Is offshoring poised for slow death?

Economic recession and job cuts are now widespread in many countries of the developed world. Corporate revenues are dwindling and the spending is slashed. There is a growing voice of unions and others to protect the developed economy against offshoring of services. Governments are opening up their cash bags to stimulate the local economies. USA is working on the largest stimulus package with the “Buy American” as its cornerstone.  Besides, there are other issues that are in the limelight including corporate governance of offshore providers and information security related issues.

Is offshoring poised for slow death? I don’t think so. Here are my two cents.

  • Offshoring business model is strong and the value-proposition it brings is still compelling. There are no fundamental changes in that.
  • Though the corporate may slash their overall IT budget, I am not betting on any significant cut in the offshoring pie of the IT budget. In fact, my hunch is that sizeable number of corporates may increase the offshore services to get more bang for the buck.
  • Overall growth of the India offshore service provides may taper off to mid teen levels compared to the earlier growth rate of 30% to 40%.
  • Customers may get stringent in pricing, deal structuring and benefits realization
    • Time and material contracts may not be the favored flavor of this season.
    • Clients will push for more fixed bid contracts and outcome based pricing models
    • Clients would push the service providers to clearly define the savings and benefits upfront. The contracts may get tighter to include penalties for not-realizing stated benefits.

Apparently this is a difficult phase for the offshore service providers with myriad of challenges. However, these challenges would make the offshore industry more mature and stroger in the long run.


4 Responses to “Is offshoring poised for slow death?”

  1. 1 Tom Awtry February 9, 2009 at 1:04 pm

    Here’s a never considered concept for an economic stimulus package that is centered not only on President Obama’s package, but also on the minimum wage, immigration, outsourcing and exporting Technology, which I feel would stimulate the economy faster than what’s been presented in both the House and Senate.

  2. 2 Natarajan February 9, 2009 at 6:04 pm

    There is another scary theory is floating around about the stimulus package. This package will make the US government bigger which is going to be pain in the long run. Imaging India state govt offices, lots of lazy employees with more power.. Sure, this economic plan will heal the current pain, but in near future, watch for another major crash.


  3. 3 OutsourcingInfo February 10, 2009 at 2:32 am

    I totally agree with Dan. Despite the growing voice of lobbyist to discourage outsourcing in the developed countries, they can’t stop business owners to choose the lesser-risk option – obviously that’s to outsource.

  4. 4 Dhandapani Ammasai February 13, 2009 at 1:34 pm

    I concur with that Natarajan. If this trend continues, every one would become government employees in one form or the other.

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