Dallas, TX - 26th December 2007 -
The tsunami of sourcing has only just begun, says outsourcing industry
visionary Ben Trowbridge, CEO of outsourcing advisory firm
Alsbridge. In his 2008 predictions released this week, Trowbridge
believes landslide economic drivers will continue the global
redistribution of labor to its natural location and push offshoring and
outsourcing to new heights. The speed of this move will be driven
by continued high energy costs, the restriction of capital access
driven by the sub prime meltdown and low unemployment in technology and
accounting.
These forces will drive providers and buyers to evaluate more clearly
their options based on the emerging economic facts of 2008.
Trowbridge says outsourcing providers and buyers will make strategic
decisions in 2008 based on how their business is affected by the sub
prime market, oil price increases, offshore wage inflation and the
falling value of the U.S. dollar.
“Even though the last few years have seen a strong economy,
outsourcing has continued to be a major strategic driver for the top
1000 U.S. companies,” says Trowbridge. “The slowing and
changing direction of the economy has caused the boardroom to evaluate
yet again steps to control costs and an even greater interest in
outsourcing to offshore locations.
Trowbridge predicts the following outsourcing trends for 2008:
1. Currency issues will plague the entire outsourcing community,
lengthening sales cycles and increasing legal debate about price
increases. This will drive the need for expanded benchmarking to
define the real issues. The weakening dollar will drive companies to
evaluate regions that are closer or that have fewer fluctuations in
their currency against the dollar. The uniformed that rely on
Google facts will worry about labor cost inflation not understanding
the true issue.
2. Access to capital driven by the distress in the
sub prime mortgage industry will continue to ripple through business,
driving a need to reduce SG&A and improve financial performance.
3. Outsourcing will increase dramatically in the
mid-market which will cause the outsourcing providers to re-think their
cost of sale.
4. The U.S. Government will outsource more
functions to onshore providers. The dilemma will be how much the
government is prepared to allow moving offshore given base political
pressure.
5. The leading offshore providers will increase
their U.S. workforce as a result of the stronger rupee, adding more
sales and marketing functions.
6. The offshore providers will continue to be
taken more seriously in complex “up the value chain”
projects and services.
7. US providers will struggle with innovation due
to the pressures of their low-margin contracts. The India-based
providers will struggle but also improve their position as
innovators.
8. US based outsourcing providers will still
continue to be hesitant to address their high-cost, back-office
functions. This blindness will leave them vulnerable to a host of
outside forces including hostile acquisition and the toxic effect of
low-margin and low-growth sales.
9. Human resource outsourcing will continue to be
evaluated and outsourced by clients. The providers will wallow in
low-margin, overly complex contracts with low client satisfaction
levels. The need for the value-added HRO innovator will continue
to grow.
10. Finance and accounting will continue to be
evaluated and in many cases outsourced. Providers will have
relatively high levels of satisfaction. More transaction pricing
for F&A services will emerge.
11. ITO will grow and be redefined this year with
a growing split in value-based contracts and low priced, resource-based
contracts. Project management and client confidence in the
ability to deliver will drive the decision.
12. The tipping point for the legacy U.S. based
outsourcing firms may be near. If they increase their
profitability a few mover points with current low share prices, they
could become attractive to acquisition by an India based
provider. Up until now, the US based providers have not been
attractive acquisition targets as they would be dilutive to their
shareholders. Watch TCS and Infosys this year. Private
equity will again make a move. While the ACS deal did not happen,
look for others to come calling.
13. Tier Two Indian companies, including Patni,
WNS, Genpact, HCL and ICICI will have a terrific year, moving faster
than their larger competitors and grasping first mover advantages in
new outsourcing spaces, including engineering, legal and
marketing.
14. Companies will choose to locate into new
countries after careful evaluation. The list of proven,
sustainable and accepted locales for outsourcing will grow with Mexico,
Vietnam and Bulgaria among others making new headway.
15. Indian tier two cities will become more attractive
16. Contrary to other reports offshore will have
net growth again in 2008 driven by Shared services, where companies
operate the offshore center themselves. This strategy will
continue to be the hidden offshore driver, representing as much as half
of all offshore positions generated in 2008.
Trowbridge says his company gathers data from a variety of sources,
including customers, providers, government agencies, research firms and
trade and business media from around the world for the use of helping
clients make informed decisions.
“Uncertain economics should make 2008 an aggressive year for
outsourcing and offshoring,” says Trowbridge. “Those that
implement the right strategic moves will benefit from not only
competitive costs, but innovation and market leadership as a result of
collaborating with the strongest outsourcing providers.”
About Ben Trowbridge
Best known as a thought leader in the evolution of outsourcing, Ben
Trowbridge has more than 20 years of diversified global
experience. As a senior consultant, buyer and provider executive,
he has led hundreds of outsourcing, shared services and offshore
transactions ranging from $150 million to $2.2 billion for a variety of
activities such as F&A, HR and IT across multiple industries to
include: transportation, consumer products, telecommunication,
manufacturing, retail, technology, entertainment and energy/utility
industries. Additionally, he has developed a number of successful
sourcing models to include the Sourcing Alignment System (SAS),
JVsourcing Methodology, FastSource and the Market Reality Assessment
(MRA). In acknowledgment of his achievements Ben has been nominated for
various Innovations in Outsourcing awards and is a recognized leader in
all areas of IT and BPO sourcing and relationship management
Ben previously served as Managing Partner and as a Founder of Ernst
& Young's Outsourcing Services Business, which was sold, as part of
one of the largest consulting services sale to Capgemini for $10.5B
Euros in 2000. Prior to Ernst & Young, Ben served in a variety of
executive roles at EDS during a number of high growth years. Prior to
his civilian career Ben served in the U.S. Marine Corps attaining the
rank of Captain.