OutSourcing Industry: The Challenges

Outsourcing industry has been steadily growing since past decade. After becoming the toast of the discussion in every big and small company during last decade the things are coming to somewhat slower growth in these recessionary periods. There are many experts who are now looking at the whole outsourcing model with skepticism and predicting a slower growth with more focus on near shore sourcing.

Outsourcing mainly started with the concept of lower labor cost in countries with abundance and untapped human resource. The benefits outsourcing brought for organizations were huge in terms of cost. Same work can be done far more cheaply at remote location the world. This changed the way businesses were done globally. Each
Organization moved from an in-house model to a hybrid model of strategic in house work and non strategic work outsourced. The hybrid model was huge success and outsourcing industry registered huge growth in last decade due to it. The world has become a global place where everyone is connected and companies are present around the globe.

The hybrid model received the most severe test now in this recession. There were few reasons
1. The cost benefit of moving non critical business outside has been long utilized and the cost advantage of the organization has been largely negated with the fact that every competitor is following the same model.
2. There were some inherent inefficiency in the system due to the fact work was done outside the organizations and there were always stuff lost in translation. However these inefficiencies were either too meager (in terms of cost advantage) or were handled well that nobody counted it in the issue list.
3. The cost of doing the work near shore has dramatically increased with high unemployment rate resulting in cheap labor and more near shore facilities available now.
4. Huge Fluctuations in Dollar and other currency in past few years have affected the bottom line of most of the Organizations. The outsourcing model is well built to manage some small fluctuations but kind of fluctuations seen in last few years are hurting the model a lot now.
5. There is huge internal social pressure also for organizations cutting cost and jobs and moving them to different country.

These issues had lead to considerable slow in outsourcing industry. But with these negatives there are a lot of strong points also which will ultimately decide the future of this industry going forward. I hope to highlight those points in my future blogs.