Consider the Source

Globalization of Outsourced Services Industry

By Dinesh Goel, Partner, TPI

The outsourced services industry is morphing into a truly globalized industry – and sooner than later. This acceleration is fueled by the current recessionary conditions in the traditional markets of demand for outsourced services. I believe this is a desirable by-product of the current downturn.

Large service providers – both of multinational and Indian heritage – are challenged to achieve growth and profitability in their current large markets. However, if you carefully review the results of Accenture and IBM vs other (read: Indian heritage) providers, you will find that there is a much higher degree of resilience reflected in their results despite the current gloom and doom environment. What is that attributable to – clearly the good old principle of diversification of their books of business. Not all economies are reeling under the same degree of pressure, and on top of that, the emerging economies are highly under-penetrated (read: immature) in their services outsourcing. All in, it makes perfect sense for providers to look elsewhere when faced with challenges in the more developed markets hence their focus on markets such as India, Brazil, the Middle East, Central Europe, China etc.

Additional flavor of this globalization trend is that it is bringing home the point – one size doesn’t fit all – very emphatically to the providers. Each market has different nuances, and it’s not just a cost arbitrage (off-shoring) play. Markets are at different points of maturity in their trajectory of services outsourcing, not to mention very different economic growth rates, cultural and linguistic factors, regulatory scenario etc., thus requiring differing winning themes in creating healthy outsourcing demand. The value propositions range from variable capacity on demand, investments from providers for supporting high business growth needs, specific service delivery capabilities to increase speed to market or service delivery performance, innovative solutions, commitments to allow predictability of cost and performance over time, releasing management bandwidth to focus on core business, transferring the headache to service provider for delivering competitive services on a contemporary infrastructure, multi tenancy platform based solutions, etc or any combination of the above.

I believe this trend will compel the service providers to enhance the maturity of their service offerings and capabilities, thereby contributing to the overall higher level of industry maturity and globalization. Who said everything related to the current business environment is gloomy?

Peeling the IT Layers

Today’s guest blog on what a recession could mean for the IT sector comes from Dinesh Goel, Project Director, TPI.

The era of abnormal growth for India-based IT service providers is nearly over. They’ve reported lower growth rates on both top-line and bottom-line performance in their latest quarterly results.

So what does this mean? Is the IT sector heading for a downturn in the wake of a tough U.S. and global economic environment?

Most equity analysts are already moving India-based providers down to “underperform” or “sell” ratings. Newsprint is consumed with stories and interviews on how the tough business conditions will promote cost-cutting outsourcing and off-shoring. Bottom line is: there’s too much confusion in the marketplace regarding the performance of IT sector.

Desperate or Ambitious Sourcing?

Today's blog on current affairs and sourcing comes from Peter Allen, Partner and Managing Director, TPI.

Generally, I’ve found that clients of outsourcing are either desperate or ambitious. In today’s recessionary economic markets, there’s decidedly a desperate tone among the buyer executive team driving the introduction of change. Can you blame ‘em?

Look at the wide array of industry segments that are suffering from the economic spiral of 2008: mortgages, lending, transportation, hospitality, automotive, retail -the list goes on.

Many of the issues causing today’s economic pressures are here to stay for a long time. The energy problem is not going away. Credit will be in short supply.  Financial institutions are more risk averse. And inflation is a growing concern.  When these pressures take flight, it’s hard to catch up. 

Buckle Up for 2008

Today's blog on the state of the outsourcing industry comes from Peter Allen, Partner and Managing Director, TPI.

With the risk of sounding too dramatic, I think that 2008 is going to be a defining year for the outsourcing industry.

Whether the U.S. economy has entered a recession or not is still up for debate. What’s certain is that companies in consumer-oriented industries are behaving as if protection of profits and cash flow are much more important than driving growth.

How does this relate to outsourcing?

The 3C Sourcing Framework

Today's blog on the future of outsourcing comes from Peter Allen, Partner and Managing Director, TPI.

One risk of offering projections about the future is that astute observers will keep score. Alas, so be it.

The demise of the labor arbitrage era as it relates to sourcing is rapidly approaching. The labor turnip has been squeezed and a new era dawns.

When future historians look back on the timeline of services outsourcing, their archeological record will show a period when productivity mattered less than the ability to throw cheap labor at transactional work.  The ash layer of effort-based contracting will be strikingly thin, and it will serve as a distinct demarcation between industry eras.

It’s a Sourced World After All: Scenarios for a Recession

Sid Pai’s recent blog on a likely U.S. slump led me to conclude: Globalization means that contagion spreads quickly and broadly -- a large country’s pain causes the world to ache -- and the resulting economic fallout induces near-sightedness in senior executives. Recession leads to shifts in outsourcing trends, in turn requiring realignment of IT and business process strategies to take into account newly created risks and opportunities.

SHORT-TERM SLOWDOWN?

Today's blog on the effect that a U.S. recession could have on the outsourcing industry is by Siddharth A Pai, Partner & Managing Director, TPI India.

Despite the subprime crisis, most commentators, self included, doubted predictions of a U.S. recession a few months ago.  This confidence has steadily eroded. Concern about the global economy is mounting - the International Monetary Fund (IMF) has slashed its forecast for U.S. growth and warned that no country will be immune from a "global slowdown."  The U.S. Federal Reserve has announced stimulus packages of over $150bn and is cutting interest rates.