Workleaf

The recent credit market turmoil, spurred by the sub-prime mortgage industry fallout in the U.S., has created ripples in the financial markets across the world. Although markets in the U.S. were affected the most, the impact has also been felt in the EU, with the recent announcement from Citigroup about it’s management shake-up.

As economists and bankers ponder over the possibilities of a global downturn, it is deja vu time for the folks in the outsourcing industry. Circa 2001, the “Post- Bubble” era ushered in a greater acceptance and recognition of ITO and BPO as a standard strategic component in various industries. The same feeling seems to be creeping in, albeit in a different avatar, this time around.

Along these years, the industry landscape has changed. Among service providers, we have seen a growing maturity in client service and delivery efficiencies. With a rapid proliferation of new entrants, the incumbents have had to fight back with competitive rates, and an aggressive inorganic growth strategy. We have also seen some surprising mergers and acquisitions in the past couple of years (remember Keane?). Among the clients, first of all, outsourcing has become an accepted component of an organization’s overall strategy. These days, clients do not need to educated about the benefits of ITO/BPO (although the same cannot be said about executing on those strategies). Clients have moved beyond the basic premise of labor arbitrage when factoring outsourcing into their grand plans.

Given these changes, it would be interesting to see how the outsourcing industry is affected (or, should I say “influenced”?) by the current market turmoil. An easy prediction to make here would be – the current scenario will result in IT budget cuts in the forthcoming quarter and the next year. This would, in turn, force executives to pursue their outsourcing strategy more aggressively, with a higher emphasis on realizing cost savings. This would result in an increase in the price pressure for service providers (as if the weakening dollar was not enough of a problem already). Thus, service providers will end up investing in technology to increase delivery efficiencies further, and to bring operational costs even below their existing levels. Maybe we will see an increase in Tier 1 service providers (Read – Accenture, Infosys) from Tier 1 locations (read – India, China) outsourcing their contracts to Tier 2/Tier 3 providers at lower cost (emerging) locations.

And I wonder of all this will happen within the next 12 months?

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