The US economy is vastly involved in most of the world economies, and any major slow down might lead to a global recession. Slowing down of US economy means that companies ,industries and organizations in US that outsource are evaluating the recessionary trends. This might automatically translate into more interest in offshore outsourcing. Outsourcing could be is a strong business proposition in good times, and it's an even stronger proposition when bad times last. Offshoring will grow over the long term, since it drives cost savings. However, this might not be quite so in the short term.

With advert of the outsourcing boom, many IT/ITES companies have been riding the wave of outsourcing, growing by leaps and bounds. Major low-cost outsourcing destinations like India, Ireland, South Africa, Philippines have benefited from outsourcing, especially by companies from the USA. It was like the outsourcing industry around the world was run as a subsidiary of the US/European economy. However, since last 6 months, the US economy has undergone major changes. There has been a severe sub prime crisis hitting the economy, with the US dollar value has depreciated to record levels.

The credit crunch might have a positive or negative effect on the outsourcing industry. Downturn in the US economy plus possible recession means technology and outsourcing as solutions to the need to slash overheads and minimize any negative impact on the bottom line. The truth is that the US economy is at an unpredictable tipping point. If a very serious recession hits, then companies might actually scale back on outsourcing – this would be the result of service companies having less customers, therefore needing less service provision and therefore believing that a scaled-down internal team would suffice as opposed to an outsourced department.

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The drive for efficient business services sweeps over national boundaries, but ignores cultural differences at its peril

More UK companies are setting up fully staffed offices abroad — while at the same time, the locations from which outsourced services can be provided are proliferating all over the globe. And between these twin trends, the distinction between outsourcing and offshoring is becoming blurred.

“The difference is clear: are you buying from someone or doing it yourself?” explains Mark Kobayashi- Hillary, offshoring director of the National Outsourcing Association and author of books on the subject. “Outsourcing can remove a lot of headaches: logistics about finding offices or training people, particularly from a different culture.”

The advantages of offshoring, however, are similar. “Cost is the main driver, without a doubt,” says Philip Carnelley, senior business adviser at the Hackett Group, a global strategic consultancy firm. Wage differentials between the UK and other countries, particularly in Asia, account for the vast bulk of offshorers’ savings.

The fact that IT operations are often overhauled at the same time as being offshored makes it difficult to separate the different strands of cost reductions, but Hackett estimates potential savings for companies with a global reach of more than £19m a year by a combination of process transformation and offshoring.

Sometimes it is more a question of certainty of cost, rather than simply a cost reduction, that provides the motivation for change. If companies want a set annual fee to help with budgeting, then outsourcing — which may well be done offshore — could provide the solution.

Source: timesonline.co.uk

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