An outsourcing backlash in 2009?
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Though some predict an offshoring backlash in 2009, it’s still hard to dismiss the fact that companies looking to save much needed cash to continue operations would ignore the idea of outsourcing. Who wouldn’t want to save money given the global economic crisis and increasing competition?
According to Gartner analyst Linda Cohen, “Whenever there’s a downturn people outsource more, not less. Organizations want to take costs out wherever they can. CFOs are pounding on their CIOs to just outsource it, just offshore it.”
Eugene Kublanov, CEO of California based outsourcing advisory NeoIT, agrees with Cohen. He believes: “The difficult economic conditions will push companies further than before to consider what stays in house and what gets done by others. Additionally, demands by the business for further cost reduction will need to be addressed in an environment where many companies have already leveraged labor arbitrage to source the low-hanging fruit.”
The outsourcing industry has its ‘cheap costs’ provision to thank for its staying power, but relying on this for corporate strategy could spell disaster. Recent developments at Satyam’s fraud scandal sent shock waves not only to clients but to the whole outsourcing industry. As clients evaluate their options, so should outsourcing providers.
Offshore providers need to re-evaluate their market positioning as Vamsee Tirukkala, Co-Founder and Managing Principal at Zinnov LLC explains: “We now expect the clients to closely evaluate options of setting up their own captive centers or alternatively also opt for new vendor evaluation techniques. In fact for those who have operations for very many years now, we feel that it’s the right time for them to consider options of having a direct presence or local program management offices for better control.”
Given that third-party providers need to have another look at their corporate strategies, one would think ‘outsourcing innovation’ is the key to all this right? Wrong. “The focus will shift away from open-ended efforts. Buyers will not have much appetite for transformation in 2009″, says Stan Lepeak, research director of outsourcing consultancy EquaTerra. Outsourcing innovations, such as greening of IT outsourcing deals that blossomed in 2008, all of these would take a back seat as clients will push offshore providers to further lower their costs.
On another note, Rajiv Mathew, Global Marketing Specialist at technology consulting firm ThoughtWorks, shared his thoughts on the possible steps the Obama administration would take to keep the US economy afloat. Matthew believes “Obama will be cognizant of the importance of outsourcing to the American economy and will probably take a calculated risk, if at all he makes any amendments to the current outsourcing policies.”
Author: Kim G.
Tags: Obama-outsourcing, Outsourcing 2009
January 21st, 2009 at 4:13 am
An outsourcing backlash is most likely to happen since detractors of the business model are doing double shifts as more and more businesses turn to outsourcing to cope with the challenges of the global downturn.
January 29th, 2009 at 5:53 am
In order for the organization to stay afloat, there is a need to consider outsourcing to other firms. It is cost-effective and strategic move despite threats of an outsourcing backlash in this time of crisis.
February 3rd, 2009 at 10:07 am
Outsourcing is causing high unemployment and zero prospects for college graduates. Right now, there are people with 30 years of experience who cannot find work. I predict a backlash and legislation against it pretty quick. But in case that doesn’t happen, expect a severe 1930s style depression due to lack of customers for US businesses. Obama’s plan for a 500 dollar tax cut and building wind mills won’t fix the economy.
March 8th, 2009 at 10:46 pm
If you think about it, where does the offshored money go? Back into our local economy (stores, services, etc.)? Do the offshore employees pay american income taxes?
It doesn’t take a genius to figure out saving 10-25% on offshore labor directly takes 10-25% from the mouths of tax collectors, schools, local business, etc. all of which in turn employs people.
Think about it. If you are just a single tech worker displaced by an offshore laborer, you are now no longer paying taxes. You are no longer buying services and goods. Obviously, that in turn hurts others in our economy that rely on your business and programs that run on your tax dollars.
If you open your eyes and look around you, you can see the direct result of the minimal savings that a few of the company owners and board benefits from. Offshoring hurts everyone all for the benefit of very, very few rich people that can afford a little less anyway.
don’t believe the people who are telling you that offshoring isn’t bad for the economy. Just look around at how the countries we offshore to have a sharply increasing economy while we who offshore have a sharply decreasing economy. It’s just common sense, right?