How Did the Global Economic Recession Affect the BPO Industry?

Today, Business Process Outsourcing has become an integral part of many businesses because the services available for them streamline their operations, reduce costs, and lets them focus on core competencies. The services offered include customer support and technical assistance to finance and accounting, human resources, data entry, and various back-office operations.

How the BPO of Things Began..

From the early 2000s to the mid-2000s, there was an observed growth and expansion in the BPO sector brought by technology and the internet. IT-related issues, such as bugs and the need for software development, paved the way for IT-related outsourcing services. Soon enough, BPOs’ global expansion grew beyond traditional outsourcing destinations like the Philippines, Malaysia, China, and Latin American countries. This allowed the BPO sector to become more internationally diverse as they tapped into new talent pools, local clients, leveraged language capabilities, and time-zone advantages. 

The BPO Industry Peaked Until…

Other factors that contributed to the BPO industry’s booming growth include offering value-added services and domain-specific expertise; these evolutions led to the rise of Knowledge Process Outsourcing (KPO) which consisted of providing high-value services such as legal services, healthcare consulting, and financial analysis. Due to advancements in technology, the BPO industry has been heavily influenced by this phenomenon. They’ve also started adding and incorporating AI, robotic process automation, chatbots, cloud computing, communication, etc., in their offered services. 

Since its early stages, the BPO sector has witnessed consistent growth and expansion, adapting to market demands, technological advancements, and globalization. However, since the global pandemic hit different economies and business sectors, it naturally affected the services of BPOs in both positive and negative ways. 

Effects of the Economic Recession on the BPO Industry

• Decreased demand for outsourcing services

In an economic downturn, companies may face budget constraints and need to prioritize expenses to more essential areas of their operations. This limited budget may not allow for the outsourcing of non-core activities since outsourcing them may be seen as a luxury that can be temporarily sacrificed. Doing so would enable companies to streamline operations and concentrate resources on the organization’s core strengths.

• Shifts in client priorities and outsourcing requirements

The change in clients’ demands made cost-efficient solutions particularly paramount. As a result, they focused on renegotiating contracts, seeking competitive pricing, and exploring alternative outsourcing destinations with lower labor costs. Clients appreciate BPOs who are proactive in recommending cost optimization, which may involve enhancing service level agreements (SLAs), suggesting process improvements, and exploring innovative solutions such as AI, robotic process automation (RPA), and cloud services. 

• Global market uncertainties impacting the industry

Due to changes in the business landscape, companies may be hesitant to engage in long-term contracts with outsourcing providers due to concerns about the stability and financial health of those providers. They may prefer to retain control over critical operations to mitigate potential risks associated with outsourcing. But with the trend of cost containment during this time, companies are also flexible enough to afford outsourcing services by striking smaller deals, availing hybrid offshoring, and reduced-cost consultancy models. 

• Impact on job security and employee retention in the BPO Sector

Like companies in other industries, BPOs sought to protect their operations by reducing losses due to the uncertainty brought on by economic recovery and maintaining profitability. This reaction resulted in corporations implementing cost-cutting strategies and lowering their budgets for outsourcing, thus, resulting in downsizing, layoffs, or reassigning employees.

The Resurgence and Rise after the Economic Storm

Recovery from the global economic recession has already been observed as early as the second quarter of 2021. BPOs expanded their offers with new service lines like digitization of customer engagement, support, and services, and they have also strategically started to target new niche markets such as conscious consumers, pet owners, gamers, and the LGBTQ+ community with specialized services. 

To support this growth and expansion to new markets, BPOs have also started to rethink what they could offer clients to stay competitive, thus, shifting their focus on providing value-added services, introducing AI, and exploring geographic diversification to cater to new markets. 

Obstacles to Overcome in the BPO Battleground

• Reduced Demand

As businesses recover, cost-cutting measures may still be prioritized, so they may choose to bring certain functions back in-house or opt for alternative cost-saving measures, leading to a decline in outsourcing requirements.

• Cost Pressures

Clients may exert increased pressure on BPO providers to deliver services at lower costs, especially in the post-recession period. BPO companies may face challenges maintaining profitability while meeting client demands for reduced pricing.

• Talent Retention and Skills Gap 

In the post-recession period, the competition for skilled professionals may intensify as the economy recovers. BPO providers may face challenges attracting and retaining talent, especially for specialized roles or emerging technologies.

• Security Compliance and concerns

Post-recession, there may be an increased emphasis on automation, artificial intelligence (AI), and other digital solutions to drive efficiency and cost-effectiveness. BPO providers must keep pace with these technological advancements to remain competitive and meet client expectations.

• Geopolitical Factors

Trade disputes, changes in immigration policies, and shifts in political alliances may disrupt global outsourcing dynamics. BPO providers must monitor and adapt to geopolitical developments to navigate potential challenges and seize opportunities.

• Market Competition

BPO providers may face increased competition from domestic and international players, requiring them to differentiate their offerings, demonstrate value, and provide exceptional service to retain and attract clients.

The Recession Effect

Overall, the recession has had mixed effects on the BPO industry. Depending on strategies they deem fit for their long-term plans, some companies have increased outsourcing to improve their operations, while some may have reduced their exposure to outsourcing significantly. Nonetheless, these impacts posed opportunities for growth and service development for BPOs that will lead them to stay competent and innovative in the industry. 

What’s a Lesson Learned?

If there’s one thing BPOs can take away from experiencing the recession, it’s the value of resilience. Even during economic uncertainty, demand for BPO services has remained steady since companies would look for ways to reduce costs during recessions. Regardless of how little or big it is, there’s always wiggle room for BPOs to bounce back as they become practical solutions and innovators to companies looking for operational efficiency.

Bouncing Back with Positivity

The BPO industry gleams with promise and positivity from where we stand today. This bright outlook stems from various trends and forecasts that paint a picture of flourishing growth and widened horizons. Among these heralds of progress are transformative shifts in the global BPO landscape, the ascendancy of knowledge-driven and specialized outsourcing, and the dynamic expansion of BPO into financial realms. Moreover, the profound implications of the global recession might even favor the ascent of the remote work wave, as businesses realize the potential for substantial savings on office space and related costs. The remote work revolution also empower employees to thrive both personally and professionally.

In summary, the BPO industry is poised for ongoing growth and evolution in the foreseeable future, buoyed by emerging technologies, reduced regulations, and expanding market opportunities.

Ready to Explore Outsourcing Again? 

Start with Booth & Partners today and explore the range of talents and tailored solutions we can offer your business right here. In the middle of all the pressures, shift in priorities, and market uncertainties, our management structure guarantees the peace of mind you seek while you concentrate on your core business functions. And if you’re ready to change the views and optimize your work environment, you can check out our chic, accessible, and fully-equipped private offices and coworking spaces here.