Financial fallout: Weak markets will drive increased global outsourcing spend
By Manufacturing Business Technology Staff -- Manufacturing Business Technology, 1/4/2008 4:33:00 PM
According to Bharat Desai, CEO of Syntel, an IT and business process outsourcing services organization, outsourcing is one industry that won't be battered by the crisis in the credit markets. Recent Syntel survey results garnered from more than 250 IT professionals in global companies indicate a weak economy in 2008 is more likely to increase spending on global outsourcing rather than limit it.
The TrendScan survey by Syntel regularly polls Fortune 1000 companies to track the forces driving global IT trends and issues. The survey asked: If the financial markets continue to struggle into 2008, how do you think it will affect your firm's spending on global outsourcing? Responses were as follows:
• Increase our allocation to accomplish more with less: 52%
• Spend less overall to conserve budgets: 28%
• Spend about the same as in 2007: 19%
"In a weak or uncertain economy, companies look for technology solutions that will increase productivity, efficiency, and savings," explains Desai. "At the same time, investing in innovation becomes critical for companies to survive in consolidating or shrinking markets. We are not surprised to see more than half the respondents in our survey plan to increase their spending in 2008 despite threats of a down economy. Outsourcing is a hedge against general IT costs and can be a strategic component of research and development."
Surveys by Syntel for the past two years showed that 38 percent of global IT professionals called for an increase in spending for 2006, while 48 percent called for an increase in 2007. "Now 53 percent see increased spending for 2008," says Desai. "Outsourcing continues to become more entrenched in IT strategy. Even with continuing economic worries, predictions for spending on global IT are on the up curve."
The International Association of Outsourcing Professionals (IAOP) seems to concur with Syntel's survey results. In fact, IAOP reports that socially responsible outsourcing, global competition for talented employees, and a power shift among outsourcing are considered key trends in the coming year.
Among the top five outsourcing developments to watch for in 2008, as forecasted by IAOP Chairman Michael Corbett and Managing Director of Thought Leadership, Jagdish Dalal:
1) Social responsibility
Outsourcing will be recognized for the value it brings to communities around the globe, and companies engaged in outsourcing will be acknowledged for being good corporate citizens.
"With the shaky U.S. economy, presidential elections looming, and a heightened awareness of how everyone's actions impact the environment, outsourcing is poised to go politically correct in 2008," says Corbett.
Companies providing, using, and advising on outsourcing will become known for adhering to and advancing the highest ethical standards, contributing to communities, bettering the environment, and expanding career opportunities and training for employees, Corbett predicts.
2) Outsourcing pros wanted
Outsourcing professionals will be sought after, valued, and compensated for their important role in business. Today, more than 150,000 professional are involved in the $6-trillion global outsourcing industry, and these numbers and the professionalism of the industry are expected to grow.
"The C-level suite is recognizing the importance of outsourcing," says Dalal. "More outsourcing professionals will sit at the table with senior executives and define the very shape of business."
IAOP continues to see strong interest in its outsourcing certification program. Teams of professionals and individuals from companies around the globe are receiving the industry's first and sole professional certification: the Certified Outsourcing Professional (COP).
3) Global talent wars
Attracting, developing, and retaining talented employees will be major challenges for both outsourcing service providers and businesses building their internal capabilities as outsourcing increases in developing countries—especially India.
"The global talent wars will further widen the economic gap between the cost of talent management and expected cost baseline," says Dalal.
4) Power shifts
Outsourcing industry leadership will move from a small group of U.S.-based service companies that have dominated the industry since its inception—i.e., IBM, EDS, CSC, and Accenture—to include growing foreign companies such as TCS, Infosys, and Wipro.
"The landscape is shifting, with large U.S. companies becoming major offshore players while offshore players are gaining U.S. footholds through acquisitions, and by establishing their own facilities," Corbett says.
IAOP is seeing this trend in its annual ranking of the world's best outsourcing service providers, Global Outsourcing 100. For the past two years IBM has remained at the top of the list but increasingly, Indian-based companies are rising in the top 10 ranks.
5) Globalization
While businesses race to build their global talent portfolio, the best will all have their basics in place by the end of 2008. What was until just recently a new strategy for companies to offer competitive differentiation is now required of all. Any company not already well into the outsourcing game is at serious risk in today's economy.
"Although the ink may be barely dry on the first revision of Tom Friedman's book, The World is Flat, the globalization end-game already is in sight," Corbett concludes.
