Who Will Swim to the Top?

 

Guest Blog by Brian Smith, Partner & Managing Director, FSO Services North America, TPI

Today's crises are tomorrow's opportunities, and this credit-squeeze induced economic slump is no different when it comes to the outsourcing industry. In fact, once the dust settles in the first half of 2009, expect to see an increase in market activity as well as some major paradigm shifts. That's because companies operating with legacy infrastructure and tools are under tremendous pressure for productivity gains.  Many have been looking to modernize and run their operations using state of the art infrastructure and tools, and now more than ever have a reason to look at ITO and BPO service providers. This is true for the conservative types as well. For example, the insurance sector has generally been slower to utilize the global marketplace. The current market conditions present an opportunity for conservative financial firms to take advantage of available capability at a potentially attractive price. In fact, demand has thus far exceeded supply in terms of offshore resources, and its probable reversal will depress prices. This price fluctuation will be accompanied with supply and demand for per transaction pricing, resulting from the tremendous crunch on credit. With tight credit, the needs of major firms, many of whom own captives, have changed such that captives will shrink and experience diseconomies of scale.  This will cause more firms to consider selling, restructuring or closing their captives, which are generally not as efficient as third parties anyway. And that opens up the doors for potential buyers or later entrants to the offshoring market. But as bankrupt or merging firms shutter or consolidate captives, markets which are currently viewed as rich in qualified resources, but tight in available qualified resources (Bangalore, Mumbai, Dublin), may start to be more attractive to firms whose goal is finding qualified people. On the other hand, more capability could become available in the US, which could cause a rethinking of offshoring strategies that have been focused on capability acquisition rather than cost reduction. At the end of the day, as institutions merge, consolidate projects and look for efficiencies to survive the storm, more renegotiation and restructuring is inevitable. The question is: who will swim up to the top as a result?