Is recession good for the outsourcing industry?

June 29, 2009

The most recent recession in the U.S. has been affecting industries across all verticals. President Obama has appointed former business executives like Charles E Phillips to his economic advisory board to help reverse the damage, but still companies are feeling the burdens of the economy and resorting to other measures to stay afloat.

It may sound indifferent, even callous to say that recession may be good for the outsourcing industry but the ground situation at least supports this assertion. Because the cost argument works so strongly in favour of the outsourcing model, experts predict that it is likely to break through even the remaining resistance as business becomes more adept at using the tool to cut cost and improve efficiency.
Increasingly, as offshore relationships get cemented and the initial skepticism is overcome, factors other than costs (quality efficiencies, proven credentials, time saving etc.) become bigger drivers in vendor selection.
Gradually, vendor management is getting more standardized and ground rules are being laid down on how to best manage long-distance fruitful relationships.

Not surprisingly, although a recent Forrester Research survey shows that 46% of 258 Global 2000 enterprises have slashed their IT budgets, only 21% have cut back on their IT services or IT outsourcing spend. In short, outsourcing is the model of choice when it comes to avoiding additional head count or investing in new technology during recession.

Hence, although initially the offshoring industries found its rationale in cost arbitrage, today, decision makers understand that these decisions cannot be made purely on the basis of cost alone. That’s the risk no business is ready to take.

The initial phase of courtship and flirtatious dalliance is now gradually leading to more stable marital relationships with carefully chosen partners that promise the right balance of competencies, quality consciousness, project management skills and ability to deliver solutions at competitive rates.

Long learning curves, in-house alignments, massive restructuring, lack of quality control over the outsourced entities, lack of domain expertise may be things of the past, as both vendors and buyers emerge stronger from the litmus test of recession. Long-term activity-based project engagements have flown out of the window in favour of end-to-end, process-based models. Big-ticket, long-term deals may be passé, replaced by short, crisp, pre-defined, performance-based models.

In sum, outsourcing industry has matured and may never be the same again.


4 Responses to “Is recession good for the outsourcing industry?”

  1. Is recession good for the outsourcing industry? | Outsource Portfolio BEC Development Blog on June 30th, 2009 12:51 am

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  2. Richard on July 2nd, 2009 9:18 am

    Recession holds good competition in the outsourcing industry as every company needs to maintain its quality standards and make sure that the clients are satisfied by their work with a cost effective bid.

    We value your Outsourcing in Bpo and Call center Industry

  3. Job Seeker on July 2nd, 2009 5:20 pm

    Well, any recession is not good, but market always brings good and bad to people. So this recession might be good for people living in developing countries line China, India, but not for people living in developed countries like US where the unemployment is close to 9.5%

  4. Terry on October 22nd, 2010 11:22 am

    Theres plenty of outsourcing to be done right here in the states, Its just that too many people want a nine to five instead of freelancing.

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