Forget Inflation. It’s Deflation Time.

In only a few months the global economy deteriorated with incredible speed and with it came deflation worries. Economic forecasts are clear and so too is the news: consumer and producer prices exhibited a jaw-drop last month in the U.S. with deflation risk rising. But will the outsourcing industry deflate as well? Probably not.

The goods, labor, commodity, and financial markets are all sending the same signals, and no matter what side you take on the issue, deflation is a risk. On a macro level, businesses will look left and right to shorten purchasing cycles, improve productivity levels, and substitute services to maintain profits. Many will try to replace long-term contracts with short-term, deflation-sensitive agreements. That’s because the bottom line is highly sensitive to price adjustments.

And this will have a direct affect on the outsourcing industry. For one, it’ll attract new business as many are facing a decrease in producer prices that will squeeze profits. When they realize it’s cost-effective to buy services instead of laboring in-house, they’ll turn to service providers to weather the storm.

Source-TPI