The world economic meltdown and IT outsourcing: truth and myths

TEAM International reviews the findings of the most recent surveys on the impact of the world economic crisis on IT offshore outsourcing and shares expert opinions on how companies impacted by the meltdown can benefit from using offshore transactions.

It is hard to deny the fact that today’s global economies have been undermined by recent challenges in the real estate, banking and financial services industries. In view of this, rumor has been spread all over the world that the world financial crisis will obviously damage IT offshore outsourcing industry and will dramatically decrease the amount of offshore transactions. However, the latest surveys demonstrate a totally different situation. According to a survey by EquaTerra, a sourcing advisory firm, more than 40% of the interviewed outsourcing services providers see increased demand level in spite of the economic downturn.

The survey finds that the offshoring industry will benefit from end-users that need to cut costs in the short term. In the European Union demand is determined to be stronger than that in the United States: 34 percent of the EU firms cited increased demand versus 25 percent of the North American companies. The fact remains that some companies currently freeze their offshoring transactions – 38 percent of the survey participants reported slowing down or deferring their outsourcing efforts due to the unclear economic conditions. But does it occur due to real consequences of the crisis or due to the global panic? According to Martyn Hart from the National Outsourcing Association, offshore outsourcing has always been closely associated with reduced costs. Since most of modern companies set “aggressive cost saving targets” for the next years, more and more offshore transactions are likely to come to fruition.

A recent survey by Forrester Research, Inc, the leading US research and consultancy agency, finds that while 46% of 268 Global 2000 companies have already cut back their IT budgets, only 21% have cut back their IT services spending. It generally means that companies, which currently invest in IT offshore outsourcing, will carry on with this trend during cost-cutting times. In addition to that, companies, that have never considered offshore outsourcing before, will have to do so in order to avoid investing in new expensive technology and adding head count.

Despite reported slowdown in Q3, the year 2008 is still expected to outperform 2007 in terms of the offshore deals. According to InfoWorld, the number of contracts granted until now is up 5% compared to the last year, while the total contract value of the outsourcing deals is up 19%. The global outsourcing market is still predicted to reach $88 billion by the end of 2008.

TPI, a sourcing advisory firm, does not see any reason why the current economic woes should negatively affect IT offshore outsourcing.

TEAM International believes that the offshore outsourcing pattern utilized in 2008 will be repeated in 2009 due to the fact that the true value of offshoring and nearshoring still consists in improved process management and operational efficiency. Although a lot of rumors on the upcoming crash of the IT outsourcing industry are much exaggerated and do not match the reality, one fact is clear – the nature of offshore outsourcing will change. Buyers are expected to become more selective in seeking a partner and service providers will have to find better ways of containing costs while improving business. That is how IT outsourcing services suppliers will survive the worst economic crisis since the Depression.

Sources used: InfoWorld <>, Forrester Research, Inc


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