Offshore outsourcing in trouble?

By admin, July 21, 2008 4:34 am

I wouldn't have thought so, looking at any of the numbers in recent off-shoring trends: revenue up, customer numbers up, hiring up, and the traditional driver of off-shore outsourcing, domestic costs, rising. But Larry Dignan puts together some signs that all may not be well on the offshoring front.

Dignan puts together cautious statements from the Big Three Indian off-shoring firms (Wipro, Satyam, and Infosys) together with some missed expectations and some indicators that off-shoring certain functions can be damaging and that CIOs are beginning to realize the fact, and comes up with the idea that off-shoring firms may be nearing a point where significant spending cuts will be in line.

I don't buy it. While of course any serious degradation in the global economy will effect off-shoring firms along with their domestic clients, necessarily, the cautious outlook seems to me to be more related to that factor than the idea that off-shoring itself may be losing its luster. The statements from the chairmen of Satyam and Wipro, and the CEO of Infosys, do not read to me like anything other than the typical downward guidance that any prudent executive might be offering in these times. But with growth in the 40% range over previous year for all three companies, anything short of a global economic disaster is unlikely to cut into anything except the growth rate, leaving the core business and revenues Untouched.

We've been conditioned to relate economic downturns with cuts in IT spending, but although the economy hasn't exactly been healthy in the US of late, it doesn't seem to me that the prophesied woes in IT budgets have materialized. I think that once upon a time, the combination of the expense of IT and the relative lack of understanding of technology (which is what has lead to many of the incidents of overspending) made technology an easy mark for cuts, but an improved understanding of the competitive advantages (or requirements, at least, if one is not to fall behind ones competitors) and an increasing sophistication in integrating technology with business processes has trimmed the excesses that once existed considerably. There just doesn't seem to be as much fat to cut, to me, without digging into the muscle of IT organizations and doing more harm than good.

If that thesis is correct, then most CIOs shouldn't have to worry excessively about trimming budgets, and to the extent that they do, outsourcing (including offshoring) may well be more appealing rather than less. If you have to make alterations in your operations due to budgetary concerns, better to make them flexible and scalable, and those are exactly the advantages that outsourcing offer.

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