Four Indicators to Watch When Outsourcing During a Recession
Below is a MRR and PLR article in category Business -> subcategory Other.
Four Key Indicators to Consider When Outsourcing During a Recession
When deciding on IT offshore outsourcing, the current state of the U.S. economy is a critical factor. Key economic indicators such as exchange rates, interest rates, IT employment levels, and domestic office vacancy rates can significantly impact your onshore, offshore, or nearshore strategies. With the U.S. increasingly reliant on cost-effective offshore services, here’s how you can manage expenses during an economic downturn.
1. Exchange Rates
Major IT outsourcing destinations have experienced significant appreciation of their currencies against the U.S. dollar, thereby increasing costs for clients or reducing profits for providers. For example, India, which holds about 70% of the global business process outsourcing market, saw the Rupee appreciate by 11% against the dollar in 2007. Similarly, currencies in nearshore destinations like Canada and Brazil saw increases of 15% and 16%, respectively. This necessitates a thorough discussion of currency exchange risks as part of your outsourcing strategy.
2. Interest Rates
Interest rates play a crucial role in your budgeting decisions. While the Federal Reserve aims to maintain low rates, this strategy can contribute to the dollar’s decline and drive inflation. If inflation rises, interest rates might increase, boosting the dollar and making offshore services more affordable. However, short-term borrowing costs for domestic services may increase. Businesses should be prepared for possible shifts, keeping cash at the short end of the yield curve.
3. IT Employment
The demand for computer software engineers is rising prominently, with the U.S. Department of Labor projecting growth in the field. Currently, the unemployment rate in this sector is approximately 2%. While outsourcing can temper domestic employment growth by leveraging lower wages abroad, quality software engineering roles still require skilled professionals. Whether hiring locally in a nearly full employment market or abroad where demands for higher wages are increasing, navigating wage pressures will be a strategic necessity.
4. Office Space
Reis, a real estate research firm, reported an increase in U.S. office vacancy rates for the first time in four years in 2008. With new office space completions peaking, leasing additional space for IT team expansion might be cost-effective. However, calculating the costs of facilities, utilities, and network access is essential when forming an offshoring strategy. Emerging markets like Panama offer excellent infrastructure and government incentives, which can be beneficial for technology businesses.
Staying Ahead
Regardless of where you are in the economic cycle, cost reduction and quality improvement are ongoing goals. Outsourcing can be a strategic way to achieve these objectives as there's a growing trend among companies of all sizes to outsource parts of their business operations. According to George Schildge of Matrix Marketing Group Inc., outsourcing signifies a paradigm shift with the potential to enhance business models.
In 2008, outsourcing trends indicated increased impacts on businesses and the necessity for business analysts and project managers to adapt to global distribution challenges. According to Bas de Baar, different cultural, time zone, and language factors will further influence software projects.
Conclusion
Success this year requires innovative strategies, with outsourcing becoming an increasingly significant factor. Conducting thorough research and proactive planning will help you stay ahead.
Since 2004, Vision TRE has actively sought IT professionals in Brazil, Panama, and Ecuador with excellent English skills, offering advanced programming services such as .Net, ASP, C++, C#, and more to U.S. clients. We maintain a robust pool of skilled professionals ready to meet diverse programming needs.
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