Not exactly an outsourcing backlash -2009..

Though some predict an offshoring backlash in 2009, it’s still hard to dismiss the fact that companies looking to save much needed cash to continue operations would ignore the idea of outsourcing. Who wouldn’t want to save money given the global economic crisis and increasing competition?

According to Gartner analyst Linda Cohen, “Whenever there’s a downturn people outsource more, not less. Organizations want to take costs out wherever they can. CFOs are pounding on their CIOs to just outsource it, just offshore it.”

Eugene Kublanov, CEO of California based outsourcing advisory NeoIT, agrees with Cohen. He believes: “The difficult economic conditions will push companies further than before to consider what stays in house and what gets done by others. Additionally, demands by the business for further cost reduction will need to be addressed in an environment where many companies have already leveraged labor arbitrage to source the low-hanging fruit.”

The outsourcing industry has its ‘cheap costs’ provision to thank for its staying power, but relying on this for corporate strategy could spell disaster. Recent developments at Satyam’s fraud scandal sent shock waves not only to clients but to the whole outsourcing industry. As clients evaluate their options, so should outsourcing providers.

Offshore providers need to re-evaluate their market positioning as Vamsee Tirukkala, Co-Founder and Managing Principal at Zinnov LLC explains: “We now expect the clients to closely evaluate options of setting up their own captive centers or alternatively also opt for new vendor evaluation techniques. In fact for those who have operations for very many years now, we feel that it’s the right time for them to consider options of having a direct presence or local program management offices for better control.”

Given that third-party providers need to have another look at their corporate strategies, one would think ‘outsourcing innovation’ is the key to all this right? Wrong. “The focus will shift away from open-ended efforts. Buyers will not have much appetite for transformation in 2009″, says Stan Lepeak, research director of outsourcing consultancy EquaTerra. Outsourcing innovations, such as greening of IT outsourcing deals that blossomed in 2008, all of these would take a back seat as clients will push offshore providers to further lower their costs.

On another note, Rajiv Mathew, VP for corporate communications at technology consulting firm ThoughtWorks, shared his thoughts on the possible steps the Obama administration would take to keep the US economy afloat. Matthew believes “Obama will be cognizant of the importance of outsourcing to the American economy and will probably take a calculated risk, if at all he makes any amendments to the current outsourcing polices.”

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