Enthusiasm for Outsourcing Takes a Hit

Business willingness to outsource core support services has taken a hit, according to KPMG’s pulse survey, which explores business prospects among some of the largest global business and IT service providers.

It found that just over half (51 per cent) of senior executives in some of the world’s largest global business and IT service providers expect to see customer demand increase between now and the end of December 2012. This represents a drop from 61 per cent who were optimistic when polled in the first quarter of 2012 and 74 per cent, this time last year.

Even so, 61 per cent believe there is room for optimism about business prospects.

However, three per cent of respondents said their pipeline of growth fell during the second quarter – the first time there has been negative growth in the outsourcing marketplace since the end of Q4 in 2011.

Shamus Rae, partner in KPMG Management Consulting’s shared services and outsourcing advisory team, said: “Negative market conditions in the Euro Zone continue to have a detrimental impact on business confidence as uncertainty forces buyers to delay decisions.

“The knock-on effect is also being felt as organisations maintain a tight rein over discretionary spending. Among those business customers who are renewing contracts, cost reduction has regained its position as the primary driver to outsource key services, but the ongoing market volatility is driving organisations to focus on short-term initiatives rather than projects that will boost performance over the longer-term.”

The survey found that a desire to reduce operating costs was the top driver of outsourcing decisions among their client base (58 per cent). Some 52 per cent also cited a need to create greater financial flexibility and 35 per cent focused on the access they would gain to external skills, talent and resources.

It also appears that a shift is emerging when it comes to the nature of outsourced services demanded by clients. On a 5-point scale, service providers scored “near-shoring” as the most popular at 3.70, followed by “off-shoring” at 3.61. Domestic shared service centres are also gaining in popularity, with 42 per cent of respondents claiming an increase in customer demand for a pooling of available talent and services.

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