In what seems like a contradiction in terms, Gartner, a research analyst, is forecasting that even though outsourcing tends to get stronger during a recession, prices for outsourcing services will decline by a 5% to 20% margin.
Several Internet news sources quote Claudio Da Rold, a Gartner VP, as stating that there will be a reduction of prices in the next two years based on the current economic downturn. The reports cite increased competition in the market between traditional and new providers, as well as between emerging and traditional outsourcing destinations.
According to Da Rold, Gartner clients are reporting increased negotiation with outsourcing vendors around price, including renegotiation of contract terms and conditions, service-level agreements, fees, volumes and low-cost offshore delivery locations.
Gartner expects a price fall in data center and network services between 5% and 15% while helpdesk services will decline by between 5% and 10%, the sources said. Charges for application hosting services are forecasted to have the biggest drop—between 10% and 20%.
Increased demand usually means higher prices, so why the counterintuitive trends cited here? There are several reasons, but they all go back to a single fundamental notion—outsourcing of IT services—or of any company services for that matter—is for all intents and purposes the exporting of jobs, to other companies or to other nations. And that is the kind of export that will not delight a company or a nation in the throes of recession.
There is no doubt that insurers and other companies can often save money by farming out non-mission-critical functionality to venues where the labor is cheaper, and perhaps even more skilled. In a nation flirting with double-digit unemployment rates, however, companies are loath to be seen as unpatriotic exporters of U.S. jobs. And while onshore outsourcing at least keeps the work in the U.S., that gives little comfort to the U.S. workers who are replaced. In a public relations sense, outsourcing is a lose/lose proposition.
So how is the outsourcing provider to get companies to utilize its services in such a difficult environment? One way is to reduce prices. Another is to offer more services for the same or less money. A third is to renegotiate existing contracts to offer customers even bigger savings. And, let’s face it, bad PR or not, most companies will have their price.
This is the inevitable fallout of a recessionary environment that, at least at this moment, shows no substantial signs of letting up. But the outsourcing vendors and their customers are playing a dangerous game. The vendors will hint, but never say outright, that customers can save money by getting rid of workers. The customers will bemoan the fact that their duty as companies is to make money, even if that means some people will lose jobs.
Once the recession passes, will investors and workers remember the companies that did all they could to hold onto American jobs? Only time will tell.
Ara C. Trembly is the founder of Ara Trembly, The Tech Consultant, and a noted speaker on and longtime observer of technology in insurance and financial services. He can be reached at firstname.lastname@example.org.
The opinions of bloggers on www.insurancenetworking.com do not necessarily reflect those of Insurance Networking News.
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