Virtual Assistant Business Outsourcing

The past few weeks have been some of the most turbulent times in the United States financial markets since the Great Depression. As usual during times like these the doomsayers are predicting major chaos and financial ruin.  One area where many people are predicting a slowdown is outsourcing.  Many experts believe that outsourcing will decline sharply in these tough economic times, while others feel that the current economic climate will actually help to increase certain types of outsourcing.

The U.S. financial services sector has been rocked recently by events such as:

• The collapse of Lehman Brothers – founded in 1850, this once proud global financial services firm is now infamous for being the largest bankruptcy in U.S. history.

• The U.S. government agreed to provide an $85 billion emergency loan to American International Group (AIG)

• Washington Mutual, America’s largest savings and loan bank, collapsed in the biggest banking failure in U.S.history.  Control of the bank was seized by the U.S. government, which sold most of it to New York banking giant JP Morgan, for about $1.9 billion.

• Earlier this month the U.S. Treasury Department pledged to secure trillions of dollars of obligations of America’s 2 largest mortgage houses, Fannie Mae and Freddie Mac.

• This week saw Wachovia, the nation’s third largest bank, being sold to Citigroup because of problems associated with Wachovia’s mortgage lending.

Although this is indeed gloomy news, it certainly does not portend the extinction of outsourcing.  In fact, there very well may be an ever increasing number of companies that continue to look at outsourcing alternatives to achieve cost effectiveness and to allow them to focus on core competencies. 

Hope for Outsourcing Industry to Stay Strong

In the financial services sector, many international banks such as Citibank, Deutsche Bank and HSBC are outsourcing parts of their operation to the Philippines.  This could also be a boast for financial services outsourcing in India.  Indian IT vendors earn over one third of their revenues from the banking and financial services sector.

Many outsourcing experts feel that there could be selective gains for BPO vendors due to consolidation that is likely to occur in the U.S. financial services sector.  They also believe that Information Technology outsourcing could increase as former investment banks like Goldman Sachs and Morgan Stanley become commercial banks.

“The key question is whether the crisis has already hit rock-bottom, or is there worse to come,” states Sudin Apte, an analyst at Forrester Research.  Peter Allen, Partner and Managing Director of TPI, Inc. offers his perspective on this issue: “Already, we are on path to be the greatest year in terms of outsourcing deals. In the first half, we have almost $50 billion worth of contracts. The third quarter is looking quite strong. However, my sense is there seems to be some slowdown in the fourth quarter largely because of the uncertainty”

As the song goes; “One man gathers what another man spills”, the pain being felt by some will result in a gain for others.  The economic hard times currently being felt in the U.S. offers potential for outsourcing as American companies look to cut costs by moving work to cheaper destinations offshore.  Positive fallout of this U.S.financial crisis is that Indian legal process outsourcing (LPO) firms doing bankruptcy work report an increase in business.

According to Derrick Lee, Vice President for enterprise of Alcatel-Lucent for Southeast Asia, “With the U.S. financial crisis, belts will tighten.  The financial industry, however, is just one vertical industry of Alcatel-Lucent.  It will have some ripple effect but this will also be an opportunity more than a crisis”. 

Could Government Controls Effect Outsourcing?

Some people also believe that government controlled financial institutions will be more reluctant to outsource than private companies.  This is an area that brings in little outsourcing revenue to begin with. There has been a backlash associated with outsourcing government agency jobs due to union/employee pressure.  As a result, government sector outsourcing has accounted for less than 5% of revenues for Indian vendors.

US Financial Crisis an Opportunity for Some

During this crisis, there are many “chicken little’s” out there who claim that this mess will cause the outsourcing bubble to burst.  In reality, it may open more doors than it closes.  As all companies in all industries become more budget conscious, virtual assistants and all types of BPO may become more attractive for businesses struggling to cope with higher overhead costs and difficult to obtain credit.