The software outsourcing industry is an active, rich and vibrant industry. The industry is worth billions of dollars and represents countless jobs all around the world. In normal economic times and conditions the software outsourcing industry is booming and highly active. However, what will happen to the industry during an economic recession or an economic slowdown? Will the software industry continue to remain active and profitable with no job losses during an economic recession? Or will an economic recession trigger job losses and diminished profitability drastically affecting the software outsourcing industry?
An economic recession or an economic slowdown is characterized by negative or very slow economic growth. An economic recession is likely to have an adverse impact on unemployment leading to salary decreases. There will be fewer job openings in firms and employers will struggle to hire or employ new tech personnel. Furthermore, an economic recession can vary in that there are different types of economic recessions. A small or medium-impact economic recession is going to be less problematic and troublesome for businesses. However, an extremely high-impact, full-on economic recession is going to be more difficult to weather. It is also important to consider the impact of a recession on a related field to outsourcing- offshore software development.
So how does software outsourcing come in and what is the link between an economic recession and outsourcing? All companies adjust their business practices in response to changing economic circumstances. The business practice and industry under consideration here in this article is outsourcing. This is particularly the case because outsourcing is a business practice that can assist a firm to cut costs (all types of costs) and thereby increase its profitability. Peter Drucker, the acclaimed management consultant once noted ” Do what you do best and outsource the rest. ”
There are 9 reasons as to why during a recession or an economic slowdown, the outsourcing industry is not affected, adversely. Outsourcing will continue to take place and the industry will continue to thrive during a recession. Each of these reasons will be considered here in turn.
1. The first reason as to why an economic recession or an economic slowdown will not affect the software outsourcing industry is simple. This reason is based on necessity. In terms of digitalization, a large variety of healthcare, banking, technology, e-commerce and media companies outsource a large proportion of their activities to contractors. Take the healthcare and retail industry. We did not expect companies operating in this industry to digitize so rapidly- building mobile and web applications by themselves. However, the reality of the market is that this is an essential step to make or maintain profitability across digital platforms. In these circumstances, companies approach outsourcing companies rather than arranging an internal team of software developers or IT staff or expanding an existing team. Thus even during times of an economic recession or an economic slowdown the need for outsourcing does not diminish.
2. The second reason that a recession or economic slowdown will not affect the outsourcing industry relates to costs and cost savings. A company can always perform all aspects of its business internally absorbing these costs into the business. However by partnering with a outsourcing company in the outsourcing industry, companies can save and reduce some of their costs. Costs can be cut using outsourcing in three ways. First, operational and staffing costs can be reduced as outsourcing will eliminate the need for an internal team inside the company to perform the same service. Second, technical expertise- the technical knowledge, know-how and skills of a outsourcing company will lead or translate into a reduction in the costs of the business as there will be no need to train and recruit skilled technical staff which saves costs. Third, outsourcing can lead to a much more speedy and efficient service which will reduce costs and bring down overheads. Furthermore, by partnering with an outsourcing company, companies can reduce some of these costs to gain a competitive advantage over their competitors and pricing. Instead of hiring new staff to service the software department it could be more effective to entrust this task to a more specialized outsourcer. The reduction in costs as a result of outsourcing can allow a firm to lower its prices and thereby compete more effectively in the market.
3. The third reason is that having a highly talented team of developers cannot guarantee that they can tackle every problem. It is critical to carefully evaluate the time and effort required for any assignment, since it is often not a wise decision to assign your top workers to IT support. Allocating internal resources to jobs that are fundamental to achieving business objectives will be more advantageous. Outsourcing can be a great way to maximize resources, ensuring that the best staff is directed towards the most important tasks. Trustworthy and knowledgeable outsourcing firms provide customizable alternatives and committed personnel who can jump into the project straight away. A company will not have to squander precious time getting new workers up to speed. Developers who join your venture will be able to make an immediate impact, irrespective of the size of your in-house group. Despite this, tasks can still be affected by sickness, vacations or unanticipated circumstances, so outsourcing guarantees a smooth process and successful completion of your IT task. In this manner, an economic recession will not affect outsourcing or the software outsourcing industry.
4. The fourth reason is that it is important for customers to employ the most up-to-date technology stack in current IT projects. This is crucial for finding specialists with immense experience in that particular field. Technologies evolve dramatically every year, making it difficult for the developers employed by many businesses to keep up with all of them. As a result, in order to utilize the state-of-the-art technology stacks, outsourcing may be necessary even during an economic recession. Thus, in this way an economic recession will not affect the outsourcing industry as the demand for specialized skills that can be acquired via outsourcing will not reduce during an economic recession or an economic slowdown.
5. The fifth reason is that many small businesses lack the resources to implement the programs, software and services they require. Typically, these licenses and subscriptions come with hefty price tags. Furthermore, equipment maintenance costs can add up quickly – something that only large companies can usually afford. However, outsourcing IT activities allows small businesses to compete on the same level as bigger organizations. Moreover, when customers have a specific local problem that requires specialized technical personnel, it may not be feasible to recruit or hire the needed experts. This process can take a lot of time and money or may be delayed for too long. This point thus indicates how an economic recession will not affect software outsourcing.
6. The sixth reason is that rapidly expanding companies must be equipped to accommodate new demands. At this stage of growth, many entities need to ramp up their IT support resources. Yet, within the team, hiring is typically both costly and impractical. Moreover, these progression teams generally have a permanent size and scope. Building an internal team to adapt to varying business needs can be both expensive and slow. Thus, by allying with an outside supplier, you can avoid such issues and tap into a scalable answer that can be extended as per your requirements. In this way, an economic recession will not affect outsourcing.
7. The seventh reason is that even during an economic recession the software outsourcing industry will continue to produce high-quality products which will be in very high demand. The quality of current software products is a major factor in their success. With countless users now relying on information systems, even the slightest glitch can cause significant issues. An economic recession will not affect the quality of products in the outsourcing industry as finances will still be allocated to outsourcing companies for producing high quality products. Therefore, according to this reasoning an economic recession will not impact outsourcing and outsourcing is an excellent method of acquiring high-quality software products.
8. The ninth reason is that over the past few years, traditional software outsourcing has evolved into disruptive outsourcing. New technologies like the Internet of Things (IOT), Artificial Intelligence (AI)/Machine Learning (ML), 5G connectivity and Blockchain are driving unprecedented change in companies with the ambition and ability to cross the technological divide. To compete in today’s market, businesses need to embrace digital transformation in order to stay ahead of the rapid technology changes. According to Gartner’s report, by 2020 there will be approximately 7.6 billion people with approximately 100 billion connected devices operating approximately 1 trillion applications. A knowledgeable software vendor can come to the table with technical proficiency to design applications strategically and meet specific business needs like utilizing predictive analytics to spot events causing sudden spikes in traffic. In this manner, an economic recession will not have an impact on the outsourcing industry.
9. The tenth reason is that creating a complete product cycle can take a substantial amount of time. The length of the process usually depends on the scope of the project and what its purpose is for a business. A native or cross-platform hybrid application can likely be created in a few months, however, constructing an intricate platform that utilizes Artificial Intelligence (AI) and Machine Learning could take multiple years. Outsourcing software development to an experienced firm can expedite time-to-market instead of relying on internal teams, which also involves the time-consuming processes of recruiting and orientation. By adhering to industry standards, a trusted software outsourcing provider can produce a Minimum Viable Product (MVP) in up to 12 weeks by utilizing an agile methodology. Reaching this goal first is essential for any startup as there is always the risk of concept theft. Getting there first is everything and software outsourcing is an ideal tool to achieve this outcome which is why difficult economic conditions are unlikely to affect the outsourcing industry.
To illustrate this idea better let us use a mathematical analogy by looking at three different circles- Circle 1, Circle 2 and Circle 3. All three circles are of the same circumference and diameter and can be represented by the simple mathematical equation below.
Let the circumference (C) of each circle represent the software outsourcing industry. Allow pie and the diameter to remain the same. The radius will be varied in this thought experiment and represents the state of the economy. Radius 1 (R1) which corresponds to Circle 1 represents very high economic growth. Radius (R2) which corresponds to Circle 2 represents low economic growth. Radius 3 (R3) which corresponds to Circle 3 represents negative economic growth or an economic recession. The point to be made is that in all three circles (Circle 1, Circle 2 and Circle 3) and all three radiuses (Radius 1, Radius 2 and Radius 3) the variable C which represents the outsourcing industry remains constant or unchanged. The changes in the radius do not alter the circumference of the circle and therefore for the purposes of this article changes in the economic conditions do not affect the outsourcing industry in terms of jobs or employment or other parameters. In other words, during a period of economic recession or downturn, the outsourcing industry remains unaffected.
Let us develop this idea slightly further. This time let us vary the radius as above in all three circles- Radius 1, Radius 2 and Radius 3. Let us also vary the diameter for each circle as well (D). The diameter can represent another variable for example inflation which is an indicator closely connected to an economic recession. The diameter can be Diameter 1 for Circle 1, Diameter 2 for Circle 2 and Diameter 3 for Circle 3. In this example, with both radius and diameter altered, the C variable which represents software outsourcing remains unchanged or unaltered. Thus changing two as opposed to one variable will still not alter the outsourcing industry in any way, shape or form.
Thus taking the above ten points hand in hand as well as the thought experiment laid out one can see how an economic recession, economic slowdown or other adverse economic conditions will not affect the software outsourcing industry.
The technique of outsourcing was officially recognized as a viable business practice in 1989. Its use has drastically evolved since then, due to the difficulties businesses have been confronting. Nowadays, being successful and lucrative involves more than just having good products and services and promoting them properly – the digital age has presented new duties, advertising methods, and sales opportunities that companies need to handle. Developing corporate websites, emails and mobile applications is now essential for successful product promotion.
The main concept of outsourcing is to lower labor expenses. If we reach out to a software outsourcing firm, they employ and utilize workers who are not linked to our organization to carry out our activities. These businesses usually have their own payment plans with those specialists, meaning we can get certain jobs done for less money.
Thus developing the thought experiment outlined earlier in this article, businesses which use software outsourcing as a technique during a recession can serve to explain why an economic recession will not affect the software outsourcing industry. Since outsourcing became a business technique during an economic recession- one variable the radius, R is changed from Radius 1, Radius 2 to Radius 3. The circumference which represents the software outsourcing industry remains unchanged or unaltered. Adopting outsourcing as a business technique can be described as the reason for this observation. Similarly as explained earlier if both the diameter is varied- Diameter 1, Diameter 2 and Diameter 3 along with the Radius- Radius 1, Radius 2 and Radius 3 there will still be no change of alteration in the outsourcing industry which is represented by the circumference of the circle, C.
There have been numerous reports of corporate cost-cutting and layoffs, with some high-profile US technology companies leading the way. However, these cuts are primarily affecting traditional functions such as administration, accounting, human resources, and marketing. They do not appear to be affecting outsourcing.
Despite the tightening of the belt, software outsourcing appears to be holding up – or even increasing. But how is this possible? In such a bad economy, the natural result should be tech or job layoffs in the outsourcing industry. However, the pathology that emerges is the opposite- that is the outsourcing industry is not affected by an economic recession or other adverse economic conditions and there is no impact on job losses in the industry. To understand this phenomenon we can think of this like a chain with a series of links. The first link is the trigger which is difficult economic circumstances or an economic recession. This can be categorized by negative economic growth, high inflation, excessive taxation and other factors. The second link which follows from the first is that such tight economic conditions cause companies to layoff or cut down their workforce in a variety of sectors. The third link in the chain is the outsourcing industry which appears unaffected by link 1 and link 2. The outsourcing industry has almost acquired “herd immunity” and is immune from changing economic circumstances, which is a surprising outcome.
In conclusion, the data and information in the article above highlights how a period of economic recession can serve to accelerate the software outsourcing industry. The points made in the article indicate an increase in overall spending and employment even during tough economic times such as an economic recession is a likelihood in the outsourcing industry. This idea was illustrated by looking at a mathematical analogy of three circles- Circle 1, Circle 2 and Circle 3. By varying the radius for each circle -Radius 1, Radius 2 and Radius 3 which represents the economic situation in an industry, the circumference which represents the outsourcing industry remains unchanged or unaltered. In a second analogy, both the diameter (Diameter 1, Diameter 2 and Diameter 3) and the radius (Radius 1, Radius 2 and Radius 3) were altered to highlight the point that C which represents outsourcing still remains unchanged. In sum, companies and business leaders must study the data and analysis available on software outsourcing during a period of economic meltdown to make smart business decisions in the interests of their company.
Note: EFutures reserves the right to make changes to the content of this article accordingly. This article and its writings, thoughts, arguments, thought experiments, analysis, content and other indicia is the exclusive property of EFutures (Pvt) (Ltd) and is protected by copyright, trademark and Intellectual Property Law. No part of this article including text, arguments, ideas or analysis may be reproduced in any form without the prior written consent of Efutures (Pvt) (Ltd). This article was prepared by the content creation team at Efutures (Pvt) (Ltd).