The growth potential for outsourcing: Just a mirage?

May 17, 2009

With much of the developed world mired in the deepest recession in living memory and with many companies under enormous pressure to cut costs just to survive, one would assume that the decision to outsource would be easy and new demand for outsourcing services, processes or functions would be increasing exponentially. However, the current reality is proving to be much more complicated than this.

With so much uncertainty due to the plunging economy, shifting client or customer landscape and now the resurgence of protectionism, the strategic decision-making processes at many companies have slowed to a crawl or have completely stalled. Moreover, with many companies loosing customers or clients or seeing demand for their goods or services decrease (in some cases dramatically), there is now less work to be outsourced because after all, you cannot outsource a function or work that no longer exists or is not needed in the same quantity as before.

Take the corporate human resources department for instance. Traditionally viewed as a cost center rather than a revenue or profit center, corporate HR departments should be, in theory, a tremendous source of business for Human Resources Outsourcing (HRO) and Recruitment Process Outsourcing (RPO) providers and a big source for corporate cost savings in an economic downturn. After all, just the recruiting function alone involves the administrative headache of screening potentially hundreds, if not thousands, of candidates, scheduling interviews and conducting background checks. Moreover, when times were still good as late as last year, experienced contract recruiters in Silicon Valley for example, could command salaries as high as US$100 or more an hour (and then there would be the overhead cost of providing them an office or work station).

What has happened since then? Well today, experienced Silicon Valley based recruiters are lucky if they can find work for half or even a third of what they earned before the worst of the recession set in and many companies have completely axed all or most of their recruiters (Google alone has laid off 100 recruiters or a quarter of their recruitment department). Sure, some companies are taking the long-term view that now is the best time to source, acquire or keep potential new talents warm and hence, they are not cutting and in some cases, they are even adding recruiters to their recruitment department. Nonetheless, these companies are the exception and are also the ones who firmly believe that they will survive the current economic storm and want to be ready for the coming economic upturn.

So where does this leave HRO or RPO providers? I recently spoke with a country manager for a relatively new Asia based RPO type operation who said that he still sees huge potential for the growth of RPO and outsourcing administrative functions in general but conceded that in today’s business environment, acquiring new customers for his business is proving to be very difficult and the competition for business among providers is getting fiercer. Furthermore, his client landscape is shifting so fast (some executive search or staffing firms in high cost Asian markets such as Hong Kong or Singapore have laid off 75-80% of their staff and the unluckier ones are rapidly closing shop) that knowing what direction to take his business in and what his client base will look like a year from now, let alone months or weeks from now, is all but impossible.

This leads one to wonder: With all this talk about the huge potential for the growth of outsourcing in the face of so much uncertainty surrounding the economy and rising protectionist sentiment like giving tax credit, is it all just a mirage?


4 Responses to “The growth potential for outsourcing: Just a mirage?”

  1. Rj on May 21st, 2009 8:49 am

    I think the outsource market will grow but slowly until the end of this year. Once the economy turns up (which might happen at the beginning of next year) the outsource market will grow in faster phase. I do not think the US protectionism will have any impact in the outsource industry.

  2. Jim on May 21st, 2009 8:53 am

    Obama’s new tax policies may affect US companies that send jobs to other countries. It wont affect other outsource vendors like TCS, Infosys, etc. These countries do not have their headquarters in US.

  3. accounts accounting on May 23rd, 2009 4:46 am

    Outsourcing is the wisest decision in the backdrop of economic recession, predict the high priests of economic management. The everyday and common core office jobs need to be outsourced to reduce costs and save time.
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  4. pypehypeLiek on May 24th, 2009 4:40 pm

    Hi, discriminative posts there :-) thank’s for the intriguing information

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