Outsourcing emerging as recession-proof biz tool: Equaterra survey

UK: The Q307 Pulse Surveys conducted by EquaTerra (incorporating Morgan Chambers) has revealed that demand for IT and BPO is improving, and is especially strong in the European, Middle East and Asian (EMEA) markets indicating that

outsourcing is becoming a recession-proof business tool for financial services and other industries.

The pick-up in outsourcing demand is strong across all major industries, and is occurring even as growth in many vertical markets, such as financial services, is challenged by a range of economic and demographic challenges.

The surveys show a consensus between EquaTerra and Morgan Chambers advisors and the service providers in that while the recent turmoil in the financial services industry could slow some outsourcing efforts in the short-term, and continue to negatively impact some providers the longer term expectation is that outsourcing in this industry will grow as buyers seek to reduce operating costs, avoid investments into new systems and capabilities, shift focus to more strategic activities, and leverage their growing supply of skilled global resources.

This trend in financial services illustrates that outsourcing as an industry has become “recession-proof”, and that outsourcing is a tool buyers use in 'up markets' to improve performance  and in ‘down markets’ to reduce costs and remain competitive. EquaTerra (incorporating Morgan Chambers) expects this trend to play out in other industries that are negatively impacted by economic and demographic factors such as aging workforces and weak local labor pools. These industries include consumer packaged goods, healthcare, public sector and retail.

Stan Lepeak, EquaTerra’s Managing Director of Research explained: "The findings are generally positive in terms of the growth, maturation and globalisation of both the ITO and BPO markets. While buyers still experience challenges with their outsourcing efforts, overall results have met or exceeded expectations, which has enabled outsourcing to become a commonplace tool that – regardless  of broader economic and market conditions – buyers employ in an effort to improve their process delivery and reduce operating costs."

Other key trends identified in the Pulse Surveys include:

Overall outsourcing demand growth: 51 percent of advisors noted that demand for outsourcing services was up in quarter 3 2007, and their outlook for 2008 was optimistic.  Demand growth was strongest in the ITO market segment and in the EMEA market geography.  Demand for Finance & Accounting Outsourcing (FAO) outpaced that for Human Resources Outsourcing (HRO), though there are signs of improved HRO demand in EMEA.

Globalisation of outsourcing: The use of remote, lower cost offshore resources to deliver ITO and BPO services continued to grow during quarter 3 2007. However, wage inflation in leading offshore markets like India, and the falling value of the U.S. dollar negatively impacted margins of service providers with extensive offshore operations. This, coupled with changing buyer demands and the need for service providers to access talent with more diverse skills, drove the expansion of delivery capabilities into locations like China, Central/South America and Central/Eastern Europe.

Investments in the India market remained strong, however, for both captive and outsourced delivery capabilities, and Indian service providers continued to broaden their delivery capabilities into BPO and newer ITO areas like remote infrastructure management.

EquaTerra’s 3Q07 Outsourcing Pulse Surveys were conducted among its own advisors and a wide variety of leading service providers to reveal in-the-field insights into ITO and BPO activity from July to September 2007.