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.