Software Outsourcing and Recession - Is offshore outsourcing a good business decsion during recession?
Is outsourcing a good business decision during recession? This is a much-discussed question in business circles these days. The global economic slowdown led by the US recession has impacted both big and small businesses worldwide. Business revenues and profit margins have shrunk drastically, forcing businesses to rationalize their operational expenses and adopt stringent cost cutting measures.
However progressive business leaders and entrepreneurs have learnt to accept and respond the new market reality quickly. They are beginning to revise their business strategies to cope with the economic slowdown. All possible measures are being taken by big and small businesses to survive the recession. This includes enhanced focus on cash inflow, increased emphasis on project turnaround time, greater attention to process quality and cost cutting measures at all levels. Owing to the US recession and global economic slowdown, IT outsourcing and offshoring IT Services are valid cost cutting options to be evaluated. Big and small companies are beginning to view IT Oursourcing and Offshoring as business critical decisions.
Have companies cut down on Software outsourcing or is it otherwise?
A recent Forrester Research survey shows that while 46 percent of 258 Global 2000 enterprises have already cut back their IT budgets, only 21 percent have cut back on their IT services or IT outsourcing spend.
"The primary value proposition of a good IT services [outsourcing] deal for enterprise IT buyers is lowered costs, improved processes and streamlined operations." Says Paul Roehrig, principal analyst at Forrester Research.
"For the enterprise, outsourcing could help the total spending go down even though outsourcing revenue for the service provider would go up." Says Roehrig.
The latest survey of over 100 UK businesses carried out by Equaterra revealed that the US recession has not reduced the demand for IT outsourcing. This study was conducted recently during the current economic slow down.
"[We] have not found any indication that economic conditions will significantly negatively impact outsourcing demand in the UK market. Indeed [we] expect that economic conditions will further drive demand for outsourcing as UK organizations more aggressively seek means to reduce costs, defer or limit future investments, and realign operating models to lower revenue levels." Said Equaterra.
Outsourcing is a strategic decision for providing business value and not just cutting costs
Outsourcing is the preferred choice of businesses, which seek to avoid adding head count or investing in new technology during the recession. CEOs and CIOs who currently invest in outsourcing will continue that trend through the economic slowdown. Owing to the cost cutting mandate driven by recession big and small companies, which have not previously considered outsourcing, are likely to turn to outsourcing.
In addition to large businesses, which opted for outsourcing in the past, hundreds of thousands of small business and medium sized enterprises are waking up to benefits of offshoring and outsourcing due to the economic slowdown. Outsourcing is as much a viable cost cutting option to the small business as it is to large enterprises. The key is to identify the right outsourcing partner.
The IT outsourcing and offshoring did have its roots in cost arbitrage. However today, decision makers understand that IT offshoring or outsourcing decisions cannot be made purely on the basis of cost alone. Businesses worldwide know that an outsourcing partner who offers a lower cost or makes stretch promises comes with a huge business risk. The outsourcing industry has matured over the years. Only those players with the right balance of competencies, quality consciousness, project management skills and ability to deliver solutions at competitive rates have retained customers and remain viable.
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