BANGALORE, INDIA: The ripple of global economic downturn continues to impact the foundation of outsourcing industry, both near and long-term. Service providers are experiencing impact of sluggish growth, decreased margins and employee downsizing.

Service buyers are reducing IT budget allocations, but are still under tremendous pressure to reduce cost and survive.

Despite this lingering cloud of uncertainty, the long term demand for outsourcing remains intact. Decreasing margins will push providers to better utilise existing resources, leverage operational levers, implement new technologies efficiently to differentiate themselves and improve service delivery processes.

Clients, with reduced IT budgets will be more selective – demanding stringent SLAs, greater contractual flexibility and output/result based payments.

Avinash Vashistha, CEO, Tholons, says: “Service buyers will need to re-assess their outsourcing strategies and implement a better mix of multi-sourcing, nearshore and offshore models, while service providers will look to tap growing domestic markets (such as China, India, Argentina, Brazil and even the US) as a means to hedge against the volatility of existing offshore contracts.”

These shifts will significantly induce a high degree of consolidation - smaller and less efficient providers may face difficulties in tapping new revenue streams and will be prone to acquisition or outright dissolution.

Paul Santos, MD, Tholons Capital, says, “It’s an opportune time for the larger players to continue their string of strategic, niche acquisitions. In an increasingly competitive market, and improbable economic state, the mantra of only the strong will survive has never been more relevant.”

Tholons, an advisory, investments and research firm for IT/BPO/KPO services globalisation, predicts the following top 10 trends that will shape global outsourcing in 2009:

1. The market downturn will impact revenues during the first 2-3 quarters
2. Focus on domestic market to increase
3. Global economic downturn will lead to increased outsourcing in healthcare, education, retail, telecom and legal process outsourcing (LPO)
4. Governments to take special initiatives in promoting destinations
5. Clients will increase geographic diversity in their service delivery locations
6. Pricing pressures will result in reduced rates and new measures to achieve cost savings and higher productivity
7. Consolidation imminent for small players - focus away from large deals
8. Outsourcing revival by 2009 end - driven by small to mid sized (SME) clients
9. Strong focus on innovation, R&D and technology adoption will be key differentiators for providers.
10. Sourcing deal sizes will increase for large clients