The Changing Face Of Outsourcing

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Recently, the fate of the global outsourcing industry has been in question, given the current turbulent conditions associated with this industry. What makes this discussion all the more interesting is the high percentage of contribution that outsourcing supplies to the GDP of nations across the globe. Outsourcing is a multi-billion dollar industry and is a vital part of the IT industry, therefore as lack period in IT outsourcing equals a loss for the global economy. Globalization has forced companies to outsource work to different nations, taking advantage of the reductions in cost, increased organizational effectiveness, and the efficiency of increased turnaround time to keep stakeholders satisfied. The scope of the outsourcing industry is spread in both domestic and foreign businesses, where outsourcing has managed to latch onto an integral part of almost every industry. This is especially the case for IT-BPO services, which is outsourcing more than one or two functions.

It’s important especially for investors or companies that are planning to set up outsourcing centers in different countries to focus on the implication of the changing economic climate regarding the global outsourcing industry. The economic, regulatory and  legal, and security challenges faced by the industry has a significant effect on how it will influence the worldwide operations of IT-BPO services, and how newer technologies like cloud computing and mobile are transforming the landscape of this industry.

When it comes to the economic scenario of outsourcing, factors like high levels of volatility, weak consumer demand, and an uncertain corporate environment continue to impact the industry; often leading to a drag in the consulting business. According to a variety of studies, 61% of service providers reported deal pipeline growth over the past quarter and a drop of 15% from Pulse results three months earlier. Additionally, only 45% of providers expected the pace of customer demand for business and IT services to increase over the next one to two quarters, representing a drop of 14% from the third quarter and a substantial 29% from the second quarter. Demand for other types of third-party services, such as cloud or more specialized business process outsourcing (BPO), is faster growing, yet still represents an overall smaller market in terms of total size. Also, the number of buyers terminating their offshore contracts prematurely has doubled and reached 51%. This phenomenon has led to a decrease in salary hike of employees worldwide. As compared to a salary hike of 11-15% in 2013, the percentage hike in 2014is somewhere between 5-9%.Overall, the outsourcing industry has seen a decrease in the number of investors and new projects.

The changing legal environment has also led to the slowdown of outsourcing IT-BPO services. A bipartisan bill has been tabled in the U.S. House of Representatives dictating that companies who move call centers overseas will become ineligible for grants or guaranteed loans from the Federal Government, a move aimed at stemming the tide of jobs heading to nations like India. Introduced by Rep. Tim Bishop and Rep. David McKinley, the U.S. Call Center Worker and Consumer Protection Act would also place aggressive mandates on call-center operations, adversely hitting the BPO sector of third world countries like India, China, and Indonesia.

In addition to the economic and legal challenges, political pressure in the U.S. coupled with the lack of infrastructure in developing countries pose a risk to outsourcing. When it comes to safeguarding data, several measures have been taken by corporate houses to ensure their outsourcing work is foolproof — like employee background verification. The negative effect of outsourcing on society cannot be completely ruled out as many people are losing jobs and unemployment is increasing, leading to social unrest among the citizens of the country. The union of workers is also not supportive of outsourcing practices adopted by companies. Legal challenges like loss of intellectual assets property, loss of future talent, and loss of organizational performance are already present to further restrict the growth of the outsourcing industry.

There’s a solution to this situation: emerging new technologies like cloud computing. Cloud computing is very economical as different computers located on servers across the globe can be connected, thus savinga large amount of infrastructure cost for companies. Another remarkable advantage of cloud computing is that users don’t have to worry about data backups, tracking down bugs in the system or data security. With cloud computing, infrastructure resources are shared across the cloud, and a much smaller number of servers can successfully cater to the fluctuating needs of the users and connected devices. While cloud is far less mature than outsourcing, it is more sweeping as it involves the automation of a process rather than just shifting the process. It has the potential to simplify and unify at different levels, both at an application level and from a cost standpoint. Companies are using this technology collectively to save time and energy, and to achieve better results in a cost effective manner.

The next big opportunity will come in the face of MPO - marketing process outsourcing; used to save the costs incurred when hiring public relations agencies, database agencies, and email marketing agencies. MPO has already increased in momentum, thanks to multinational companies hiring outsourced marketing consultants for the desired output.

Without a doubt, the course of the global outsourcing industry is changing, and with increasing pressure to out-perform competitors; companies are facing a war-like situation to emerge as market leaders. Indeed, the outsourcing industry is here to stay, whether it will bring positive or negative changes to the economy is something to look out for. If the challenge continues, developed countries will have to devise innovative techniques to ensure their control on outsourced functions, keeping in mind the dynamic business conditions prevailing across the globe.