It’s that time of the year again! Everyone is providing projections for the next year and trying to divine what it will mean for the outsourcing business.

No one has a crystal ball. However, by listening to our clients and looking closely at industry indicators – the various economic events of the last year (the current European crisis being the latest) and the overall market softness in North America – it becomes a little easier to answer questions like what next? And what are our possible options?

There is a lot of ongoing pressure on operating cost improvement within businesses. It’s a double edged sword for both buyers and providers of outsourcing. While many people are wary of the impacts of tighter cost management (and these are now known to affect an organization’s outsourcing activities), I believe this trend could also bring a lot of opportunities for service providers, including Minacs. Providers need to show innovation and the willingness to partner, invest and walk the extra mile for their clients.

At the same time, there is clearly an urgent need to innovate and drive business outcomes quicker. There is indeed a huge demand to take out further costs beyond what we have already achieved for clients and from work that they have so far wanted to outsource. When economies are under pressure, we see acceleration in people’s willingness to outsource a lot more, because they are using all means at their disposal to remain competitive and relevant in the marketplace.

More and more customers and entrepreneurs are looking to increase focus on their core competencies. To drive value creation for their shareholders, or to at least protect value in a soft market, they are increasingly looking for very specialized service providers to partner with and to deliver to the rest of their value chains. We see more North American clients that were historically operating in a unionized environment now finding ways to outsource work. In other words, we will be seeing significant outsourcing acceleration specifically from companies that have not outsourced before.

There is a significant shift towards organizations leveraging near shore locations as well. This makes Latin America a major alternative to India and the Philippines. The Philippines will continue to attract and host certain services, especially in voice-driven work. But also see increasing interest in South America from clients (especially in the US and Canada).

Telecom and banking, financial services and insurance as the early movers in outsourcing will continue to grow. These verticals will outsource more of their present “core” as I described above and these will include “higher value” processes since they are already well advanced on the outsourcing maturity curve.

Globally, the public sector will continue to outsource more and more, since I expect governments and local authorities will want to focus more on governance and social welfare agendas than on performing citizen services. We will also see other industries like media and entertainment that have not outsourced a whole lot in the past “emerging” to do more with providers.

I see the traditional customer assistance kind of contact center taking a back seat. There may be growth but with sales struggling overall in recessionary markets, I don’t see volumes driving any rapid growth here. But there is huge room for analytics driven customer retention services. Providing valuable Voice of the Customer insights is drawing heightened attention, especially in developed, highly penetrated markets.

Procurement outsourcing is also a high growth area and continues to accelerate, not only with companies outsourcing transaction processing, but more importantly, with strategic sourcing. This is an example of the domain knowledge driven, high value activities that we call Expert Sourcing at Minacs. Focus on procurement transformation at CXO levels can be increasingly seen since smart procurement has the potential to drive significant value to stretched bottom lines and cash flows.

India is known to be a favorite offshore service delivery destination. However, NASSCOM has been predicting serious growth in domestic outsourcing for some time now. With global players having entered its liberalizing market over the last 15 years or so, competitive pressures have been increasing across most industries. With customer bases now well established in larger cities, many players have been eyeing tier 3 and 4 towns and upcountry markets for continued growth. These newer markets will require development and investment (capture market share, forego margins!). However, the global macroeconomic scenario and domestic inflation have made imports expensive. For many domestic players, all this will drive innovation and the push to provide higher value to their customers.

This is where value outsourcing play will bring great advantages with the key drivers being the increase of flexibility, productivity and innovation; rather than costs (since this market cannot really avail of the cost arbitrage that outsourcing provides to the developed world). In conclusion, throughout 2012 and beyond we will see businesses innovating faster and delivering a lot more than in the past.