Economic Slump Results in Outsourcing Shifts


Conventional wisdom dictates that many companies will increase outsourcing activities during a down economy to reduce their costs. Still, that may not be exactly what's happening, based on recent reports from two prominent outsourcing advisory companies.


More than 40 percent of outsourcing providers surveyed by EquaTerra said they saw an increased demand for their services in 2008's third quarter.


Yet the latest report from TPI shows more softness than usual in what is traditionally a slow quarter for outsourcing. Though it's typically the worst quarter in a given year, 2008's third quarter was lower than the historical average by nearly 20 percent.


Among the factors contributing to the decline, according to a TPI news release on MarketWatch: a lack of mega-contracts (valued at $1 billion or more), with just one such deal signed in the quarter; slowed demand in the Europe/Middle East/Asia region; and a 56 percent drop in IT outsourcing contract level compared to the first two quarters.


Despite the weak quarter, 2008 is on track to outpace 2007, according to TPI. Compared to last year, the number of contracts awarded to date has grown 5 percent, with an increase in total contract value of nearly 19 percent.


Both reports note a focus on shorter deals designed to yield quick cost savings vs. longer and more strategic deals. One interesting trend mentioned in the EquaTerra report: a move toward supplier rationalization, with more companies seeking to shrink their number of suppliers in order to reduce due diligence, supplier selection and management costs.