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How the economic downturn will affect outsourcing to China and India?

October 27th, 2008 · Comments

I don’t have the crystal ball to predict the future. I’m not an economist by any stretch of imagination. But, I’d like to offer my observations on this from my own experience. After all, I worked with outsourced operations at almost every single job I had.

Observations

  1. Outsourcing to China is mostly in the manufacturing sector. As US (and global) economy goes deeper into recession, consumer spending will decrease. Demand for China-manufactured goods will decrease significantly. This will impact a lot of Chinese manufacturing firms, especially small-to-medium sized shops.
  2. Outsourcing to India is mostly in the software/service sector. Some of these outsourcing projects have multi-year contracts. So, I think software/service outsourcing to India will be less impacted. However, I still believe the impact would be significant. As average IT salary increases in India, it’s becoming more and more expensive to outsource to India. Companies are starting to realize that outsourcing could be expensive — given the time, cultural and language differences, there is quite a bit of overhead for coordinating outsourced projects. As economy worsens, it’s conceivable that some companies will take a hard look at their outsourcing options, and decide to move back to the US.
  3. Both Chinese and Indian firms will recognize that they need to get out of the "outsourcing mode", start building their own brands, and aggressively sell in the US and EU market. Instead of letting US companies to profit from high margins, these firms will try to expand "vertically", build their own brands, and sell directly to businesses and consumers in the US and EU.

What does this mean to you and me?

  1. There will be more acquisitions of American firms by Chinese and India companies. Their goal is to gain a foothold in the American market, and a sale force that they could expand.
  2. If you’re familiar with Chinese or Indian business culture and know how to sell, there will be an opportunity for you to provide services to help Chinese and Indian companies to enter and expand in the US market.
  3. Instead of moving oversea to China and India to participate in their emerging economy, there might be a niche in the US or EU that you could exploit.

Do you agree or disagree with my observations? I’d like to hear your insights. Leave a comment or email me at regularguy@GeekMBA360.com.

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Tags: Career Fast Track · China · Company Analysis

Viewing 1 Comment

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    Well, I think the recent comments by Mr. Barack Obama to curb outsourcing jobs, india will not have significant impact. I cannot comment about china, I do not know much about them. But as far as indians are concerned, Indians are talented, Cheap, readily available, time ranged to US Offices. The recent leveraging will have greatest impact in USA and not on the other parts of the world, because deleveraging will be fastest in USA, as the real estate was overvalued most in USA and not worldwide. So India has nothing to bother. And even we think from other side, Outsourcing runs the economy. This economy is not one way traffic, it is give and take and develop each other relationship. If Outsourcing is curbed by USA, I think USA will be in more problems. As far as Indian valuations are concerned, india is self sufficient and have a built in earning power with a huge population. From the above it is clear that india has nothing to worry.

 
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