Offshore business process outsourcing (BPO) is expected to reach $1.8 billion in 2003, a 38 percent increase from the 2002 total of $1.3 billion, according to Gartner Inc. In 2003, offshore BPO will represent 1.5 percent of the total BPO market.

" If enterprises that have been developing offshore sourcing strategies over the last few months successfully conclude pilot projects, the growth in offshore BPO during the next couple of years will be significant, as a result of contract expansions and new adopters," said Rebecca Scholl, principal analyst for Gartner's sourcing group, who conceded that most organizations have been cautious in their adoption of offshore BPO services.

The big winner: India, of course. Gartner said that India's revenue from BPO will grow from slightly under $1 billion in 2002 to $1.2 billion in 2003 and will represent 66 percent of the offshore BPO market. This will be supplemented by significant additional revenue from internal company operations, and US firms setting up their own delivery centers out of India.

" Although India has inherent skills related to transaction processing, Indian service providers cannot expect to target the higher value and more lucrative BPO services until they acquire and demonstrate their process skills and industry knowledge to offer process transformation capability," said Sujay Chohan, research vice president for Gartner. "Most of today's offshore BPO opportunity remains at the level of out-tasking a component of a business process rather than outsourcing an entire business process, and is mostly relegated to contact centers and back office transaction processing." Gartner analysts warned, however, that while offshore BPO is growing, it is still an immature market.

According to Gartner’s of 250 US clients of BPO, just 1 are currently outsourcing BPO services offshore and that 19 percent are considering outsourcing processes offshore within the next two years.

" However, over one-third of companies with over 1,000 employees obtain offshore BPO services from BPO providers headquartered in the United States," said Debashish Sinha, principal analyst for Gartner's IT services group. "The use of outsourcing is expected to grow as the supply base matures and companies are more comfortable working with external providers based in offshore locations."