outsourcing
Why Offshore Services Are Being Adversely Impacted by the Global Economy
Filed in archive Outsourcing News by Gary Zeiss, Esq. on July 16, 2008
Given the current poor economic climate, one would expect rapid growth in offshore outsourcing contracts as companies struggle to find ways to cut cost. However, such exponential growth has been difficult, at best, to find - with share prices of companies with substantial offshore operations riding the same tidal flow of other stocks. In fact, some analysts are seeing a slowing in outsourcing growth in the next fiscal year.

Certainly, there are market forces that affect global outsourcing providers, including exchange rates, local labor markets, and telecommunications and infrastructure costs. However, given the still-existing difference in operational costs between on- and off-shore services, there still exists substantial financial incentives to moving offshore.

So what is happening? In this author's opinion, the main "braking factor" in the global offshore markets is not purely because of a reduction in labor arbitrage advantages, but instead is caused by the simple fact that, in this downturn, companies are not trying to do "more with less," but are instead trying to do "less with less."

In several of the core markets served by offshore vendors, the current business slow-down is reducing demand for the underlying services, no matter who is providing them. Fewer mortgages are being processed, fewer plane reservations are being made, and fewer people are purchasing high-tech solutions that require technical support.

Adding to the uncertainty in the outsourcing markets are questions about tax and regulatory policy changes that may result from the 2008 presidential election, potential for additional takeovers or failures of struggling companies, particularly in the financial segment, and a general malaise in the consumer and wholesale markets.

There may be one bright spot in the offshore services market that follows on this downturn - legal process outsourcing (LPO). LPO companies are well-positioned to take on the massive document productions that the inevitable lawsuits will create. Furthermore, LPOs will likely be better at integrating with technology experts than US attorneys, allowing them to add value in areas such as structured data analysis and forensic systems analysis.

Additionally, it may be reasonable to expect a jump in leading-edge BPO services when the clouds do begin to break from the economy. Our market has become far more accustomed to instant solutions, and I would expect BPO and KPO companies that can help their clients hit that cutting edge more quickly will be in great demand. When that demand begins to pick up, it may indicate that a new "spring" in business has arrived.

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Tags: economy  slowdown  outsourcing  offshore  services  offshore+services  impacted+global  global+economy 
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