Response from: Michael Rehkopf

Asia-Pacific Providers Rising

As more Asian companies and other organizations are getting wise to the wisdom and benefits of sourcing, more service providers are surfacing to serve these clients.

As reported in the TPI Index for Asia-Pacific, outsourcing has caught on in the region, with 45 broader market contracts signed in 2006 — up from 36 in the prior year, and that trend mirrors developments in Europe, where the number of broader market deals also climbed.

All this portends well for service providers in the region. Our thinking is that there will be additional opportunities in the region this year, particularly as clients become more comfortable managing third-party relationships and look for other opportunities to apply outsourcing solutions to their businesses.

That development, in turn, will encourage more service providers — indigenous and otherwise — to pursue more new service disciplines. Some of these will be niche providers that target specific service areas (though there's always the chance of a rationalization of these providers in the years ahead). Indeed, there's a ready source of cash to back new entrants: private-equity, which, as reported in the general media, is keen for new investment opportunities.

The other factor here is that as existing outsourcing markets mature, service providers will be looking for new lines to make themselves more valuable to all kinds of potential clients.

Bottom line: The Asia/Pacific sourcing market is growing up fast. That means more opportunity — and more competition.

Michael Rehkopf, partner, TPI Asia-Pacific

Response from: Prashanth Rai

Micheal - Thank you for the comment / input.

It would be great if you could explain the following paragraph from your comment in depth

" That development, in turn, will encourage more service providers — indigenous and otherwise — to pursue more new service disciplines. Some of these will be niche providers that target specific service areas (though there's always the chance of a rationalization of these providers in the years ahead). Indeed, there's a ready source of cash to back new entrants: private-equity, which, as reported in the general media, is keen for new investment opportunities."

Questions that I have are:
1. What are the new service lines that you think will emerge?
2. Do you see a market for private equity backed roll up player(s)? Do you see any movement like this?
3. Who do you see benefiting from this trend (growth in APAC) Indian SP or the Big 6?

Response from: Michael Rehkopf

While all types of service lines should experience growth as part of the general market expansion, the two sectors we anticipate emerging are network-related sourcing as well as BPO that is highly targeted and country specific. For example, the service offering for human-resource outsourcing in Japan will differ from that in Singapore.

That said, we think those Japanese providers will face the biggest challenges in distinguishing themselves in the marketplace. This goes to your question about which service providers will benefit the most. Looking at the rest of the field, both the Big Six and Indian providers will continue to leverage their strengths – larger clients often feel most comfortable with the scale of a major global provider and staff and project augmentation is more easily adopted in countries where staff transfers are culturally challenging.

As for the private-equity funding this growth, the ability of service providers to attract – and retain – good management will of course be a key factor in whether and how much private equity will be willing to back the business. As PE tends to follow strong management, a smart observer can make educated guesses about which service providers are likely to be well capitalized.