By Pranav Dixit
The need to conduct market research has changed over the years primarily driven by globalisation, and rise in competition, among other factors. The marketing function, which was earlier restricted to creating awareness and building differentiators among products, has expanded and become central to the creation of these new products.
Large corporates are now spending anywhere from US$5 million to US$100 million on market research. Research agencies too have tried to complement the changing needs of clients with professional management, consolidation and creation of value through both delivery mechanisms and interpretation. The increasing use of technology has led to standardisation and consolidation in the research industry, thus preparing the ground for greater outsourcing.
Global Market Research Industry
Globally, market research is a US$24.6 billion industry (FY07). Europe leads with a 43% market share, followed by North America at 36%. Although the market research industry has been one of the earliest users of outsourcing as a tool to enhance focus on their core activities, offshoring is relatively new to the industry.
While shortening research cycles and greater cost pressures are compelling drivers for offshoring, the propagation of technology in research functions is facilitating offshoring. Additionally, the changing role of research agencies where they provide greater “insight and foresight” to their clients has increased the inclination of these companies to offshore larger portions of the research “execution” to service providers across the globe.
Today, close to two-thirds of the market research agencies offshore work to service providers located across Asia, Eastern Europe and Latin America, according to a recent survey conducted by ValueNotes. While the large multi-national research agencies have been outsourcing certain services, the smaller agencies with revenues typically less than US$10 million are also started adopting offshoring. The results derived from the survey of market research agencies reveals that with greater competition, research agencies, especially the smaller ones, are increasingly using offshoring to gain competitive advantage.
Most of the research agencies surveyed offshore activities such as data collection, data processing and panel services. This is due to the high level of offshoreability of these services. However, many companies have also explored offshoring in relatively “difficult to offshore” areas like project management, report writing and research design.
A large chunk of data collection and processing that has been migrated to offshore locations has been transaction based. The market research industry which is fairly new to offshore outsourcing is still to evolve from the ‘traditionally outsourced services’ like data collection and processing to high end analytics.
Like in other areas where offshoring has matured, cost arbitrage is the primary driver for offshoring but other factors like faster turnaround time, better quality of work etc. have emerged as equally important factors.
Opportunity in market research
While various studies have projected different numbers, the total potential for offshoring research and analytics services can be broadly estimated to be in the range of US$8 billion to US$10 billion by 2010.
The ESOMAR report on global marketing research industry estimates total industry revenues at US$24.65 billion in 2006. Technically 35% to 40% of these activities can be outsourced, which is estimated at US$10 billion.
The offshoreable market for market research is estimated at US$4 billion in 2006 (40% of the outsourceable market).
A typical market research project has many components that are (or can be potentially) outsourced. The focus of research agencies has been on outsourcing tasks that are transaction based and which can be executed from an outsourced location. In market research; study design, interpretation and analysis are considered as key differentiators and hence are often retained in-house. However, all other activities have huge potential for outsourcing.
The research agencies are expected to scale up outsourcing in other non-core activities in the next three to five years. The MRO service providers have to build competencies to address these requirements and move up the value chain.
The exhibit below shows traditional, rapid growth and untapped opportunities.
This growth will be primarily driven by ‘rapidly growing’ and other ‘untapped’ opportunities. The downward pressure on costs, shortening research cycle, and the increasing use of technology in market research drove early adopters to outsource some of their market research activities with the prime motive of maintaining profitability. Over a period of time, offshoring of market research has matured into a full-fledged knowledge industry.
• Pranav Dixit is the Principal Analyst – Research & Analytics at ValueNotes, a leading research provider focused on the outsourcing industry.