Outsourcing to Indian outsourcing companies continues despite economic slowdown in the West

At the peak of the global recession in early 2008 there were dire warnings of Western clients pulling out of outsourcing destinations such as China, the Philippines, and Malaysia. There were predictions that the powerhouse of global outsourcing, India, would take a major hit in terms of revenue and growth projections of outsourcing-especially in outsourcing of IT and ITES.

But in 2010, when the last fires of the financial crash have been all but doused, global outsourcing, and outsourcing to India, is still going strong.

In fact, quite recently, American computing and IT giant IBM announced that it will be scaling up its Business Process Outsourcing (BPO) operations by hiring at least 5,000 people in 2010. This is a vote in confidence in favor of Indian outsourcing and the worldwide outsourcing industry.

IBM said that it has faith in India's service sector and the economy in general. While announcing plans for fresh hiring, it put particular emphasis on software-related services and HR activities of major manufacturing companies as the drivers of outsourcing spend in India in the next 12-24 months.

In spite of economic conditions being tough in 2008, IBM did not lay off a single employee in India. This is bound to have a relaxing effect on many companies, especially those in computer hardware and software, who might be vacillating between stay or flee mode.

Another U.S. firm, CSC, a global leader in providing technology-enabled business solutions and services, maintains that the outsourcing business remains firm despite economic gloom.

According to CSC's President Lemuel Lasher, the company is seeing a continued interest in outsourcing. Global enterprises continue to explore opportunities to bring in operational efficiencies and cut costs through outsourcing, and outsourcing has remained an enduring trend even in the downturn.

In October, 2008, when the downturn was dying out, research companies dedicated to outsourcing carried out surveys of major clients. As per their research, India's software and BPO industry is projected to grow by 15 per cent annually till 2010-11 to log export revenues alone of $60-62 billion.

Many major management and technology consultants have even defined growth areas in international outsourcing. Financial services, manufacturing, health services, consumer end technology, chemical energy and natural resources, and the public sector-will attract major outsourcing projects.

So one can say that's it's more or less established that the outsourcing business did take a dip, but has come back roaring-with many companies now thinking of how to get even more value for each dollar spent in outsourcing.

Within this debate and the continuing larger trend of outsourcing's forward momentum, there's an emergence of two sub-trends, which are likely to define the future of outsourcing spend and structure.

The first is technology and Internet-enabled technologies.

Experts say that technology innovation, enabled by the Internet, will generate demand for outsourcing, and has sustained outsourcing during the time opponents of outsourcing in the U.S. and Europe were demanding cessation of outsourcing and offshoring to protect jobs.

For the Indian outsourcing industry, technologies in the form of cloud computing, web services, virtualization and new media, social networking, etc., and the demand for increasingly complex software and software-enabled services will most likely enable it to ride another outsourcing boom in another 2-3 years.

The second trend is related to businesses taking longer to evaluate operational activities and outsourcing relationships. This is resulting in companies signing Service Level Agreements that are stricter and incorporate costs of outsourcing as a key result area.

Lifesciences IT outsourcing is a case in point when it comes to controlled and performance-based outsourcing.

Pharmaceutical companies are moving to outsource operations to countries including India, China, and Singapore as a cost-cutting measure. Despite the pharmaceutical industry increasingly rationalizing and rightsizing its outsourcing, this still presents a substantial market.

New analysis from Frost & Sullivan, a leading US-based business consultancy, in Lifesciences-IT, finds that the market was worth $26.5 billion in 2008, and is estimated to reach $41.6 billion in 2015.

According to a Frost & Sullivan Industry Analyst E. Sujith, "The Lifesciences industry is focusing on outsourcing its operations to reduce costs-creating a new market for vendors of IT solutions."

Thus, the IT cost efficiency compared to productivity of the business in exploring the cost, is now a corporate wide strategy for maximizing business productivity from costs.

Outsourcing, as a cost-advantage tactic pre-recession, is now morphing into a time-tested strategic tool that is learning to balance cost and value creation in favor of the latter.