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February 19, 2009

Increased U.S. Outsourcing, Less Offshoring: Report

By Brendan B. Read, Senior Contributing Editor


A new report by Technology Partners International (TPI) predicts that there will be an upsurge in outsourcing by American firms later this year as they seek to reduce operational costs and improve productivity.
 
Yet more of that demand will likely be handled domestically, including in contact centers, rather than offshore. As a byproduct there may be more mergers and consolidations amongst outsourcers that may result in a stronger outsourcing industry.
 
The study, Outlook for the Global Outsourcing Industry in 2009, identified the global economic crisis and a projected long recovery time as outsourcing drivers. Declining consumer confidence and spending and credit erosion are acting as catalysts favoring outsourcing to enable firms to get through the downturn.
 
At the same time it pointed to growing concerns about the stability of offshore outsourcing as exhibited by the scandal surrounding the Indian outsourcing firm Satyam and the Mumbai terrorist attacks. These factors, along with higher unemployment that will curb costs and growing political pressure to lower joblessness, may keep much of the outsourcing work in the U.S.
 
TPI is expecting that the Obama Administration to launch initiatives, which, coupled with possible tax benefits to encourage onshoring, would offset the cost savings of sending contact center/IT work offshore. That in turn may lead to offshore outsourcers pressing for tax benefits in their home countries, setting up an incentives war.
 
“The United States is likely to employ policies to try to stimulate more domestic and less offshore outsourcing,” predicts the TPI study. “For the United States and other suffering Western economies, data privacy could become a weapon to force companies to ‘comply’ with locating work in a particular location because it may be the only ‘stick’ available to counter the ‘incentives’ to move work.”
 
TPI believes as an outcome of these trends existing captive offshore operations may be divested or restructured for higher value i.e. between commodity and non-commodity work as part of broader industry consolidation to create large service bureau capabilities. Coming out of the recession, which will likely be in late 2009, the firm expects to see a strong global outsourcing industry with four to six large, dominant providers.
 
“These market changes will fuel tri-lateral consolidationamong India-based service providers, U.S. - and Europe-based infrastructure providers, and the divested operations of cornerstone client corporations,” says TPI. [The outsourcing industry changes] will provide resiliency to the ecosystem that services the needs of major corporations. Ultimately, that ecosystem will service the needs of middle-market buyers as well.”

Brendan B. Read is TMCnet’s Senior Contributing Editor. To read more of Brendan’s articles, please visit his columnist page.

Edited by Stefania Viscusi


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