Effect of the Global Financial Crisis on the BPO Sector

Like other sectors in the corporate world, the BPO sector has been affected by the ongoing global economic crisis. For instance, there has been a twin movement that has manifested itself in the way the BPO sector has been impacted. On one hand, many companies in the West (US and Europe) have trimmed their budgets and have reduced their outsourcing exposure significantly. On the other hand, there has been an uptick in the way in which some companies in the West have increased the pace of outsourcing. Though these twin imperatives might seem contradictory and conflicting, there are reasons for this kind of behavior.

Many companies that have suffered because of the ongoing global economic crisis and have not received assistance from the government have decided to curtail the outsourcing budgets whereas others who have been bailed out by the government have decided to increase outsourcing as a means of cutting costs.

The point here is that the companies in the West that have preferred to lay off their employees at home and instead ship jobs overseas are the ones that have increased business for the BPO sector. And those companies that have preferred to retain their domestic workforce are the ones that have increased the pace of outsourcing. Apart from this, the other factor that has been weighing on the minds of the CEO’s in the West is the effect of domestic policies on the outsourcing phenomenon. In later articles, we will discuss this in depth. Suffice here to say that in recessionary times, there is usually a hue and cry over outsourcing in the home countries and this has led to greater circumspection by the companies in the West.

Further, there is a moral obligation for the companies in the West to retain their domestic workforce when the going gets tough and hence, many companies have preferred to not ship more jobs overseas.

However, many companies have also seen the advantages of outsourcing more in recessionary times because of the humungous cost savings that outsourcing brings to them. Hence, they have increased the pace of outsourcing to improve their bottom lines. This is a brief explanation for the complex phenomenon that is outsourcing especially the topic of the effect of the recession on outsourcing and its effect on the BPO sector.

What has complicated the matter further is the fact that Indian BPO companies have significantly reduced costs over the last two years to make the value proposition that they offer better for their clients in the West. Hence, it has become attractive to ship jobs overseas rather than keep them in the home countries.

Apart from these factors, the fact that there is a race to the bottom by the companies in Asian countries means that it is tempting for the CEO’s in the Western companies to get more work done offshore.

In conclusion, the recession has had mixed effects on the BPO sector and going forward, we can expect to see greater turbulence especially when one considers the fact that this is a presidential election year in the US which is generally associated with greater focus on outsourcing.