Saturday, January 19, 2008

Worldwide Outsourcing Industry Rebounding

Equaterra, one of the leading outsourcing advisory firms, just released its latest quarterly report on worldwide outsourcing activity, based on a survey of its advisors. From its press release:

"Despite fear of a recession in the U.S., jitters on virtually all major stock exchanges worldwide and widespread cut-backs in corporate spending, EquaTerra’s 4Q2007 Pulse surveys revealed that outsourcing demand is rebounding, with continued strong growth in EMEA (Europe, Middle East and Africa) and a substantial increase in North America. In fact, 70% of EquaTerra advisors cited increased demand levels for Information Technology (IT) and business process outsourcing in 4Q07, with demand up 19% over 3Q07, up 24% over 4Q06, and at the highest level recorded since 2Q05. Further, 59% of service providers cited new deal pipeline growth in 4Q07, and 57% expect demand to increase in 1Q08."

Reasons for the recent rebound in outsourcing demand include:

1. Increased focus on the bottom line and cost reduction (one benefit of an economic slowdown?)

2. New and growing areas like legal and knowledge process outsourcing, and document and electronic records management

3. More but smaller outsourcing deals spread across a greater number of service providers and delivered on a more global basis

Bottom Line: Today's inter-connected global economy, fueled by worldwide outsourcing, represents a fundamental shift in the way the world operates, probably in ways we haven't even fully appreciated yet. Worldwide outsourcing opportunities are increasing continually, which in many important ways serve to increase the resiliency, flexibility and strength of both the emerging economies and the advanced economies like the U.S. Isn't it possible that globalization and outsourcing help to support and insulate the U.S. economy from significant economic downturns and recession?


At 1/19/2008 2:27 PM, Anonymous Anonymous said...

"Isn't it possible that globalization and outsourcing help to support and insulate the U.S. economy from significant economic downturns and recession?"

well, yes and no.

all three reasons listed deal with sending jobs overseas for cheaper labor.

so, yes, business can cut costs and manufacture/sell overseas, increasing profits

but, no, US labor falls farther and farther down the slippery slope as jobs are sent overseas, and wages decline for those that workers that still have jobs. disposable income stagnates or falls.

what is "the economy" that is being supported? business or labor? if profits are up, but disposable income is down, is the economy being supported?

i don't know the answer, just asking you. hope you will address this in the future

At 1/19/2008 7:34 PM, Anonymous Anonymous said...


If all jobs are being outsourced, how do you explain the unemployment rate in the U.S. at only 5% or that the U.S. Dept. of Labour reported net jobs created every month of last year (ie. jobs created less jobs lost)?

It is true that some of the lowest skilled and lowest paying jobs like garment manufacturing have gone offshore. Now, Vietnam and Indonesia have the sweat shops that the NY garment district used to have. These jobs offered substandard working conditions, no health care benefits, little opportunity for advancement and starvation wages.

There are still many good paying blue collar jobs ie. manufacturing such as pharmaceuticals, and high skilled jobs ie. welding technicians, electricians, plumbers, longshoremen, crane operators, truck drivers, etc. which are unlikely to be outsourced to another country. Just how do you get someone to install a light fixture from China?

The idea of using growth in one market to help offset downturns in other markets is a concept that businesses have been using to offset risk across several regional markets within the U.S. for decades. Applying this business principle to global markets would seem little different from having operations in different states.

What you seem to miss is that China and India are not merely a source of cheap manufactured goods but have become customers for finished goods as well as raw materials. Many commodities such as wheat, soybeans, iron ore, oil, etc. are reflecting increased demand from China and India. China for example can no longer supply its own requirements for soybeans for livestock and must import soybeans from the U.S. Soybeans are a crop that originated in China.

Isn't it better that the world economy is becoming less dependent on the U.S.? Isn't a multi-polar world more economically resilient than a uni-polar world? Other countries that have been helped by the U.S. in the past are now able to help the U.S. through their sovereign wealth funds.

That would seem to be an improvement from a world where the U.S. is responsible for all of the world's ills and gets little thanks for its efforts either philanthropic, diplomatic or military.

At 1/30/2009 10:28 AM, Anonymous Stan Lepeak said...

Mark - thanks for the pick-up and go blue!

Stan Lepeak (EQ research, U of MI '85, Saginaw St Stephens '81)


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