Which outsource providers will be the winners of 2009?

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The biggest winners will be the vendors active in Legal Process Outsourcing (LPO). These parties have a lot of work lately due to the increased number of bankruptcies and desinvestments, especially from the U.S.

Looking at typical mainstream IT service providers than it becomes clear that the traditional European service providers are struggling with Capgemini's -0.6% revenue in Q1, Ordina -4% in Q1, Atos Origin -8.5% in Q1, Logica -11% in Q1 and with only Getronics showing decent figures (6% growth). These figures are in sharp contrast to the figures presented by some of the Indian vendors: WNS Global Services revenues (less repair payments) for Q1 2009 up 27.1% compared to 2008; Cognizant up 16%, and Tech Mahindra up 3%. Of course are there also Indian vendors which saw its revenue decline, but I did not see any reports regarding large scale layoffs by Indian vendors. This in contrast to European vendors which are currently retrenching thousands of employees.

I do not directly want to conclude that offshoring is picking up in a large scale (see also this post), but I might be wrong as the financial figures from European vendors indicate that either:
  • European companies are working more with offshore vendors.
    European vendors offer prices too low to make a profit (in order to compete with offshore vendors?)
  • European vendors expect to make money after signing the deal through consulting and additional work and this does not materialise.
  • European vendors take over (insource) employees too easily from new clients without thinking adequately whether they have enough work for them. These people are not only on the bench right now, but also have to be paid accordingly to European standards.
  • European vendors are still struggling to catch up with offshore vendors regarding the mix of local, near and offshore employees (and thus the average hourly rate). Same with the location of the assets (e.g. offices) and other infrastructure cost.

Some niche-market BPO vendors might also be doing well (apart from the already mentioned LPO). An example is Innovation Group which announced for Q1 2009 revenues up by 17.5% compared to Q1 2008. This company is active in among others Motor BPO and Property BPO within Europe, South Africa and APAC.

Innovative companies offering services and products which do compete for the customers attention on price can still make a decent margin and grow. Also in difficult times like 2009.

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