Chances are diminishing that your CEO will ship your job overseas or hand it over to one of the big outsourcing suppliers
IT workers can breathe a little easier. Chances are diminishing that your CEO will walk in tomorrow and decide to ship your job overseas or hand it over to one of the big outsourcing suppliers.
TPI, a British management consulting firm, determined that the global outsourcing market has experienced a slowdown starting at the beginning of the 2007. The total value of worldwide outsourcing contracts awarded during this time dropped by 17 per cent compared to 2006 numbers and represents the smallest number of awards in the first three quarters of any year since 2001.
Looking inside these numbers, one finds that the slowdown is attributed almost solely to changes among US companies. TPI found a 53 percent reduction in the value of major contracts in the US from 2006 to 2007. Wow! So what is causing the precipitous drop?
No More Cheap Labor
Let's begin with the reasons why companies started to turn to outsourcing, which boomed during the dotcom rise. Cheaper labor was one of the reasons why corporations opted for outsourcing services. At the time, salaries were rising along with dotcom stocks. Since then, there has been an adjustment, so paychecks are no longer totally whacked.
In addition, outsourcing has made the labor pool in other countries more expensive. India is one area where many jobs have been sent. As a result the country now finds itself with a growing number of middle class citizens who want to be paid. Also the rupee, India's currency, has been gaining strength: trading at about 46 rupee for every dollar now, compared to 41 for every dollar a year ago.
Such changes are important because observers estimate that three out of every five US outsourcing contracts involve some kind of offshore activity.
The Hidden Costs
In addition, companies have determined that the cheap foreign labor often comes with hidden costs, mainly centering on overcoming cultural barriers. The challenges begin with instituting simple business processes. Then there are different legal statutes in various countries that companies need to comply with.
Add to these difficulties the logistical challenges of offshoring. Coordinating work among employees spread across a dozen different time zones is more troublesome than making an allowance from the East Coast to the West Coast. Also an Indian employee may call the home office on July 4th and be surprised that no one is answering the phone.
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