The Changing World of Outsourcing
by Linda Dailey Paulson
Recent studies by several organizations indicate there are important, sweeping changes under way that will significantly alter technology outsourcing, specifically the locations to which companies will send their work.
Offshore outsourcing still offers long-term cost benefits, but many companies may not want to start such expensive operations at a time of global economic problems, said Don Jones, international tax partner in the Technology Practice of BDO Seidman, an accounting and consulting firm. In January 2009, the company surveyed 100 US technology companies' chief financial officers (CFOs) about various industry trends.
The survey indicated a decline since 2008 in sending work to China and Southeast Asia, two major outsourcing destinations, in part because of supply-chain and shipping expenses, taxes, and the cost of complying with government regulations.
In addition, Jones noted, companies are reconsidering sending work to India, the principal outsourcing destination for years, because of a major local accounting fraud investigation and a large terrorist attack in Mumbai last November.
Increasingly rigorous tax laws and higher wages in India and China have also made these countries less attractive destinations.
Central and Eastern Europe, Latin America, and China will benefit from problems in India, the BDO Seidman survey found. The study said CFOs view places such as Dublin, Ireland; Santiago, Chile; and Singapore as significantly less dangerous than India's major outsourcing hubs.
The BDO Seidman survey found that safety will be a major outsourcing-related concern in areas with political instability or high crime rates, such as parts of Latin America and Africa. Safety will affect data-protection procedures, disaster management, insurance costs, and hazardous-duty bonus pay for employees, all of which could hurt outsourcing businesses and their customers.
The report also said that many technology companies in industrialized nations will want service centers in or near their home countries, in part to have more control over and access to activities affecting their outsourced work. This could force longtime outsourcers either to open branches in or near developed countries or to lose business.
The 2008 version of an annual study by the Brown-Wilson Group, an outsourcing research firm, indicated US firms may gradually return previously outsourced jobs to the United States because of political instability abroad, unemployment and falling salaries at home, and the increased cost of doing business in other countries.
In fact, the company dubbed 2009 as "the year of outsourcing dangerously."
Its study, based on online surveys and interviews with managed-services clients and corporate-development leaders, predicted that some locations in Central and Eastern Europe, Latin America, and China would supplant India as preferred outsourcing locations.
KPMG, a professional services firm, also conducted an outsourcing study. The report said outsourcing trends will change because of factors such as the global economic downturn and saturation in traditional outsourcing destinations.
The report named 31 emerging outsourcing locations, including Belgrade, Serbia; Boise, Idaho; Buenos Aires, Argentina; Ho Chi Minh City, Vietnam; Indianapolis, Indiana; and Port Louis, Mauritius.
News Briefs written by Linda Dailey Paulson, a freelance technology writer based in Ventura, California. Contact her at ldpaulson@yahoo.com.
