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By | OUT-LAW.COM 30th January 2009 10:30

Outsourcing suddenly less popular

Potential savings don't amount to a hill of beans in this crazy downturn

Demand for outsourcing has fallen as global economic troubles hit the outsourcing industry, according to research produced by an outsourcing consultancy. Its advisors expect demand to increase early this year, the company said.

Outsourcing consultancy EquaTerra asked its advisors whether demand was increasing for outsourcing services worldwide and 38 per cent of them said in the last quarter of 2008 that it was, a fall of five per cent from the preceding quarter.

Its research found that 53 per cent of outsourcing companies predicted an increase in demand for the first quarter of 2009, however.

The company said that outsourcing to save costs made more sense because companies needed to save more money in a downturn, but that that downturn made it harder to fund the process.

"The business case for outsourcing is building as the global economy slides deeper into recession, but the ability to execute multi-year outsourcing deals is hampered by tight capital and market uncertainties," said an EquaTerra statement.

The company predicted that the number of outsourcing deals would increase in the second half of this year because of staff layoffs and company buyouts and mergers that are happening now.

The EquaTerra research indicated that public sector outsourcing is more active, with deals centring on the outsourcing of IT and back office work.

The company also said that the economic downturn in itself provided an opportunity for organisations who want to outsource to do so more cheaply.

"The deteriorating economy has a positive side for organizations seeking to expand their scale [or] scope of work," said the EquaTerra statement.

"Outsourcing service providers feeling the impact of the downturn are focused on increasing market share by expanding existing accounts, providing savvy buyers the opportunity to use the downturn to make great strides toward transforming their business, accomplishing more, faster and with fewer resources."

The company's research also found that the deteriorating economy and the threat of terrorist attacks is forcing companies to be more conservative in their outsourcing decisions.

"In light of recent terrorist attacks and financial scandal, wary buyers may shift more work to larger, more established Indian firms and away from second-tier players," said EquaTerra.

The company's managing director of global research Stan Lepeak said, though, that India would stay the most popular choice for organisations looking to outsource.

“We anticipate heightened scrutiny and greater safeguards being built into new and existing contracts, but India will retain its lead in the near future due to its many advantages, including language, talent and experience," he said.

Copyright © 2008, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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