The overall worldwide BPO market is expected to reach $134.7 billion in 2006, an increase of 8.3 percent over 2005. However, the HR BPO market has reached a crossroads in 2006, as some vendors struggle with profitability, and are retrenching to improve their bottom-line results. This will exert a drag on the market, especially in the growth of the U.S. segment through 2007.

HR BPO is the biggest component of the overall worldwide BPO market at 18.7 percent of the market. Payroll services and benefits administration services comprise the largest segment of the total worldwide HR BPO, together comprising nearly three-fourths of the market in 2006. The remainder of the market is composed of education and training, hiring and recruiting, and personnel administration services.

In Western Europe HR BPO revenues are expected to reach $4 billion in 2006, an increase of 6,5 percent from 2005, according to Gartner. The slightly higher growth in the European HRO market is helping to offset, at a global level, some of the headwinds currently experienced by the U.S. market.

'HR has long been identified as a key area for outsourcing, usually in the areas of payroll and benefits administration services,' says Robert Brown, research director for Gartner. 'As a back-office function, aspects of HR are often deemed critical, yet non-core functions for outsourcing and are usually most companies' first stop on the sourcing journey for BPO.'