Recession will continue to fuel outsourcing trend

November 17, 2008

Desperate situations often call for desperate measures.
So while I do understand the angst that prompts a rookie ex-programmer like Virgil Bierschwale to start something like where he keeps venting his spleen at the American CEOs who continue to lay off employees in order to stay above the water (Bierschwale even has a “Wall of Shame” (I would call it a breast-beating forum) for them on his website) —- the fact cannot be brushed aside that outsourcing as a business model may not just survive, but even thrive in a depressed market. And, there is an economic justification for it.

Beggars, as we all know cannot be choosers. When it comes to choosing between the survival of one employee against the survival of many (in a corporation), I would unthinkingly go with John Stuart Mill’s Utilitarian principle and ensure the “greatest good for all.” There would be no question in my mind that I must choose the corporation.

Outsourcing in that sense, does offer a bail-out package for companies that are presently swirling in deep financial doldrums. So whether President elect Barrack Obama may or may not do what he threatens to firms that continue to outsource, Martyn Hart of the National Outsourcing Association is clear in predicting that “as companies set aggressive cost saving targets for the next years, more and more offshore transactions are likely to come to fruition.”

A survey by EquaTerra has reached the same conclusion. Over 40% of their respondents see increased demand for offshoring, despite — or rather, because of the — the economic downturn. In this context, another survey by Forrester Research, Inc, reveals that while 46% of 268 global 2000 companies have already cut back their IT budgets, only 21% have dared to reduce their IT services spending!

Outsourcing In Recession

Another report by Everest Research Institute and Bernstein Research indeed goes so far as to suggest that in order to make even bigger savings, the Information Technology market that is presently worth $104 billion will not just continue to outsource to low-cost countries, it will also begin to hunt for specialized talent in those countries. In other words, the outsourcing model will deepen further to cover specialized, value-added services.

What this would eventually imply is a shift from low-end to big ticket outsourcing, as buyers shift away from the present-day project-based model to long-term, fixed outsourcing relationships, according to the EquaTerra study.

For vendors this implies tougher norms for selection. Henceforth, buyers will negotiate for better terms and will seek offshore partners who not just promise increased cost savings but also help them find better ways of doing business.

Eventually, those you survive the storm, will be the ones who hunker down, tighten their seat belts and quickly adapt to the changed rules of the game. Not those who choose to breast-beat over spilt milk.


3 Responses to “Recession will continue to fuel outsourcing trend”

  1. Virgil Bierschwale on November 18th, 2008 8:17 am

    Where does honor or committment to your country come into play in your calculations ?

    By the way, think you for the nice article.

    It would appear that we have touched a nerve and the momentum to take back America is gaining.

    God help those who would continue to sell their friends and neighbors out.


  2. test on December 4th, 2008 9:13 am

    Every public Company’s CEO Job is to reduce expenses and increase shareholders profit. So no matter what jobs that can be outsourced will be outsourced to lower wage countries. Today it is mostly to India, Philippians, China, etc. If the cost increases, it will be different countries in the future. It has been happening in US for several decades, started with agriculture, manufacturing and now it is in IT. US will reinvent itself to create new technologies and their by creating new markets and jobs.

  3. When you outsource; don’t outsource your happiness | Outsource Portfolio on March 15th, 2009 6:33 pm

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