Top 5 Predictions for Outsourcing Cos. in 2009

by CXOtoday Staff    Dec 30, 2008

Domestic service providers and near-shore destinations could be the big winners as the outsourcing industry goes through turbulent times in the coming year according to IAOP, the global standard-setting organization and advocate for the outsourcing profession.

IAOP thought leaders based predictions on an analysis of more than 25 factors expected to impact the industry, including tighter controls and government oversight, new initiatives by the incoming US President, and slower growth in developing countries. 

Among the top five predictions from IAOP are:

1. Outsourcing will stay closer to home: With available labor from layoffs in many industries and tightened risk profiles of companies, especially in the financial services industry, companies won’t have to go far offshore to find talent.

Planned initiatives by Barack Obama and increased government spending on infrastructure projects could lead to more domestic outsourcing, particularly for construction, real estate and technology, IAOP said. Outsourcing destinations such as India and China will be challenged by the closer-to-home locations. Providers in these countries also will focus more on their domestic operations.

2. Global uncertainties will create outsourcing volatility: Overall, the fast-paced growth in outsourcing will slow in 2009, as companies lower their spending on information technology, consolidate or exit markets, and find skilled labor locally from layoffs in financial services and other industries.

In many ways, it will be the best of times and the worst of times, said Michael Corbett, chairman, IAOP. In this turbulent environment, it will no longer be a rising tide that can lift all boats. Only the truly seaworthy will prosper.

Global uncertainty and customers’ desire for immediate and guaranteed cost savings will lead companies to seek shorter outsourcing contracts with the ability to adjust volume and service level terms.

Atul Vashistha, board member IOAP, and chairman of neoIT, said that companies will work with fewer key partners and want to pay less for services, noting rates have already declined by as much as 5 percent in many areas from just a year ago.

3. Professional expertise will be valued: With companies putting a greater emphasis on immediate larger cost savings and lower risks, outsourcing service providers’ profit margins will be reduced.

Service providers will find themselves being squeezed between lower growth, capitalization constraints and higher demands for cost savings, driving profit margins down, said Corbett.

Outsourcing customers also will rely more on the expertise of outsourcing professionals in their own organizations to help manage the outsourcing process, putting pressure on advisors to demonstrate higher value.

This increasingly self-service oriented customer model will be further fueled as more organizations implement outsourcing centers of excellence and as more professionals gain certifications, said Jagdish Dalal, managing director, thought leadership, IAOP.

4. Strategic companies will prosper: The economic meltdown could create opportunities for strong, well-positioned companies, according to observations by Booz & Co, a founding IAOP member.

While the economic climate will not immediately improve, companies involved in outsourcing that act strategically and decisively for the long term will be increasingly valued and sought, said Sven Govaars, a board member.

5. Social responsibility and green will be outsourcing themes: New government direction under Obama could promote higher emphasis on socially responsible business environments, driving outsourcers to create solutions that address them.

IAOP said these will include industry competitive employee retention and welfare programs, as well as green operating environment for technology, real estate and manufacturing outsourcing service providers.