It's been one of those "Rendevous with Rama" weeks. Fans of the Arthur C. Clarke novel will recall the scientist's realization at the very end of the book (spoiler alert!) that "The Ramans do everything in threes." This past week, three related things – all somehow connected to nearshore outsourcing – were flagged by the robot I pay to scan information services for me. None of these things were cause to jump up and down, but ignoring bad news is not a good strategy.
One: the news from Brazil. With the largest economy in Latin America, Brazil in the past year has gotten almost as much media attention as That Family That Shall Not Be Named – except the attention in Brazil's case has been deserved. But some of us got the perception that the country was on an unstoppable roll. As Filipe Pachecho reported, Brazil seemed "immune to the harsh financial crisis that has been punishing developed economies."
But then came the news that Brazil's GDP for the third quarter was a big zero. In other words, no growth. It'd be silly to expect a lot of growth considering the global situation, but it's as if things came to a screeching halt all of a sudden. The good news was that exports increased a bit, and it's reasonable to think that software and IT services outsourcing contributed to that.
Some better news for one of Brazil's toughest nearshore IT competitors, though: Mexico's GDP expanded by 1.3% in Q3.
Two: A survey done by Capgemini revealed that more than a quarter of Fortune 1000 companies are feeling the cash-flow pinch due to an increase in late payments by clients. They said that this is having a "significant impact on their business" – affecting their ability to hire workers, among other negative results, they said. If there's any good news in this "worrying trend," as one analyst called it, is that more companies are outsourcing their cash collections. When bigger companies aren't getting paid, that says something about how smaller businesses are doing. Either way, big or small, it's not good.
Three: Now here's where we really get into the relevancy for outsourcing providers and customers. Everest Group just released its 2012 Market Predictions, and says that because of "worldwide macroeconomic and political uncertainty," global sourcing activity will be "sluggish."
“The demand environment for service providers will remain tentative in 2012 given the watchful approach of global buyers," says Everest analyst Eric Simonson. The upside for buyers is that they can expect to see providers "bring forward new concepts to remain competitive." Whether he thinks that will mean lower rates, I don't know. (I'm hoping to talk to the Everest guys soon and will probably write more about this later.) The report also says to look for innovation and new providers in social media, mobile, green IT, and cloud computing.
Fears of a European meltdown and the not exactly rosy situation in the U.S. are going to keep IT budgets down, which Everest says means margin pressures that will continue to be "a challenge for service providers." However, the analysts predict that adoption of cloud computing – in some hybrid form – will be "mainstream." Smart providers no doubt have their eyes on this opportunity, if they haven't already grabbed it.
So, there you have three things that could have some effect in the world of nearshore IT services during the next few months. No need to panic, of course, but let them serve as a reminder for providers and buyers both to focus on staying sharp, being agile and creative, keeping your teams motivated, remaining focused on the good, and never sacrificing quality.
Now, if the Ramans had done things in fours, I would have included Nobel Prize-winning economist Paul Krugman's New York Times column of Dec. 11. But also, I don't want you to get too depressed.
Dennis Barker
