Outsourcing is defined as subcontracting a process such as accounting, payroll or tax
preparation services to a third party.
The main criterion for outsourcing is:
a. Making better use of time and energy; or
b. Redirecting or conserving energy directed at the competencies of the business; or
c. Make more efficient use of resources.
So, how are recession and outsourcing connected to each other? To understand the connect
between the two, we would have to delve a bit deeper into recession and its impacts.
Normally, economists declare recession for any economy if there has been a negative
growth in the GDP for more than 2 quarters. Because of the negative growth in the GDP,
people normally take defensive actions to protect the outflow of money which in turn goes
to aggravate the sluggish growth further.
The solution to beat recession therefore is to create opportunity for having higher margin
from lower costs.
In a recent survey done by Offshoring Research Network (ORN) in alliance with Duke
University and PricewaterhouseCoopers, 40 out of the 100 companies interviewed said they
plan to put pressure on service providers for more favorable contract terms in order to trim
costs. In fact the conclusion of the survey is summarized as "Enhancing efficiencies has
become more urgent in recent months as pressure on margins forces companies to increase
productivity while spending less."
This bears direct testimony to the fact that during recessionary times, it is more feasible for
business to opt for outsourcing and create higher margins in order to pump liquidity inside
the economy.
However, it is pertinent to understand that any outsourcing which involves capital outlay
like some IT projects will definitely be impacted adversely. The areas that can be looked as
prime targets to be outsourced would be services like project designs, bookkeeping, tax
preparation services, AR & AP services etc.
It is thus safe to assume that the entire accounting function may be considered to be
outsourced by businesses in order to reduce costs and increase profitability.
Businesses will however do more research during these recessionary times before deciding
to outsource accounting and will opt for an outsourcing vendor only if:
a. There are visible gains in outsourcing the services.
b. The outsourcing vendor shall not charge any avoidable costs like initial set up charges.
c. The outsourcing vendor shall be able to provide value added services which can directly
be converted into profitability.
Many of the outsourcing vendors have therefore taken extra care to ensure that businesses
in US are able to tide over the tight fund situation in these recessionary times.
At many such outsourcing vendors,
a. There are no initial set up fees.
b. The pricing is lowest among all the outsourcing vendors.
c. There is a lot of flexibility in pricing that suits any need of a business in US.
d. The staff members are highly trained are proclaimed experts in bookkeeping and
accounting.
Thus, it makes sense for a business to outsource its accounting function and beat the
recession blues.
Steve is a qualified accountant (Indian CPA) and co-founder of APT Services, the fastest
growing outsourced accounting service provider in India. Steve has over 10 years of
expertise in audits, accounting (both US & Indian GAAP), payroll and tax preparation
services.
http://EzineArticles.com/?expert=Steve_S_Walker
Effect of US Recession on Outsourcing Industry
Sriharsha Venkata Yellamraju, Sr Research Analyst, EmPower
Research
May 13, 2008
Introduction
This article is part 1 of a series of four articles by Empower Research, a New York based business research firm
on the impact of current US recession and US political changeover on Indian outsourcing industry.
The issue of offshoring and outsourcing has stirred a hornets nest when Barrack Obama launched an attack on
companies that outsource jobs to India and China. What is the stand of the three prime contenders for the US top job on
outsourcing? What is the effect of the US recession on the Outsourcing industry?
This series will try to answer these questions, starting with the one on the impact of US recession on outsourcing today,
followed by "Hillary Clinton’s Verdict on the Outsourcing Industry" and "Barack Obama’s verdict on Outsourcing
Industry".
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PART 1:
New York, Tuesday, May 13, 2008 : Hundreds of thousands of small medium enterprises (SMEs) are waking up
to benefits of offshore outsourcing industry
What is the effect of the US recession on the Outsourcing industry? Can the vendors expect more business due to the
situation in the US or is it the time to take appropriate measures to counter the possible slump in the business growth?
According to Julio Ramirez, globalization and outsourcing practice leader at the Hackett Group, ‘many companies are
hitting the pause switch on their globalization efforts’. And with the transformational projects on hold the outsourcing
companies will see less of the request for proposals (RFPs) till such time the recession scenario actually unfolds. There
might also be a ‘dip in deal size especially in the full service models’ per Soumit B, Senior Analyst at Everest Research
Institute, as buyers become frugal in determining scope of contract.
With the given scenario purchasers will look to vendors to offer them help in savings and productivity. Rupee
appreciations against the dollar and the general inflationary levels in India aren’t helping much. Rupee in fact gained
about 11% against the dollar between January and December 2007, which resulted in higher costs for the clients and
lower earnings for the offshore service providers.
Hedging of course is an option available to the sellers to manage currency exchange rate risk but it eventually would put
more pressure on the bottom-lines as it adds to the costs. Again, wages in India are escalating and the companies are
planning to reduce the salary increments ‘to single digits in the next couple of years’ to control the costs. The difficulty
with this option is attrition and it needs to be seen how the outsourcing companies would now manage the already high
rates.
US recession, however, has some positive effects too on the industry. Hundreds of thousands of small medium
enterprises (SMEs) are waking up to benefits of offshore outsourcing industry. Times of India states that SME deals from
the US would be around $8 billion by March 2009 and $11 billion by March 2010 from the current levels of about $7
billion. Also the slowing US economy could push the outsourcing up to new levels to low-cost destinations and per the
global research firm Gartner India here has ‘a definite advantage over other countries’.
So to better tap the opportunities venders need to move to low cost destinations – either within the country or even
outside of it. Trend is evident with many of the top firms opening their offices in countries like Philippines, Singapore,
Malaysia, Sri Lanka and a few east European countries. Companies are also looking for new client outside the US –
particularly in the English speaking countries of the UK, Australia, New Zealand and Canada.
Offshoring over the long term looks promising. Business Line reports that ‘vendors are expecting the same recession-
related factors to fuel increased demand for outsourcing by the end of the calendar year’.
Hillary Clinton’s Verdict on the Outsourcing
Industry
Shiladitya Lahiri, Research Analyst, EmPower Research
May 15, 2008
Introduction
New York, Thursday, May 15, 2008 : While Clinton has fought to end loopholes that give tax breaks
to companies offshoring jobs, she also has acknowledged that offshoring will be difficult to stop
Hillary Clinton has always been in the limelight when it has came to her opinion about the
“outsourcing industry”. Four years ago, she brought Tata Consultancy Services to Buffalo City amid
great fanfare and promises that its local operation might eventually employ up to 100 people. But the
India-based company, one of the world’s largest outsourcing consultants, currently employs only
about 10 people locally. This led to a variety of opinions being generated across communities.
The main lobbying organization for the Indian-American community, USINPAC, cited the Tata deal
as one of Clinton's top three achievements as a senator -- and evidence of a turnabout, in its view,
from her past criticism of outsourcing. Whereas in the year 2005, the Information Technology
Professionals Association of America (ITPAA), an advocacy group based in Wilmington, Delaware
representing professionals in the high-tech field handed out its first “Weasel Award” of 2005 to
Senator Hillary Rodham Clinton marking her ‘betrayal towards the American people.’
On April 2, 2008, Hillary Clinton said that she wanted to ‘insource’ more jobs and stop giving tax
credits to companies that send jobs overseas. The New York senator and Democratic presidential
hopeful unveiled the $7 billion tax incentive and investment plan during a panel discussion at the
IBEW Conference Center and training facility on Pittsburgh's South Side, which marked the last stop
in her six-day "Solutions for America" tour of Pennsylvania.
“If the United States continues to outsource jobs to India in increasingly large numbers, people will
begin to feel insecure and may very well seek more protection against what they view as unfair
competition.…………………America is not just a marketplace to get a foothold in. It is a place to
make lasting investments that will create jobs and economic growth for everyone.” – Hillary Clinton
Clinton proposed expanding tax benefits for research and development by increasing the existing
credit by 50%, and creating a 40% research and development credit for basic research. She also
proposed ending the practice of ‘deferral’, which allows companies to defer paying taxes on income
earned by foreign subsidiaries, and the creation of 15 ‘innovation and research clusters’ across the
country.
She also expressed her intentions of creating a manufacturing advanced research projects agency, and
a green manufacturing extension partnership. The panel members included Pittsburgh Life Sciences
Greenhouse President and CEO John Manzetti, who told Clinton that creating more companies was
the key to retaining talent in the area. He paraphrased a well-known axiom of Clinton's when he told
her, “It takes a community to raise a company.”
Offshoring critics, nevertheless, said concerns about the Tata deal and Clinton’s views on offshoring
have grown in recent months. While Clinton has fought to end legal loopholes that give tax breaks to
companies that offshore jobs, she also has acknowledged that offshoring will be difficult to stop and
has continued to urge Indian companies to invest in the United States.
As the election fervor catches on, the outsourcing issue has once again been resurrected to a hot
campaign issue. Democrats like Clinton who have to aggressively court special interests like labor
unions - that vehemently oppose outsourcing - have to tread carefully and try to balance their support
for free trade and globalization.
Barack Obama’s verdict on Outsourcing
Industry
Arunava Talukdar, Research Analyst, EmPower Research
May 15, 2008
Introduction
New York, Thursday, May 15, 2008 : **Obama considered anti-outsourcing as one of the key issues for his
campaign**
When Barack Obama decided to run for the presidential election after his short tenure as the Democratic Senator from
Illinois, his candidature was welcomed across the country. He featured in the national limelight after his outstanding
speech at the Democratic National Convention in 2004 to become the conspicuous leader for a new politics. He was
however, entangled with two potential problems. First, that he is African-American and secondly, Democrats will not
support him because they do not think an American of African descent can win a general election.
Issues of globalization and outsourcing have never been chosen by American politicians to show leadership. Doing so
would mean challenging global financial firms, who apparently are the biggest campaign financiers. On the contrary,
Obama considered anti-outsourcing as one of the key issues for his campaign.
Playing the anti-outsourcing card Obama believes that, while the United States cannot retreat from globalization, it
would have to take measures to ensure that jobs are not shipped out of the country.
“We have to stop providing tax breaks for companies that are shipping jobs overseas and give those tax breaks to
companies that are investing here in the United States of America,” – Barack Obama
Reacting to the displacement of workers in manufacturing jobs as a result of the NAFTA (North American Free Trade
Agreement) and generally to the anti-outsourcing crowd, Obama said that he would ensure environmental, safety and
labor standards in every pact that the US signs.
In one of the papers circulated by Obama campaign had claimed that Clinton is in support of outsourcing as she is gets
dollars for her campaign from Indian-Americans and that she does not care about lost American jobs. The ‘Off-the-
record’ memo by Obama quoted that in 2005, while on a trip to India, Hillary Clinton told a meeting of industrialists that
there is no way to legislate against reality and that outsourcing will continue.
An internal memo by Obama campaign in June, 2007 revealed that Clinton’s ties to wealthy Indian businesspeople had
made her favor outsourcing. The memo mentioned the tie between Clinton and Vinod Gupta, an Indian entrepreneur who
founded InfoUSA, one of the largest brokers of information on consumers in the US. Gupta, a major fund-raiser and
supporter for the Clintons, was detailed in the Obama memo because his company outsources to India and he has
vociferously supported the practice.
Obama believes that the global integration of the US economy is there to stay. But he would fight for American workers
who lost their jobs. Obama refutes tax relief to companies that ship job overseas but said that education system must
improve to check the outsourcing trend.
