What does 2009 have in store for the outsourcing industry?
2008 was quite a healthy year for the outsourcing industry. The industry was robust during the first half of the year, as new accounts continued flowing in and as existing accounts continued to expand. The second half was stable despite fear that the US financial crisis would hurt the industry and that the incoming US president is said to be anti-outsourcing, these fears are unwarranted.
The year 2008 is slowly reaching its end, but how did the outsourcing industry really perform this year? What does 2009 have in store for the offshore market? Would it still flourish under the new US administration come January 20, 2009 as Obama sets foot on the White House?
Let’s start with Obama and outsourcing. Let me reiterate that the Democratic Party is NOT against outsourcing, they just don’t believe in tax giveaways that reward companies for moving jobs overseas. This means the industry has nothing to fear, since the so-called outsourcing tax would be shouldered by the US company who wishes to outsource, and not the other way around. And given the current status of the US economy it is likely that US companies will outsource certain business operations to avoid expensive local costs of operations.
China’s Department of Trade in Services released the following statement on Obama and outsourcing, “First, Obama’s statements were directed at the manufacturing industry and not the technology or business services industry per se. Second, Obama’s statement — “Will stop giving tax breaks to companies that ship jobs overseas, and start giving them to companies that create jobs in the U.S.” — is interesting but baffling. Do the Fortune 100 companies that outsource billions of dollars of services currently enjoy tax benefits because they are outsourcing jobs? Not to our knowledge. Assuming that under Obama’s term, companies do get tax breaks for keeping jobs within the US and the others are penalized with higher taxes, what kind of a mechanism would it take to administer the rule? The endeavor is impractical. Also, if companies are penalized with an outsourcing tax, the economics of outsourcing would still outweigh the increased taxes. Surely, there are other pressing priorities for the President than collect a few billions in taxes from companies that choose to stay globally competitive. Third, Obama’s statements suggest that the U.S. is overflowing with talent who are being deprived of rightful access to jobs in the U.S. This is hardly true in the case of IT and engineering skills.”
Here’s more proof that that US economic turmoil has positive effects on the outsourcing industry. Recently, US troubled car manufacturer GM announced plans to invest its $1 billion bailout money to outsource its operations to Brazil.
Moving on to the industry’s performance and future come 2009, according to independent research and analysis organization Everest Research Institute’s study titled “Market Vista: Q3 2008 report on global outsourcing and offshoring activity”: “Outsourcing in the banking and financial services sector is showing short-term signs of a slowdown for the remainder of the year due to the economic crisis, but the market will likely regain momentum in early 2009”.
“In the medium-term, restructuring, integration, and redefinition of sourcing strategies by large financial firms will lead to an increase in project-based work for suppliers and increased pressures on captives”, adds Eric Simonson, Managing Principal at Everest.
The study also highlighted “Overall outsourcing transactions increased 15 percent over the previous quarter, valued at about US $3.2 billion in ACV. Banking, financial services and insurance firms signed 81 transactions, up from 54 in Q2. Momentum from Europe continued to grow with a 10 percent increase in transaction activity.”
Author: Kim G.
Tags: Obama-outsourcing
November 24th, 2008 at 12:11 pm
[...] Go here to see the original: What does 2009 have in store for the outsourcing industry? [...]
November 24th, 2008 at 12:13 pm
[...] The Democratic Party is NOT against outsourcing, they just don’t believe in tax giveaways that reward companies for moving jobs overseas. Read more here [...]
November 24th, 2008 at 1:42 pm
I think the outsourcing industry in 2009 will still be healthy because the number of companies that engaged in this is growing. And the companies find it very reliable and cost effective. It also maximize the productivity of the company.
November 24th, 2008 at 5:12 pm
[...] What does 2009 have in store for the outsourcing industry … [...]
November 25th, 2008 at 2:13 am
Your interpretation on what the Democrat Party intends is not correct. India still has much to worry about regarding the shift in power in Washington DC. Democrats are supported heavily by American Labor Unions and that means the American worker is the priority in 2009. The Obama Administration plans on imposing increased taxes on companies that operate from US headquarters, such as IBM or EDS and ship jobs overseas. Fees for companies selling to US businesses such as Infosys or Wipro but operating in India such as excise taxes can be imposed. Further, American companies buying outsourced services from India may find themselves receiving no business expense allowance unless the company employs at least half their staff in the US. Hence, Infosys, Wipro, Cognizant and Satyam would find their clients looking for quick changes in their vendor relationships in order to receive contined tax breaks. The vendors that they would receive their tax break from would be American - not Indian companies. Other options would reward Indian companies for employing Americans in America to run American outsourcing projects. The average Indian worker would feel the effects.
November 30th, 2008 at 12:45 am
[...] What does 2009 have in store for the outsourcing industry? … deprived of rightful access to jobs in the U.S. This is hardly true in the case of IT and engineering skills.” Here’s more proof that that US economic turmoil has positive effects on the outsourcing industry. Recently, US troubled car manufacturer GM announced plans to invest its $1 billion bailout … [...]
December 2nd, 2008 at 12:23 am
2009 will be a year of “learning” for both buyers and vendors of outsourcing. There will be shifts from the traditional approaches and typicals views of outsourcing in order to cope with the changes and challenges in the economic environment.
Politics would definitely play a key role in outsourcing’s progress this year. Governments whose economies are invested in this industry should do much as they can to woo, cooperate and compromise with “host” countries to cultivate more favorable conditions for business ties to flourish.
December 18th, 2008 at 3:37 am
2009 is still about two weeks away. Let’s bid 2008 a warm, bittersweet farewell for the rewards and challenges it has brought.
Happy Holidays, everyone!
December 25th, 2008 at 5:18 am
There would be a marked shift in the outsourcing scenario in terms of the political promises made by Obama in the first half of 2009. However, things would gradually settle pro outsourcing in the later half due to business compulsions. Outsourcing may even increase at this stage
January 25th, 2009 at 9:43 pm
outsourcing should be one of Obamas priorities in 2009 due to the current economic tragedy. He was elected, in large part, to stop job loss to outsourcing and illegal aliens. Personally, any fast food company outsourcing is advertised in my workplace as anti-American.