Outsourcing demand remains steady driven by recession, says EquaTerra
Organisations looking for ways to cut the basic cost of doing business are fuelling steady demand for global outsourcing services, according to EquaTerra’s Q209 Advisor and Business/IT Service Provider Pulse Survey.
For most outsourcing buyers, the continued recession has shifted the goal of outsourcing from achieving competitive advantage to weathering the economic storm.
Stan Lepeak, MD of global research for EquaTerra, commented, “The fundamental motivation for outsourcing has always been cost savings. Now, that aspiration has become a mandate, driving narrowly focused, low-risk deals with specific cost-saving targets.”
Key findings from EquaTerra’s Q209 Pulse:
• Hot on the heels of a first-quarter surge in demand for business process/information technology outsourcing, demand in the second quarter remains steady with 46 percent of EquaTerra’s client-facing advisors citing increased demand (down only 3 percent quarter-over-quarter) and 65 percent of the service providers polled reporting continued growth in their new deal pipeline, up 8 percent over last quarter and 13 percent year-over-year.
• A majority of service providers polled (58 percent) cite the stagnant economic climate as fuelling demand for outsourcing, a jump of 20 percent from last quarter and the fourth consecutive quarter the percentage increased.
• Given the high-stakes nature of current outsourcing deals, EquaTerra’s Q2 Pulse polled both its advisors and service providers to pinpoint the most frequent cause of failure to meet outsourcing objectives. Not surprisingly, respondents flagged transition issues and observed that getting off on the wrong foot at this critical stage in the process typically proves to have a lasting negative impact.
• EquaTerra advisors pegged the two most common transition-related issues subsequently resulting in failure to meet cost-savings goals as being insufficient transition management by both parties and a lack of understanding of the deal/scope. Service providers (71 percent) attributed failure to meet objectives to an inability to form effective relationships and poor program governance during transition.
Since Q307, the last time EquaTerra polled to determine the hottest geographical destinations for both near and offshore outsourcing services, numerous factors have contributed to alter the global outsourcing landscape: the maturation of the industry and emergence of new outsourcing destinations; the expanded footprint of traditional offshore providers into emerging locations; industry upheavals caused by terrorism and financial fraud resulting in a flight to established providers and lower-risk geographic destinations; and prolonged economic recession, which has bolstered nearshore markets in South America and Central/Eastern Europe as U.S. and Western European buyers opt for outsourcing solutions closer to home where there is a perception of greater control.
In the Q209 Pulse, EquaTerra advisors and service providers identified India, Central/Eastern Europe and South America as the top three destinations for outsourcing, followed closely by the Philippines. While India remains the preferred location according to both advisors (61 percent) and service providers (60 percent), the level of preference has fallen dramatically, declining over 20 percent in last 24 months. India is still the top choice for IT outsourcing, but it has been steadily losing ground in business process outsourcing to emerging locations, especially China and South America.
This shift is attributed to the growing number of viable destinations coupled with the availability of outsourcing opportunities within destination domestic markets, and, in the case of South/Central America and the Philippines, desirable language skills. It’s important to note that while preference for India as a destination may be eroding, Indian service providers are still powerful players in the global outsourcing market and have expanded operations into emerging geographic locations to retain their competitive edge.
“What we’re seeing is the maturing of a worldwide industry and the emergence of a true global sourcing model where buyers deploy and manage global service chains just as they have global supply chains,” said Lepeak.