Offshoring in a Fluid World
Enviado por Angelica Ordonez • 19 de Noviembre de 2023 • Documentos de Investigación • 1.497 Palabras (6 Páginas) • 70 Visitas
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Offshoring in a Fluid World
The economic crisis and the Indian outsourcing landscape
Over a few tumultuous weeks last fall, the economic outlook for every major corporation across the world changed. The Indian outsourcing sector, a bastion of growth for years, was no different. The global downturn has raised questions about vendors’ financial health and India’s underlying economic conditions, and it brought anti-offshoring rhetoric from the United States during the presiden- tial campaign. Nevertheless, offshoring remains as viable a cost- reduction option as ever for global companies.[pic 2] | [pic 3] | |
The current financial crisis finally the recent accounting scandal at put the brakes on years-long growth Satyam, the environment for out- in the Indian outsourcing industry. sourcing is actually quite favorable. This was spurred in large part by trou- Companies that carefully choose solid bles in the financial services industry, vendors and negotiate the right deals which makes up approximately 30 can find the significant savings their percent of Indian information technol- shareholders are looking for. ogy outsourcing (ITO) and business process outsourcing (BPO) and is the Macroeconomic Changes catalyst for past outsourcing industry Two major macroeconomic changes growth. Consolidation in financial are occurring in India, leaving a major services (such as Bank of America’s impact on the offshoring industry. acquisition of Merrill Lynch and Wells First, the robust growth of the Indian Fargo’s purchase of Wachovia) will economy has slowed down. According place new pressures on vendor mar- to the Asian Development Bank, gins, as the newly merged companies India’s economy grew 9 percent in aim to eliminate redundancies and 2007, but growth is expected to drop lower costs for both new and existing to 7 percent in 2008 and 6.5 percent in outsourcing contracts. 2009. This has affected the labor mar- For U.S. companies, this chang- kets, as fewer workers are leaving their ing environment offers increased existing jobs. Vendors are reporting buying power in creating new and that BPO attrition rates have dropped revising existing outsourcing con- from highs of 60 percent to roughly tracts. Despite currency fluctuations, 20 percent. As a result of these lower- declining growth in the Indian econ- than-normal attrition rates, several omy, changing Indian labor rates and Indian providers have announced wage | Despite currency fluctuations, declining growth in the Indian economy, chang- ing Indian labor rates and the recent account- ing scandal at Satyam, the environment for outsourcing is actually quite favorable. |
freezes for 2009, underscoring the push by vendors to reduce costs.
The second major change has been the rise of the U.S. dollar and the Japanese yen against every major cur- rency, including the euro, the British pound and the Indian rupee. While on one hand this has meant cheaper labor costs in India in comparison with the dollar, it has also meant reduced revenues for BPO and ITO organizations that do business with Europe. While low interest rates could weaken the dollar again in 2009 and create another see-saw year for cur- rency values, U.S. companies should be in a position of strength when it comes to negotiation.
Vendors Act to Mitigate Risk
In the context of slowing demand and the changing U.S. political environ- ment, vendors are facing higher risk and more intense competition (see side- bar: U.S. Political Forces Create Uncer- tainty). To manage their risk, many vendors are diversifying. Full-service vendors are trying to limit overexpo- sure to problems in major industries by pursuing new business in secondary areas of focus. Domain specialists are placing less focus on expanding exist- ing accounts and more on attracting new clients in different areas. Industry consolidation is likely to accelerate in 2009 as vendors try to improve econo- mies of scale and create the combined
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ITO and BPO organizations that are critical to winning larger deals.
We have also seen many vendors acting more aggressively when it comes to structuring deals. Suppliers are becoming increasingly flexible about contractual and financial terms, accept- ing lower margins on deals in an effort to secure new business and exploring creative ways to restructure existing contracts. Beyond price, suppliers are showing more willingness to share both the capital costs and the risks associated with project startup and transition; these are compelling incen- tives for companies given current capital constraints.[pic 5]
Assessing Vendor Relationships With virtually all companies facing budget constraints, outsourcing and offshoring are obvious options for savings. Taking into account the changing economic environment in India and the risks involved, let’s look at several important actions for com- panies as they consider offshoring opportunities.
Look for the best price. Due to
weakened demand and the currency effects discussed earlier, vendors are becoming more flexible about pricing. Buyers should capitalize on this, both
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