outsourcing
segment, which has seen high level of competition for call center services from India and the Philippines.

Barriers to Entry Barriers to Entry in this industry are Low and the trend is Steady

Barriers to entry for the Business Process Outsourcing Services

industry are relatively low.

Required start-up costs for new industry operators are non-prohibitive, with a new industry entrant able to
begin operations without the need of employees, significant capital expenses or even an office. In
addition, there are few regulations in place that would prevent a new business from entering the industry.
Smaller industry operators such as Upwork, which connects small businesses and freelance workers
through its website, were able to enter the industry in recent years due to low barriers to entry.

While barriers to entry for this industry are low, barriers to success are high. To succeed in this industry, it
is essential for even very small industry operators to have strong connections with a source of skilled yet
inexpensive foreign labor that is able to outsource domestic companies' business process outsourcing
needs. This requires a highly skilled staff that simultaneously understands domestic companies'
business process needs, while having a high degree of business knowledge of the country from which
labor is being outsourced. In addition, even if a new entrant has such connections, operators must also be
able to effectively market themselves to domestic clients. This most often requires an industry operator
to develop a positive reputation, which can take months if not years to develop.

Barriers to entry are much higher for companies that wish to operate in this industry on a larger scale.
Initial costs, which include purchasing offices and the hiring of skilled labor, are much higher simply due
to the scale of the operations involved. More importantly, major companies such as Accenture PLC and
Synnex Corporation are well-established players in the industry and attract the majority of business from
companies that want to outsource on a large scale. The established reputations of these companies
make it difficult for new companies to enter this segment of the industry.

Barriers to Entry Checklist

Competition Medium

Concentration Low

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Life Cycle Stage Growth

Technology Change Medium

Regulation & Policy Light

Industry Assistance None

Industry Globalization Globalization in this industry is High and the trend is Increasing

The Business Process Outsourcing Services industry is a highly globalized industry because domestic
companies form partnerships with international operators at levels unobserved in other industries. In
response, major companies in this industry have extensive operations abroad through which they
offshore certain processes or establish offices to maintain proximity to clients. As of 2018, Accenture
PLC, a major BPO services provider in the United States, reported that its international operations account
for more than 50.0% of total company revenue. Furthermore, other global players such as Tata
Consultancy Services and Infosys each generate more than $5.0 billion in global business process
outsourcing operations. However, although these companies provide BPO services for US-headquartered
corporations, much of their revenue is derived overseas in countries such as India, giving them minimal
industry market share in the domestic industry.

The expansive nature of industry operations is credited to the ability to transfer capital and have effective
communications with companies across national borders. With the advancement of capital mobility and
telecommunication, the BPO industry has emerged in developing countries, with India and the Philippines
becoming the largest providers of outsourcing services. Given the interconnectedness of domestic
companies and international operators, events occurring in one country can have resounding
consequences in another. As companies become increasingly aware of the risk associated with having
one supplier for outsourced services, they will begin to spread out operations, which will increase the
interconnectedness of industry operators. Consequently, globalization in this industry is expected to
increase in the future.

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Major Companies
Major Players

Accenture PLC

Market Share: 5.6%

Accenture PLC (Accenture) is one of the largest global providers of management consulting and
technology and business outsourcing services. Founded in 1989, the company is headquartered in
Dublin, but operates in 55 countries and employs 459,000 workers across the globe. In fiscal 2018
(year-end August; latest data available), the company's global revenue totaled $39.5 billion.

Accenture is structured into five independent business segments by industry, with all five segments
covering an estimated 20 distinct industries or sectors. These five overreaching segments include
strategy, technology, consulting, digital and operations. In each segment, the company offers two
major services: management and IT consulting and IT and business process outsourcing (BPO). In
regard to management consulting, the company offers services in finance and enterprise performance,
operations, risk management, sales, strategy and human resources. While management services
account for the majority of the company's annual revenue, outsourcing services comprise a significant
share at 45.4% of total company sales as of fiscal 2018. The company's industry-specific revenue is
generated from its BPO services, which span all five business segments. Services performed under this
segment include human resource services, finance and accounting services, procurement and credit
services.

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Over the five years to fiscal 2020, Accenture's industry-specific revenue is expected to rise at an
annualized rate of 5.9% to total $7.8 billion. This strong growth is attributed to an increasing emphasis
on cost saving strategies, which include outsourcing services over the past five years. Additionally, the
company has expanded through a series of strategic acquisitions, such as the 2013 purchase of
Procurian, an international provider of procurement and BPO services, at the outset of the period. What
differentiates Accenture from some of its competitors is its industry-based structure. By offering
services based on industry clusters rather than service type, the company is able to offer a complete
package to a client. These various options of industry-based expertise are more attractive to
customers since they do not require multiple service groups, which then need to coordinate activities
and provide solutions for a variety of industries. Strong demand for industry services is anticipated to
lead to an 11.5% boost in industry-specific revenue over fiscal 2019, leading the company to control a
6.2% industry market share. Likewise, operating profit is expected to increase an annualized 7.2% to
reach $1.2 billion during the current five-year period.

Other Companies Conduent Inc.

Market Share: 2.9%

Incorporated in 2016, Conduent Inc. (Conduent) was formed as a spinoff from the business and
document service company Xerox Corporation. Conduent is a leading business process services (BPS)
provider with 82,000 employees in 42 countries. Overall, the company generated $5.4 billion in revenue in
2018 with an estimated 88.0% stemming from the United States.

Conduent specializes in transaction processing, analytics and automation outsourcing. The company
operates in three segments, including healthcare, commercial industries (businesses that operate outside
of healthcare) and the public sector. The company's healthcare clients include medical providers,
pharmaceutical and life science companies, healthcare insurance companies and employers. Conduent's
commercial industries group provides business-to-business and business-to-consumer outsourcing
functions, such as finance and accounting, human resources, customer care and transaction processing
services, to a variety of business sectors. Lastly, Conduent's public sector clients include federal, state
and local government as well as foreign governments. IBISWorld expects the company's US industry-
specific revenue to reach $4.9 billion in 2018, representing a 2.9% industry market share.

Synnex Corporation

Market Share: 1.4%

Founded in 1980, Fremont, CA-based Synnex Corporation (Synnex) is one of the largest providers of
business process outsourcing services in the United States. Synnex divides its business operations into
two operating segments, which include technology solutions and Concentrix. The company's technology
solutions segment purchases and distributes peripheral technology and IT systems, which include data
center server and storage solutions, system components, software, networking equipment and other
auxiliary products. However, these activities are outside the scope of the Business Process Outsourcing
Services industry.

Relevant to this industry, Synnex's Concentrix segment provides outsourced customer relations and
management services. Concentrix operates in 24 countries and employs more than 50,000 workers. This
business unit provides end-to-end outsourcing expertise to clients in major sectors, including banking,
healthcare and pharmaceutical, insurance, technology, transportation and retail, as well as the public
sector. In addition, Concentrix's BPO services primarily focus on customer relationship management
(CRM) as opposed to human resource outsourcing.

Synnex vastly expanded its industry-specific operations with the acquisition of International Business
Machines Corporation's (IBM) BPO business segment in September 2013. The deal was reportedly for
$505.0 million, with more than $400.0 million in cash and the remainder paid in equity. At the time of the
acquisition, IBM's unit was the second-highest revenue generating BPO operation in the United States.
The acquisition added more than 35,000 employees and 170 customers in 24 countries. Overall, Synnex's
US industry-relevant operations are expected to total $1.8 billion in fiscal 2019 (year-end November),
giving the company an estimated 1.4% industry market share.

Cognizant Technology Solutions Corporation

Market Share: 1.3%

Cognizant Technology Solutions Corporation (Cognizant) is a multinational provider of IT, consulting and
BPO services. Headquartered in Teaneck, NJ, the company has 50 offshore global delivery centers across
India, China, Canada, Argentina, Brazil, Hungary, France, the Philippines and the Unites States. Globally,
the company employs more than 260,000 people and reported total revenue of $14.8 billion in 2018.

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Relevant to this industry are the company's BPS operations. Additionally, the company offers customer
relationship management (CRM), enterprise resource planning and other outsourcing related services.
Cognizant serves a diverse range of downstream markets including finance, accounting, data
management and analytics, and has expertise in front, middle and back office applications.

In 2019, revenue generated from Cognizant's US-based and industry-specific services is anticipated to
increase to $1.7 billion. This represents an industry market share of below 1.3%. Strong growth during the
current period is attributed to the company's sizable expansion of the financial services segment over the
past five years. With interest rates remaining relatively low and compliance checks increasing, some
industry operators have had to adjust their operations to adapt to the changed business environment.
With these changes, demand for BPO services in human resource management, client relationship
management and finance and accounting has increased, boosting Cognizant's industry-specific revenue.

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Operating Conditions
Capital Intensity

The level of capital intensity is Low

The Business Process Outsourcing Services industry exhibits a low level of capital intensity. The average
company in this industry allocates an estimated $0.02 toward capital for every $1.00 spent on labor in
2019. The industry's low capital intensity is indicative of the significant labor input required by industry
operators. Although companies are continuously upgrading technology to benefit from increased demand
for vertically integrated solutions, the majority of industry services have been performed using labor over
the five years to 2019. While this is the case for many small and midsized companies in the industry, the
largest players in the industry have extensive proprietary platforms that are constantly updated and
maintained. Over the next five years, the industry's level of capital intensity is not expected to change
significantly.

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Technology & The level of technology change is Medium

Systems
The Business Process Outsourcing Services industry is categorized by
a moderate level of technological change.

The pace of technological change in this industry tends to mirror that of client expectations. Buyers of
industry services are increasingly demanding more from industry operators in the form of transparent
pricing, additional standardized processes and vertically integrated business solutions. As these qualities
become more important to potential buyers, industry operators will require new software to handle more
vertical applications.

Over the past five years, the financial services and healthcare markets began the transition toward
outsourcing vertical processes. In these industries, changes in regulation have created a need for stricter
compliance checks. Historically, this process has been completed in-house, however, companies are
beginning to outsource these processes so that they can focus on more strategic goals. As this change
occurs, operators will find themselves moving away from the more traditional services of reducing
operational costs and maximizing efficiency. For this to occur operators will require new platforms
capable of performing nontraditional services and this trend is expected to pick up over the next five
years.

Cloud computing

Aside from industry specific changes, most industries are experiencing a shift toward cloud computing,
which grants users the ability to access information from multiple platforms. As clients have focused on

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transforming operations with cloud computing to improve effectiveness and cost efficiency, industry
operators have increasingly assisted clients with cloud enablement and the operation and maintenance
of digital-related services.

With this change in information sharing, there has additionally been increased attention placed on cyber
security and privacy. Operators in this industry are third-party members with access to confidential
information; consequently, operators must have strong cybersecurity systems in place to compete. As
information sharing continues to change and become more commonplace, industry operators will be
required to invest in more cyber protection software.

Revenue Volatility The level of volatility is Low

The Business Process Outsourcing Services industry typically exhibits low levels of revenue volatility, as
demand for cost-efficient industry services, such as human resource outsourcing, tends to increase even
during periods of economic decline. Over the five years to 2019, industry revenue is expected to have
risen each consecutive year at relatively stable rates as demand for BPO services expanded in
accordance with overall economic and corporate profit growth.

Regulation & Policy The level of regulation is Light and the trend is Increasing

Regulations governing the Business Process Outsourcing Services industry are light but increasing, with
most regulatory changes occurring over the past decade. Historically, regulations governing this industry
were fairly generic and applicable to most domestic industries. These include laws addressing
advertising and branding practices, anti-corruption and anti-bribery, employment, tax compliance and
conflicts of interest. Additionally, similar to many other corporations, industry operators are subject to the
standards presented to them by shareholders, customer and consumer protection regulators and
operations regulators. However, over the past decade, there has been a renewed focus on the protection
of private information in light of recent scandals involving stolen consumer information.

This desire to protect confidential information, both financial and personal, has served as the main driver
of anti-outsourcing bills. Several proposed bills to restrict the transferring of personal identifiable
information, or any type of data that could be used to identify or locate an individual, are targeting third-
party service providers that offshore confidential information. Two notable legislatures are the Health
Insurance Portability and Accountability Act (HIPAA), which covers electronically stored or transmitted
health information, and the Gramm-Leach-Bliley Act (GLBA), which applies similar restrictions to financial
information.

With the previous financial crisis, the regulation of outsourcing in regard to financial information has also
strengthened. Specifically, the Dodd-Frank Act has created and empowered regulatory bodies such as the
Financial Stability Oversight Council and the Financial Industry Regulatory Authority (FINRA). FINRA has
proposed bills, mainly the FINRA Rule 3190, to increase the level of diligence paid to third-party service
providers such as BPOs. Furthermore, the Bank Service Corporation Act stipulates that third-party
providers of outsourced services to FDIC insured banks are subject to supervision by federal bank
regulators. These new and existing bodies are beginning to look at the systemic risk involved in
outsourcing service providers and their effects on the financial system as a whole. With increased focus
being paid to the US financial system, it is conceivable that more regulations covering this industry will
surface over the next five years.

Industry Assistance
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Business Process Outsourcing Services November 2019

The level of industry assistance is None and the trend is Steady

The Business Process Outsourcing Services industry does not receive direct assistance from the US
government. Moreover, the industry has no trade defined by the US International Trade Commission and
therefore there are no applicable tariffs. The industry also does not receive any subsidies or grants but
has previously benefited from government assistance granted to the financial sector through bailouts.
However, the benefits of these bailout programs are considered temporary and thus do little to affect the
continuing operations of industry enterprises.

On a national level, there are no major industry associations affiliated with business process outsourcing
services. However, relevant to this industry is the International Association of Outsourcing Professionals
(IAOP), which provides a range of services and networking opportunities to its members. These services
include conferences, international standards, training, certification and aggregated industry knowledge.

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Key Statistics
Industry Data
Domestic
Revenue IVA Establishments Enterprises Employment Exports Imports Wages Demand Corporate Profit
($m) ($m) (Units) (Units) (Units) ($m) ($m) ($m) ($m) ($b)
2010 104,298 72,408 138,066 129,356 830,166 N/A N/A 59,778 N/A 1,799
2011 107,293 76,165 138,284 129,065 831,205 N/A N/A 61,981 N/A 1,845
2012 110,355 81,915 140,780 131,949 879,775 N/A N/A 67,745 N/A 1,997
2013 112,557 76,020 140,544 130,860 881,798 N/A N/A 61,545 N/A 1,976
2014 117,831 78,998 141,470 132,040 905,536 N/A N/A 63,314 N/A 2,046
2015 122,342 84,537 146,016 136,283 948,002 N/A N/A 68,926 N/A 1,969
2016 124,841 86,913 150,630 140,589 977,949 N/A N/A 70,334 N/A 1,901
2017 127,140 89,353 154,690 144,505 997,470 N/A N/A 71,846 N/A 1,861
2018 128,250 90,779 157,457 147,173 1,008,865 N/A N/A 72,691 N/A 1,884
2019 130,861 92,993 160,723 150,232 1,027,809 N/A N/A 74,226 N/A 1,873
2020 132,904 95,077 163,600 152,945 1,043,150 N/A N/A 75,460 N/A 1,892
2021 135,467 97,315 166,440 155,609 1,059,968 N/A N/A 76,870 N/A 1,908
2022 138,053 99,437 168,980 157,949 1,077,006 N/A N/A 78,299 N/A 1,920
2023 140,713 101,894 172,004 160,755 1,097,309 N/A N/A 79,932 N/A 1,940
2024 143,456 104,430 174,861 163,391 1,117,687 N/A N/A 81,587 N/A 1,959

Annual Change
i Domestic
i Revenue i IVA i Establishments i Enterprises i Employment i Exports i Imports i Wages Demand i Corporate
(%) (%) (%) (%) (%) (%) (%) (%) (%) Profit (%)
2010 2.39 2.68 -1.68 -1.74 -3.49 N/A N/A 0.85 N/A 23.2
2011 2.87 5.18 0.15 -0.23 0.12 N/A N/A 3.68 N/A 2.54
2012 2.85 7.54 1.80 2.23 5.84 N/A N/A 9.29 N/A 8.28
2013 1.99 -7.20 -0.17 -0.83 0.22 N/A N/A -9.16 N/A -1.07
2014 4.68 3.91 0.65 0.90 2.69 N/A N/A 2.87 N/A 3.53
2015 3.82 7.01 3.21 3.21 4.68 N/A N/A 8.86 N/A -3.78
2016 2.04 2.81 3.15 3.15 3.15 N/A N/A 2.04 N/A -3.43
2017 1.84 2.80 2.69 2.78 1.99 N/A N/A 2.14 N/A -2.12
2018 0.87 1.59 1.78 1.84 1.14 N/A N/A 1.17 N/A 1.22
2019 2.03 2.43 2.07 2.07 1.87 N/A N/A 2.11 N/A -0.57
2020 1.56 2.24 1.79 1.80 1.49 N/A N/A 1.66 N/A 1.00
2021 1.92 2.35 1.73 1.74 1.61 N/A N/A 1.86 N/A 0.83
2022 1.90 2.18 1.52 1.50 1.60 N/A N/A 1.85 N/A 0.65
2023 1.92 2.47 1.78 1.77 1.88 N/A N/A 2.08 N/A 1.00
2024 1.94 2.48 1.66 1.63 1.85 N/A N/A 2.07 N/A 0.98

Key Ratios
Imports/ Exports/ Revenue per Wages/ Employees per
IVA/Revenue Demand Revenue Employee Revenue estab.
(%) (%) (%) ($'000) (%) (units) Average Wage ($)
2010 69.4 N/A N/A 126 57.3 6.01 72,007
2011 71.0 N/A N/A 129 57.8 6.01 74,568
2012 74.2 N/A N/A 125 61.4 6.25 77,003
2013 67.5 N/A N/A 128 54.7 6.27 69,795
2014 67.0 N/A N/A 130 53.7 6.40 69,919
2015 69.1 N/A N/A 129 56.3 6.49 72,706
2016 69.6 N/A N/A 128 56.3 6.49 71,920
2017 70.3 N/A N/A 127 56.5 6.45 72,028
2018 70.8 N/A N/A 127 56.7 6.41 72,052
2019 71.1 N/A N/A 127 56.7 6.39 72,218
2020 71.5 N/A N/A 127 56.8 6.38 72,339
2021 71.8 N/A N/A 128 56.7 6.37 72,521
2022 72.0 N/A N/A 128 56.7 6.37 72,700
2023 72.4 N/A N/A 128 56.8 6.38 72,844
2024 72.8 N/A N/A 128 56.9 6.39 72,996

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Additional Resources Bureau of Labor Statistics

http://www.bls.gov

International Association of Outsourcing Professionals

http://www.iaop.org

US Census Bureau
http://www.census.gov

Industry Jargon BACK OFFICE

The various support and administrative functions, such as clearance, settlements, record maintenance
and compliance undertaken by personnel in the finance and accounting industries.

FRONT OFFICE
The various support processes undertaken by a business that reaches out directly to customers. These
include marketing, sales and customer inquiries.

INFORMATION AND TECHNOLOGY (IT)

The use of computers and telecommunications systems to store, access, transmit and manipulate data
for business processes.

INTERNATIONAL CLASSIFICATION OF DISEASES (ICD)

The official US system used to classify and assign codes to health conditions.

SUPPLY-CHAIN
The sequence of processes involved in the production, handling and distribution of a good or product.

Glossary BARRIERS TO ENTRY

High barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it
is easy for new companies to enter an industry.

CAPITAL INTENSITY
Compares the amount of money spent on capital (plant, machinery and equipment) with that spent on
labor. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital
intensity is more than $0.333 of capital to $1 of labor; medium is $0.125 to $0.333 of capital to $1 of
labor; low is less than $0.125 of capital for every $1 of labor.

CONSTANT PRICES
The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the
current year (i.e. year published) as the base year. This removes the impact of changes in the purchasing
power of the dollar, leaving only the "real" growth or decline in industry metrics. The inflation adjustments
in IBISWorld’s reports are made using the US Bureau of Economic Analysis’ implicit GDP price deflator.

DOMESTIC DEMAND
Spending on industry goods and services within the United States, regardless of their country of origin. It
is derived by adding imports to industry revenue, and then subtracting exports.

EMPLOYMENT
The number of permanent, part-time, temporary and seasonal employees, working proprietors, partners,
managers and executives within the industry.

ENTERPRISE
A division that is separately managed and keeps management accounts. Each enterprise consists of one
or more establishments that are under common ownership or control.

ESTABLISHMENT
The smallest type of accounting unit within an enterprise, an establishment is a single physical location
where business is conducted or where services or industrial operations are performed. Multiple
establishments under common control make up an enterprise.

EXPORTS
Total value of industry goods and services sold by US companies to customers abroad.

IMPORTS
Total value of industry goods and services brought in from foreign countries to be sold in the United
States.

INDUSTRY CONCENTRATION

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An indicator of the dominance of the top four players in an industry. Concentration is considered high if
the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry
revenue. Low is less than 40%.

INDUSTRY REVENUE
The total sales of industry goods and services (exclusive of excise and sales tax); subsidies on
production; all other operating income from outside the firm (such as commission income, repair and
service income, and rent, leasing and hiring income); and capital work done by rental or lease. Receipts
from interest royalties, dividends and the sale of fixed tangible assets are excluded.

INDUSTRY VALUE ADDED (IVA)

The market value of goods and services produced by the industry minus the cost of goods and services
used in production. IVA is also described as the industry's contribution to GDP, or profit plus wages and
depreciation.

INTERNATIONAL TRADE
The level of international trade is determined by ratios of exports to revenue and imports to domestic
demand. For exports/revenue: low is less than 5%, medium is 5% to 20%, and high is more than 20%.
Imports/domestic demand: low is less than 5%, medium is 5% to 35%, and high is more than 35%.

LIFE CYCLE
All industries go through periods of growth, maturity and decline. IBISWorld determines an industry's life
cycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the
number of establishments; the amount of change the industry's products are undergoing; the rate of
technological change; and the level of customer acceptance of industry products and services.

NONEMPLOYING ESTABLISHMENT
Businesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by
self-employed individuals.

PROFIT
IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It is
calculated as revenue minus expenses, excluding interest and tax.

REGIONS
West | CA, NV, OR, WA, HI, AK<br/>Great Lakes | OH, IN, IL, WI, MI<br/>Mid-Atlantic | NY, NJ, PA, DE,
MD<br/>New England | ME, NH, VT, MA, CT, RI<br/>Plains | MN, IA, MO, KS, NE, SD, ND<br/>Rocky
Mountains | CO, UT, WY, ID, MT<br/>Southeast | VA, WV, KY, TN, AR, LA, MS, AL, GA, FL, SC,
NC<br/>Southwest | OK, TX, NM, AZ

VOLATILITY
The level of volatility is determined by averaging the absolute change in revenue in each of the past five
years. Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is
±3% to ±10%; and low volatility is less than ±3%.

WAGES
The gross total wages and salaries of all employees in the industry.

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