Avoiding Falling Satellites in a Sluggish Outsourcing Market

The global outsourcing market is "going through a sluggish phase," an executive with the research firm Everest told a group of reporters in New Delhi this week. More important for nearshore providers, Everest analysts said in a separate presentation recently that the bigger changes are happening in second-tier locations (i.e., not India, China, or the Philippines). They cited rising labor costs in Brazil "due to currency appreciation versus the Euro, Pound and US dollar," and a possible slowdown in Argentina thanks to a depreciating peso and cost inflation.

Crisis is always with us, and it's easy to feel like doom is circling above the planet, ready to crash down on us like a junk satellite. That's a pretty good mindset for any IT service providers concerned about a sluggish outsourcing market. This is not to say you should dwell on doom, by any means — but you should always be prepared for falling pieces of metal. Make sure your company has protective covering, a big steel helmet, as it were.

The best way to fortify that steel helmet is to anticipate what clients, especially clients you don't have yet, are going to want. And in this era where CIOs have to adjust priorities according to what their bosses want, it's not easy to anticipate.

One question to think about is was raised by Chris O'Malley, CEO of Nimsoft, in a recent column: Are businesses going to be farming out their core services or their chores? He neatly described the distinction between core and chore — "core" is the IT stuff that provides competitive advantage, and "chore" is the remaining and mundane stuff — but didn't necessarily resolve the question other than to warn that CIOs who make the right sourcing decisions will enjoy better business results.

Getting back to the steel helmet.... What service providers have to do is be prepared to show that they can take on those core services. The more innovative and adventurous nearshore IT companies have shown that they can move up the value chain, as they say, and deliver mobile apps and other sophisticated types of software that works with a wide array of devices. A recent Forrester report highlighted other changes that present opportunities for IT companies, including "elastic" applications for cloud platforms.

Because CIOs, at least the ones interviewed by Forrester, expect that things like infrastructure-as-a-service are going to improve the bottom line, this is what they're going to be investing in. Many will want to keep those core services in-house. But many will decide to import those services, and they'll be looking for providers who can deliver the goods and do it for at least a little bit less cost than they can do so internally. This is the kind of opportunity nearshore IT companies should be staking out today, and making sure they have the talent to deliver.

Of course everyone running a successful IT outsourcing business thinks about planning for the future, but it can be easy as humans to slip into a comfort zone and forget about helmet maintenance.