Lehman, Merrill and Offshoring
Today's bankruptcy of Lehman Brothers and the takeover of Merrill Lynch by Bank of America will present huge challenges to offshoring in the near- to mid-term. Aside from the clear consolidation in the markets that this will create, the penumbral effects of this crash will be felt throughout the markets. There is no doubt that these and other failures and troubles will have a far greater effect than the presidential elections.
First, it is important to remember that these crashes were caused by woeful risk management. Poor and risky management led to these crises. The result of this will likely be far more conservative management – on both the expense and profit sides. Remember, offshoring is still seen as a higher-risk way of doing business. More conservative management will likely lead to less offshoring – and a greater focus on fundamental business issues.
Second, without regard to political party, we will likely see a move to a real "country-first" approach that is, in one way or another, more inward-facing. I predict that the U.S. will "circle its wagons," and focus on rebuilding its fundamentals – without regard to the effect on the countries with substantial offshoring infrastructures.
Third, offshoring vendors have done a generally poor job of showing their commitments to the U.S. This is different than Japanese automakers – the whipping boy of the late 70's – reacted. Japanese automakers realized that they had to invest in the U.S. market, not just take from it. Offshoring companies, however, have not made that investment into the US market. As such, when the U.S. turns inwards – Wipro, Infosys and Satyam – will be left out. Unless these capital-rich companies step in and help during this time of crisis, and the clock is quickly running out – American business may turn away from offshoring.
Finally, there is little doubt that either administration, if elected, will face substantial pressure to take a "job creation" approach. I would expect some massive public works projects if Barack Obama is elected, or a continued and expanded war effort if John McCain is elected. Both create jobs – and neither are particularly friendly to offshoring.
In this difficult time, the U.S. will, no doubt, turn inward. As we do so, our standard suite of offshoring providers – particularly India and China – may be left on the sidelines.
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Yes in this difficult time and with the coming Presidential elections, the US COULD turn inward to fix its problems and install changes but I do not believe that India, China, the Philippines and other outsourcing destinations would be on the sidelines… for long.
After all, granted that the US is one of the major markets for outsourcing, it is not the only market. Outsourcing vendors have been prudent in acquiring a diverse portfolio of clients as well as tapping into other international markets. Besides, many multinationals have also invested too much into outsourcing to fall back now.
Time passes, Time is temporal. As many experts and industry insiders would perceive, barring a global disaster or an act of a wrathful God, America will heal itself, its economy will improve and more businesses with their services, products and needs would spread from its States into the international shores. And outsourcing would just be like any street or avenue, just waiting to re-tread upon.
Comment by Outsource Opinionist on September 19, 2008 12:20 am