Logistics Functions Are Big Share of North American Outsourcing Expenditures
The pressure on businesses to focus on what they do best and let others handle the rest will increase spending on outsourcing 25 percent this year over 1999, according to financial-analysis firm Dun & Bradstreet.
Firms making it their business to handle these so-called noncore competencies will ring up $1 trillion by December, Dun & Bradstreet's Barometer of Global Outsourcing said.
Information technology will lead markets in outsourcing, with 26 percent of all global spending. Logistics is among leading outsource-spending categories, particularly in North America, which represents the biggest share of the global outsourcing dollar—39 percent.
"Companies are finding it advantageous to focus on their core strengths and outsource their non-core functions to others with expertise in that area, Michael Flock, president of Dun & Bradstreet Asia-Pacific, Latin America and Receivable Management Services, said. "Outsourcing also provides enormous flexibility for companies experiencing rapid growth or reconfiguring their structure."
Asia is the next-biggest market for outsource spending at 31 percent, followed by Europe at 24 percent. Australia and South America each are expected to account for 3 percent of outsource spending this year.
Europe and Asia will fuel much of the growth. Companies on those continents are adopting outsourcing with the kind of enthusiasm U.S. companies exhibited in the pare-down 1990s.
The rise in spending can be traced in part to a diversification of outsourced functions. The practice, which began in manufacturing, quickly spread to other areas in which companies had little of their own expertise, such as facilities management and information services. Outsourcing is settling deep roots into traditionally ancillary areas like equipment and facility maintenance, recruiting and customer service.
The Dun & Bradstreet Barometer of Global Outsourcing stems from interviews last summer with more than 2,200 organizations from Dun & Bradstreet's global database of 57 million companies. Respondents are large and small companies, banks and other institutions. The survey defined outsourcing as using outside partners for tasks traditionally done by the company itself.
Hitting the Highlights
Expenditures and some outsourcing trends for regions around the globe follow.
The report found logistics the number-three outsourcing-growth category in the North American market. The sector expected to experience the greatest growth is administrative support, followed by marketing and sales. Human resources comes in fourth, after logistics, with manufacturing and new media rounding out the major categories.
In the next 12 months, Dun & Bradstreet said, outsourcing expenditures will jump from $295 billion to $340 billion in the United States.
Canadian outsourcing will grow from $48 billion to $55 billion (Canadian dollars).
Across the board, outsourcing is growing at 15 percent, but small Canadian and U.S. companies—outfits with $10 million to $50 million in annual sales—will increase outsourcing by 25 percent.
Look for outsourcing to grow here by nearly 50 percent. That would bring outsourcing-spending to $320 billion this year, the report stated. Manufacturing covers nearly half the
Total expenditure expected in Asia, with information technology, financial expertise, legal assistance and sales filling out the balance.
American companies are increasing outsourcing in Asia, too, with Japan, China, India and Taiwan as the most likely outsource-partnering candidates.
Growth is 25 percent a year, with transportation the leading category of outsourced function.
British, French, Italian and Germany companies are most likely to most likely to outsource, with an eye toward partners in China, Hong Kong, Japan, Australia and the United States. Some minor outsourcing-contracts will be made with African partners, according to Dun & Bradstreet.
Categories behind transportation are financial services, information technology and facilities management. New media, particularly the need for Web-site development, is also growing.
Australia is nearly as into outsourcing as North America, Dun & Bradstreet said. Information technology, financial support and sales/marketing lead outsourced services in Australia, which outsources a significant number of services to Asia.
Companies here are skeptical of outsourcing, the Barometer found. The attitude isn't expected to change soon. While South America's 13 countries do little intercontinental outsourcing, many North American and European companies outsource work to South American outfits, Dun & Bradstreet noted.
Edited by Michael Lear-Olimpi