Consider the Source

With or Without Hybrids?

Guest Blog entry from Dinesh Goel, Director, TPI.

Captives will continue to be set up no matter what’s your view. Some will be hybrids, others won’t, and that will come with realignment and opportunity. But what does it mean for service providers and the outsourcing industry?

Press has been replete with stories on the future and sustainability of captive operations in low cost geographies such as India. The questions being raised in the wake of captive selling (monetization) or conversion into third party service providers (commercialization) include:

1.    Are the captive operations sustainable going forward given the ever increasing maturity of the third party service providers?
2.    Is there a new paradigm for the co-existence of captive operations with third party providers?
3.    Will the new captives continue to be set up by parent companies?

All of these questions have one thing in common: change.

Insourcing Regulation, Outsourcing the Free Market

Today's blog comes from Peter Allen, Partner and Managing Director, TPI.

Despite some of the election-fueled rhetoric in the U.S., the global outsourcing industry cannot be legislated away. It is an essential component of corporate strategies for competitiveness and America depends upon the availability of a strong and growing outsourcing industry.

That said, there are certain measures suggested during the recent presidential campaign that might impact the use of outsourcing among U.S.-based corporations. To prevent the “offshoring of American jobs,” the Obama camp frequently mentioned removal of tax benefits for US companies that outsource.

We view this notion to be impractical to implement.  First of all, much of the outsourcing industry is domestic-based and even the India-based outsourcing companies are active employers domestically. More importantly, the global footprint of so many U.S.-based firms makes the imposition of such restrictions counter-competitive and actually restrictive of their ability to export goods to emerging markets.

There’s also been mention of restrictions on visa issuances – Indian companies use H1-B and L1 visas to send their personnel to the U.S. In our experience, the U.S.-based educational infrastructure is simply not producing the volume of skilled workers required to service the needs of major corporations.  Rather than build restrictions on importing talent, we should be encouraging this as a means of building the global bridges with economies that will be consumers of our products.

Can Sourcing Right the Ship?

Today's blog comes from Peter Allen, Partner and Managing Director, TPI.

There’s no shortage of market commentary relating to the current global financial crisis.  But, let me add to the list.

For most people, the effects of the recession are being measured by dramatic declines in the world’s equity markets.  That is, the values of publicly-traded stocks are held as the paramount barometer of the economic situation. Underlying the crumbling valuation of equities is the virtual disappearance of commercial credit.  Borrowing money has become a nearly impossible feat.

So what effect will this constriction on available capital have on the global outsourcing industry?

Foremost, companies are limited in their access to investment capital, which will diminish the in-house systems integration and applications development work around building new capabilities. 

And that’s why the make-versus-buy debate is likely to swing hard towards the buy-side of the deliberation.  If there's a service alternative in the market that allows a company to forego the outlay of precious capital, I think that there’s an increasing appetite to go that direction.

So that implies an increased demand for outsourcing, right?

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.