Offshore Outsourcing and Economic Recession

Source: CIO
Written by Arpit Kaushik
A few weeks ago I was at an offshore group meeting, and a debate started on the impact of recession on outsourcing. Overall verdict was that a recession will not derail offshoring and, in fact, may even significantly increase demand for offshoring. I was still left unsure about it so I thought why not get to the heart of the matter, look at the financial results and outcome from the various categories of offshore outsourcers and then, let everyone decide for themselves about what's really going on.

Global Outsourcers

In its latest quarter, Accenture's outsourcing revenues were up 15 percent year on year and its outsourcing bookings were at their highest in more than four years. On its guidance for 2009, the CEO quoted on the macro environment "It's not going to all fall into place. It's not even going to be pretty". But despite that, Accenture has maintained its growth guidance and expects to improve its outsourcing profitability in '09. IBM's strategic outsourcing business grew 8 percent last quarter, fuelled by 21 percent growth in revenues from growth markets. However, long-term signings continued to fall. Going forward, IBM expects similar growth in the next quarter. HP's outsourcing revenues grew 15 percent, and the division had its best quarter in history with record profitability, and significant new wins. While not specific to outsourcing, HP was candid enough to say that "we don't know how the economy will evolve, but at this point we are expecting the market to be challenging in 2009". CSC's outsourcing revenues increased 6 percent in the last quarter, and doubled its new order bookings. However, it reduced its onshore headcount by 2,300 and increased its Indian headcount by 3,000.

Overall, the global outsourcers seem to be in fine shape, especially Accenture and HP, and are not too worried about the future. Headcount realignment and higher offshore mix are being evidenced here.

European outsourcers

Atos Origin's revenues declined 6 percent, but it maintained its annual organic growth guidance. It recently brought in a new CEO to "overcome the challenges of the current economic environment". Logica's revenues grew 7 percent, and raised its full year revenue guidance to 4 percent. However, it expects European economies to face the downturn in 2009 and consequently has planned for a modest growth in 2009. Capgemini's outsourcing revenues increased 9 percent. Higher offshore mix and focus on cost reductions has been evidenced.

So overall, low growth (but they are used to it anyway) expected in 2009, but no major concerns in Europe.