There is no doubt that this unprecedented financial services turmoil will have a long term impact on business. So what does all this mean for the future of outsourcing?
U.S. financial institutions have led the remarkable growth in offshoring. Liquidity issues for financial institutions means that their leaders are sharply focused on raising capital and financing. This intense focus on fundamentals is likely to consume their attention, delaying implementation or expansion of existing or new outsourcing strategies.
It may be more difficult for buyers to assess the financial stability and risk profile of outsourcer service providers if the outsourcers operates in multiple geographies and currencies. Edward Caso, an analyst at Wachovia Capital Markets LLC recently observed in his IT/BPO Services Weekly that "the rapid rise in the U.S. dollar relative to European currencies, as well as to the Indian Rupee during August and September is likely to lead to pressure on reported revenue but benefit operating margin when presented in US dollars. The revenue and operating margin are both likely to be positively impacted when results are presented in Indian Rupees. This will make deciphering weakening economic impact from "headline" results more difficult."
Outsourcers may be understandably reluctant to invest in the sometimes huge cost of implementation for complex outsourcing relationships if the client is financially unstable or the subject of takeover talks.
Downstream, corporations are facing a tight credit market and a slowing economy. How will job losses at home affect their appetite for outsourcing, particularly to offshore providers? According to Business World (link attached) New York's governor estimates that up to 40,000 jobs will have disappeared from Wall Street when the dust settles. http://www.businessworld.in/index.php/Economy-and-Banking/Wall-St-Job-Losses.html. The Hindu Business Line (link attached) says that "in the backdrop of an election year in the US, "job losses" are beginning to acquire political momentum and logic in their own right. At present, eight States in the US, up from five three months ago, have introduced legislation seeking a ban or restriction on outsourcing of government contracts." http://www.thehindubusinessline.com/iw/2003/11/30/stories/2003113000371300.htm
This rising grass-roots backlash by workers and the community is in direct conflict with companies mandate to maximize shareholder by value by stablizing and growing profits, particularly during a slowing economy. How will this affect the future of outsourcing and offshoring?
Linda Tuck Chapman is an outsourcing advisor with Ontala Performance Solutions. She can be contacted at ontala@rogers.com.