« Enter Argentina as a nearshore destination... | Main | Nearshoring software development to Mexico »

Dec 02, 2007

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8356fb76c69e200e54f93ed0b8833

Listed below are links to weblogs that reference Will an economic downturn spark a new wave of outsourcing growth?:

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

Hi Phil,

Well, there was an article in the Wall Street Journal back around 1992-94 timeframe entitled, "Why Outsourcing Loves a Recession". However, based on the lackluster year of 2007 that I saw in the market, one would have to wonder.

All the best,

Thom

The key question is: can India supply the extra demand? I believe that regions like LATAM willl be playing more critical roles going forward. Thanks, Humberto

A downturn should make business leaders sit up and re-evaluate core competencies. This could mean selling off under performing business units & utilising third parties to drive down costs.

Also - during a stable economy, if buyers have been "taking their time" selectively outsourcing small pieces of their operations -then during a downturn, (especailly if they have had good a positive experience of outsourcing)- they may have a bigger appetite to outsource

Phil,

Over the past several weeks various comments relative to this topic have been discussed and published as we approach 2008. Below are some comments as well as my perspective


“The expectation is that outsourcing in the financial services industry will grow as buyers seek to reduce operating costs, avoid investments into new systems and capabilities, shift focus to more strategic activities, and leverage their growing supply of skilled global resources,” said Stan Lepeak, EquaTerra’s Managing Director of Research. “This trend in financial services illustrates that outsourcing as an industry has become ‘recession-proof’ and that outsourcing is a tool buyers use in up markets to improve performance and in down markets to reduce costs and remain competitive.”

IDC Research also predicts that F&A outsourcing will increase. According to their recent research, IDC estimates that U.S. spending on F&A BPO services amounted to $9.4 billion in 2006 and expects this market to grow to $19.4 billion by 2011, a five-year CAGR of 15.6%. Source: IDC, “Worldwide and U.S. Business Process Outsourcing 2007-2011 Forecast: Market Opportunities by Horizontal Business Process,” Doc # 208290, September 2007.

Based on feedback from clients, partners and industry experts, the following specific trends are emerging:


· The Return of Risk
Before the credit turmoil, a combination of low interest rates, plentiful liquidity, a strong economy, and a hot real estate market made investors less risk adverse and therefore made funding easily available to issuers, including speculative-grade companies. However, with the credit squeeze in full swing, expect to see a tightening in the credit management function and a push for more scrutiny over credit worthiness across all industries.
·

Cash Flow Optimization and the Coming of the Financial Supply Chain

Especially with today’s credit market fears, cash is once again king. To that end, CFOs will put additional emphasis on making sure their financial supply chain and therefore their cash flow is optimized to ensure they are able to ride out the anticipated tough economy.

· Growing Pressure to Shake up the Entire Accounting Process

From the move to fair-value accounting, which could affect everything from hedging strategies to emissions credits, and a push to overhaul financial statements to make them better reflect corporate performance, the industry as whole is about transparency and efficiency around financial processes. Above and beyond government regulated changes, CFOs will be taking extra measures to mitigate risk, which will likely result in additional documentation, disclosures and in general more business processes.


Steve/Travis,

Outsourcing is one way to reduce staff headcount quickly without incurring major resourcing headaches. Many firms have already done a lot of work evaluating how they can leverage third-party providers to take on business process and IT work, and moves to reduce headcount may drive them to consider outsourcing options, if the other alternative is going to be straight headcount reduction. The recent weakening of the dollar has reduced the financial business case from a cost-saving perspective for some firms, but the move towards volume-based pricing, as opposed to straight FTE "job-shifting" pricing, is helping to circumvent this.

PF

I don't think it will. My reason being that during times of economic thrift companies will likely contract. Accordingly, I think layoffs would supplant outsourcing inclinations.

Steve.

Hi Phil,
More likely the downturn in the US will spark protectionism there I think.

Phil,

I believe there are a number of factors that will play into whether that will actually be the case. First off, while the providers can add more business the question is whether they can add business with the amount of margin needed to offset their infrastructure growth. Second, the provider needs to be prepared to service industries it has previously avoided or have not made a priority. To get there they will need to be more knowledgable and have more tools to make sure they can do the job efficiently. They will tell the client they can handle anything but as you know that is not the case in many situations. Many more issues come up depending upon who the client ends up being...

David

The comments to this entry are closed.

Your email address:


Powered by FeedBlitz

Follow me on Twitter

    follow me on Twitter

    Translator

    My Photo