Companies will return to using outsourcing to recapture innovation and provide flexibility in 2010 versus simply saving money, but global economic uncertainty will continue to impact the industry, according to year-end predictions by the International Association of Outsourcing Professionals (IAOP).
“Coming off a year of tremendous pressure, the outsourcing industry is expected to enter the next decade with positive signs of rebounding,” said IAOP Chairman Michael Corbett. “As companies recover from these tough economic times, outsourcing will enable them to emerge as leaders in the new global economy.”
Here are the top 10 trends to watch for in 2010 from IAOP with insights from top industry leaders.
Click through to see 10 key predictions for the outsourcing market.
The economic downturn over the past 12 to 18 months put many outsourcing deals on hold. Companies are now forging ahead with renewed confidence in the stability and growth of economic markets.’Although pricing will continue to be under pressure, outsourcing deals that were frozen will begin working their way through the sourcing and RFP process, leading to some significant new outsourcing activity in 2010,’said Danny Ertel, Certified Outsourcing Professional, (COP), partner of Vantage Partners and chairman of IAOP’s Governance Chapter.
The tremendous pricing pressure on outsourcing deals renegotiated in 2008-09 will lead some companies to realize that deep pricing cuts have damaged relationships and the business value that outsourcing brings. Providers and customers will re-negotiate contracts more collaboratively to regain innovation and flexibility, and enhance total value.’As we put the worst of the economic downturn behind us and begin to move back to normal,’ companies will be needing agility and innovation in their businesses,’ Ertel said. ‘Outsourcing service providers that haven’t re-negotiated contracts also will be more proactive to improve and renew relationships with customers.’
With uncertainty still surrounding the economy, companies will hesitate to make long-term commitments with outsourcing service providers because of the fear of the unknown.’The looming economic uncertainty will lead customers to seek shorter term contracts, inflation indexing, currency exchange protection and volume band relief,’ predicts Jagdish Dalal, COP, IAOP’s managing director of thought leadership.
Global economic uncertainty, currency fluctuations and other market forces will encourage increasing levels of mergers and acquisitions on a global basis, particularly among service providers.’This consolidation of outsourcing providers will drive higher value services and continue to put pressure on other players to be more strategic in their offerings,’ Dalal said.
Expect to see growth in new graduate hiring in emerging outsourcing locations as well as wage increases of 8 to 10 percent in India and many other Asia Pacific locations, while the U.S. and Western Europe will see much smaller raises.’Rising inflation will lead to wage increases, creating increased pressure on margins,’ according to IAOP board member Atul Vashistha, COP, and chairman, Neo Advisory & Neo Group.
Rising geographies in Central and South America will take market share away from traditional outsourcing locations, such as China.’Offshore players will continue to expand and set up operations in new geographies, taking a share of an expanded pie,’ said Vashistha.
As new destinations emerge, the competition among outsourcing providers will intensify, leading parts of the world-particularly the BRIC nations-to differentiate themselves through professional certification, such as the COP designation, and training and education programs.’Increased competition from emerging market providers also will drive a focus on services differentiation, bundling of services and greater intimacy with customers through outsourcing relationship management (ORM),’ said Matt Shocklee, COP, president and CEO of Global Sourcing Optimization Services and IAOP U.S. Ambassador.
Companies will increasingly make use of advanced management practices, tools and technologies-such as ORM and cloud computing-to provide improved value and operational flexibility and performance.’Cloud computing platforms will change the way outsourced services are sold, purchased and delivered, resulting in greater flexibility in the delivery of services and helping both clients and providers further optimize outsourcing business value delivered through their outsourcing relationships,’ Shocklee said.
Outsourcing practices will continue to be impacted by increased environmental awareness and social responsibility. The industry will be called on to step up its role as a leader in corporate social responsibility globally.’Companies will need to develop new innovative technologies to deliver the sustainable products that consumers want and also look more broadly at the impact of their outsourcing actions on a global basis,’ said Julia Santos, COP,director worldwide strategic outsourcing, Johnson & Johnson Group of Consumer Companies, and chair of IAOP’s Global Human Capital Chapter.
Increased government regulations and the resulting need for compliance will affect outsourcing in the coming year.’Global businesses will become increasingly aware of the new regulations and seek to establish better relationships with key opinion leaders,’ Santos said.
