Business

One quarter of the top 20 BPO (business process outsourcing) providers will cease to exist as separate entities by 2012, as a wave of consolidation sweeps the industry, a new report from Gartner has predicted.

According to the information technology research and advisory company, BPO providers will be hit by a "competitive shakeout" in the next four years, as providers are exposed to the economic crisis, loss-making contracts and an inability to adapt to standardised delivery models.

Robert Brown, research vice president at Gartner, said BPO providers were becoming increasingly cautious in their search for the "right contracts" to ensure profitable business for the long term.

He added: "Companies that are overly cautious and don't compete for new, profitable contracts during the downturn will likely exit the business.

"Those that can't successfully and profitably deliver on BPO business already under management are most likely to be acquired."

Gartner listed a number of signs that would herald the "shakeout", including an attrition in the booked business of BPO providers – caused by exposure to the banking and finance sectors, as well as higher levels of BPO contract cancellation and insourcing.

The report also said that scalable BPO services provided over the internet would grow from 5% to 25% by 2012, by which time 60% of activities representing the business process consulting value chain would be delivered from offshore to multinational clients.

It also predicted a tightening of contract terms for "innovation" and "transformation" to include a higher degree of definition clarity and associated performance metrics by 2010.