While the U.S. employment market struggles to stabilize and begin creating new jobs, the global outsourcing and offshoring market continues to expand, with much of the growth shifting to new areas of the world.

While many companies continue to focus on reducing costs and strengthening the bottom line, some are increasingly relying on less-expensive outsourced labor and offshore operations to meet these goals. Recent research shows that in addition to expanding, the outsourcing sector is also shifting toward new regions and markets, significantly altering the global outsourcing landscape.

Survey findings announced last week by Duke University’s Offshoring Research Network and PricewaterhouseCoopers (PwC) indicate that demand for outsourcing services is growing rapidly worldwide, with many providers hiring additional staff and investing in new services to meet the projected growth.

The survey, which polled 514 outsourcing firms in 50 countries, found that the rapid expansion and evolving focus of the industry is due in large part to new providers emerging around the world, as well as existing outsourcing companies making stronger efforts to expand into new markets.

According to the new findings, many outsourcing service providers expect to begin new software development and service contracts in the next 18 to 36 months, while the number of outsourcers planning to offer new finance, accounting, human resources and “innovation services” fields more than doubled from last year. Overall, 62 percent of outsourcing providers plan to expand their operations in the near future.

Outsourcing firms in North America and India, which have traditionally led the industry, are now seeing increased competition from countries in Latin America, Eastern Europe and Asia, particularly in the outsourcing of business processes, information technology and call centers.

“Growing competition has transformed the outsourcing industry into a global race for market share,” Charles Aird, managing director at PwC, said in an announcement of the survey results. “India’s success as the world’s back office has motivated other developing countries with well-educated and under-employed populations to seek to duplicate their experience.”

Through the first three quarters of 2009, Europe surpassed North America as the leading region for outsourcing spending by $1.2 billion in average annual contract value, according to a separate report, from TPI. The sourcing data and advisory firm’s latest quarterly TPI Momentum Report, released last month, said that North America led the world in 2008 with $29.6 billion in contract value.

In terms of outsourcing viability, which indicates how economically attractive a country is to outsourcing service providers, TPI reported that the U.S. is still ranked No. 1, with the United Kingdom in second place and Canada in third. However, India (No. 13) and China (No. 21) are rapidly rising due to increased spending, and both consistently rank high in countries providing outsourcing. Brazil, the highest-ranking Latin American country, was also in the top 10 for outsourcing providers.

In its 2009 year-end forecast, published last fall, IT research firm XMG Global projected the global outsourcing market to reach $373 billion in total revenue in 2009, an increase of 14.4 percent over the previous year. India and China are estimated to have outsourcing revenues of $48 billion and $28 billion, respectively, for 2009. However, XMG also cited South Africa, Egypt and Mexico as growing sources for offshoring operations.

“[Outsourcing] fosters rational allocation of capital and growing global trade. That is certainly preferable to vertical integration driven by fear of supply shortages,” the Wall Street Journal says (subscription required). “This not only feeds on itself, as more supplies get ‘locked up,’ but leads to inefficiencies as the competitive dynamic is removed from the supplier-customer relationship.”

Earlier: Offshoring Landscape Continues to Shift

Resources

Expansion Seen for Global Outsourcing Market
PricewaterhouseCoopers and Duke University’s Offshoring Research Network, Jan. 6, 2010

New Report Shows Europe Overtaking North America as Top Outsourcing Region
TPI, Dec. 16, 2009

XMG Global Issues 2009 Outsourcing Year-end Revenue Forecast
XMG Global, Sept. 23, 2009

Outsourcing Isn’t Just for Christmas
by Liam Denning
The Wall Street Journal, Dec. 31, 2009