India has always been the first choice for outsourcing due it its geographical advantage, high level education, its capability to work hard and smart and lower cost of operations. Being a co-founder of an IT services company, I am certain that the most critical question for Indian IT and BPO industry would be “Is outsourcing recession proof” I wish had the answer. My belief is that the answer has to be yes, primarily because though it’s important to ensure there are jobs available for local people but at the same time in current economic scenario it’s important for the companies to stay competitive.
So for companies/ countries that outsource it’s a catch 20 situation and a double edge sword. If they decide to create government policies which will ensure that local jobs stay local then the local companies tend to lose the chance of being competitive globally.
These companies have huge scale of operation would really find it difficult to sustain. As a result i feel outsourcing is recession proof and in fact i would like to think that outsourcing will see an increase as recession will force companies to cut the fat and become lean and mean to stay competitive.
My gut feel is that during economic downturn people will outsource more and the primary driver would be to cut down costs. Increasingly we will see a change in the mental models of companies and vendors alike. The forces that will initiate this change are:
Don’t forget to download “2009 the year of outsourcing dangerously” the Black book of outsourcing at the end of the article.
Economic pressure on companies: The government and general public would try and create policies and procedures to try and protect local jobs.
At the same time companies would want to outsource more and more to save cost. It would be interesting to see how these companies will beat this dilemma.
Deals getting smaller: I foresee that increasingly deal will get smaller but grow in numbers as companies will try and adopt a mix between non-core and absolute non-core and also create a healthy mix between keeping jobs local and getting it outsourced.
Falling margins for vendors: The dollar rupee equation is anyways enabling companies to push vendors to lower their prices. Coupled with smaller deals and current situation vendors will be forced to reduce their margins to grab these deals.
Terms and condition: Large companies with comparatively bigger outsourcing deals will arm twist their vendors for stringent SLA and Deliverable. So vendors will have to deliver more at lower cost to get deals and stay competitive themselves.
Opportunity for smaller players: The Indian IT services industry is largely governed by the big 5 as far as bigger deals are concerned but the new cost structures and stringent deliverable there will be an opportunity for smaller players to compete with the biggies.
In current scenario everyone is thinking to outsource or not to outsource. There are always 2 sides to a coin and similarly there are people who come from different school of thoughts. I have done some preliminary research which suggests an increase in Outsourcing deals.
Outsourcing in the news (2009)
The Good
* Hindustan times in partnership with Google have developed an election portal to offer information about the constituencies.
* Xerox will pay 0 million over six years to outsource data-center services to HCL Technologies.
* JPMorgan to up outsourcing to India by 25%
* IT majors sign new deals at a discount
* Recession-hit Japan turns to Indian IT Co’s
* India will remain a top outsourcing destination because of its tech-savvy and English-proficient urban workforce whose wages are much lower than their western counterparts says Moody’s
* Outsourcing will continue to grow in 2009: Gartner
* AstraZeneca outsources IT to India’s Infosys
* Premier Foods renews outsourcing deal
The not so good
* IT outsourcing prices will fall – Gartner
* Recession may drive re-thinking of some outsourcing deals
* India’s Outsourcing Woes
Download “2009 the year of outsourcing dangerously” the Black book of outsourcing.