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How the Credit Crunch is Impacting Suppliers

The GOX Team conducted a survey across 15 Service providers to evaluate the state of the outsourcing market from the supply side. We've provided a summary of the respondants' answers below.

I think we're seeing the beginning of what many people had predicted - stable to lower attrition rates (particularly in India), a reduction in larger deals - particularly those with large capital investment. Suppliers also noted an increase in smaller deals, which may reflect a growing trend of companies tactically outsourcing to achieve short-term cost savings. Exchange rates have been unfavorable to UK end-users, but non-UK suppliers have (or are in the process) of lowering their home rates to keep prices relatively stable here.

The market continues to become gradually more favourable to consumers of outsourced and offshore services, evidenced by supplier willingness to accommodate both smaller and shorter-term deals, as well as relative price stability in the face of the dramatically weaker pound.

Q1: Have you felt a slow down in the offshoring activity from UK clients in Q1 2009?
74% of Offshore Providers have seen an increase in small/medium sized projects. Nearshore providers within the EU have seen a decrease of up to 50%.

Q2: What are the top 3 reasons that your clients outsource in 2009?
1. Cost saving/Maximise their profit margin by reducing operating costs.
2. Flexibility to scale up/down.
3. The possibility of growth and still managing client expectations and delivery to existing and new customers

How is the economic crisis impacting staff retention in your near or offshore location?
-China is seeing a rise in unemployment, though retention rates at Chinese suppliers have remained in the 90-95% region.
-Sri Lanka has also seen retention remain fairly consistent in the mid 90% range.
-India is seeing retention improve on a monthly basis, and is currently in the mid-80% range.
-Nearshore retention has also remained constant in the low-90's.

Q4: Are you offering more competitive rates to help win business?
Overall, supplier prices are stable or dropping with respect to their home currencies. Unfortunately, the weakening pound has all but eliminated the potential benefit to UK clients. Companies that have pegged their pricing to the Dollar or Euro are starting to take measures to ease the impact UK companies have felt over the last 9 months by lowering GBP rates. Service providers that have maintained UK pricing during the pound's slide are now forced to increase pricing to regain some of their lost margins.

Q5: What type of ITO project can a UK Client typically see a return (positive ROI) in less than 12 month?
A client can see positive ROI within 3-6 months with projects like application & infrastructure support. Positive ROI is almost immediate in a small/medium companies where they save 40-60% of their costs by offshoring. For larger engagements, it generally takes 18 months due to the up-front investment.  

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