Why Outsourcing is Beneficial in Recession Times
- IT Outsourcing in a recession: core advantages
- How did outsourcing help companies survive the recession in 2008
- How to outsource effectively during a recession
- IT outsourcing benefits with Coreteka
- FAQ on IT outsourcing during recessions
- Conclusion
Although the preceding recession has hardly given companies enough time to recover, a new economic shake seems to be on its way. The rising food and petrol prices in the USA, the global supply-chain issues, and severe monetary policy in an attempt to reinforce the U.S. dollar indicate the upcoming economic turbulence. Furthermore, the downfall of the American stock market by 15% and massive layoffs witnessed a receding economic phase. Thus, the number of lost jobs in the tech industry is 50% higher in 2023 than in the previous year.
One of the core global players, the U.S. will affect the economic conditions of the other countries, so it’s time for companies to take precautions. The success and mere survival under recessionary conditions depend on the company’s ability to adapt to tougher constraints while retaining quality and efficiency.
Outsourcing is a proven way to reinforce a competitive position and address the altering demands. Through this article, we will discuss how outsourcing benefits businesses during a downturn and how to delegate software development effectively in stormy times.
IT Outsourcing in a recession: core advantages
A recession can cause serious social and economic repercussions, including increased unemployment rates, lower access to credit, and higher poverty levels. The unfavorable consequences of economic shocks affect businesses throughout all industries. The thing is, how well a company is prepared to face the impacts.
Will there be a recession in the IT sector, which is always at the forefront of innovation? The tech industry is one of the most sensitive spheres affected by economic uncertainty. Therefore, the counter strategies for IT businesses are crucial to withstand unfavorable conditions.
What makes outsourcing a feasible solution in stormy times?
Outsourcing during a recession in the IT sector in 2023 can help businesses navigate the emerging challenges in the following ways:
- Cost optimization. Thanks to outsourcing, companies can drastically cut their costs, which is crucial under toughening economic conditions. By delegating tasks to a third party, you can minimize labor and operational expenses. Specifically, the IT sector gives plenty of space for outsourcing time-consuming assignments that require tech expertise that in-house employees may lack.
- Elevated efficiency. External service providers typically possess deep expertise in particular fields and have vast knowledge and tools for greater efficiency. Therefore, they can expedite turnaround times, provide superior quality, and delight their customers.
- Access to qualified professionals. Outsourcing grants you access to a broad range of experts with skills and knowledge that perfectly match your needs. Instead of hiring additional staff or training your existing personnel, you’ll pass the job to highly qualified professionals who will help you take a stance against the competition throughout a downturn. This is particularly effective in the IT sector, where novelties appear every day.
- Flexibility. The market demands during a recession are altering rapidly, which requires flexibility from businesses to respond. External partners can quickly adjust their services and involved teams, expanding or reducing them, which enables companies to keep up with market changes.
- Risk alleviation. During a recession in the IT sector and other industries alike, the market features high volatility. Outsourcing business tasks makes a company less susceptible to economic uncertainty and fluctuations. Furthermore, external partners can share some risks, such as data compliance and security.
Discover more benefits and risks of IT outsourcing.
How did outsourcing help companies survive the recession in 2008
An economic shake is a stress not every company can sustain. From industry giants to small startups, businesses cut their costs, lay off employees, or even collapse. Those who implement competent counter strategies manage to survive. Several remarkable examples demonstrate how stepping on the outsourcing path during a recession saved companies and even kept them growing throughout the downturn in 2008.
Apple: Squeezes the maximum IT outsourcing benefits
Apple broadly utilizes the outsourcing approach. One out of three engineers in the company is outsourced. The tech giant outsources talents to countries with a less expensive labor force, which allows for significant savings. The primary directions for outsourcing are IT and manufacturing. Although the recession in the IT sector was facing India and China as well, these countries were favorable outsourcing destinations throughout a tough period. Apart from those, Apple collaborated with talents from Eastern Europe.
IBM: Strategic global outsourcing
IBM stands out as an influential tech industry player that has expanded its strength through strategic outsourcing and collaboration with top-notch talents worldwide. The recession of 2008 reestablished the company’s authority and proved that outsourcing is a viable solution for an enterprise to stay on a surge.
Netflix: An expansion throughout the recession
Netflix is a renowned global streaming service providing on-demand user videos. This entertainment startup survived the 2008 economic distress and even managed to thrive. With the help of outsourcing, the company handled the tough external conditions and effectively addressed the market’s demands.
Cisco: Outsourcing, leading to business stability
Outsourcing is one of the strategies that helped this tech giant to withstand the downturn of 2008.
Cisco implemented successful partnerships resulting in higher resilience during economic uncertainty. The company outsourced aspects of manufacturing, logistics, and certain support services, allowing Cisco to concentrate on its core competencies. Ultimately, the organization even expanded its businesses and managed to occupy leading positions in the market.
Google: Flexibility through several recessions
Google has successfully come through several recessions, while one of the significant contributing factors was IT services outsourcing. By leveraging remote teams, the company reduced labor costs, accessed experts globally, and relieved the load on in-house teams.
Skype: Outsourcing as a part of counter-recession strategies
Skype is another example of a business that retained its strength during a tough period. The company’s management seized the opportunity and outsourced primary back-end development talents. Together with other effective strategies, this approach allowed Skype to retain profitability throughout the economic downturn.
How to outsource effectively during a recession
Outsourcing has a proven efficiency against economic distress. This strategy is particularly workable in the IT sector, as the tech industry is highly susceptible to economic shakes.
IT outsourcing benefits give a hand to companies struggling for survival throughout the economic uncertainty. However, you’ll need to approach outsourcing wisely to gain the maximum value.
By figuring out IT outsourcing benefits and disadvantages in your particular case, you’ll be able to shape the optimal path. We have compiled a list of steps to help you appropriately plan and prepare for the outsourcing process.
Set up a scope of work
Understanding what tasks you can delegate to a third party is the fundamental stage of your outsourcing activity. From a specific assignment to the job of an entire department, you can engage external specialists for whatever project you need. Identify which tasks will benefit your company most, which of them can be performed more efficiently by a third-party partner, and which you can afford. This will determine the further stages of the outsourcing journey.
Analyze the expenses
The clearer the scope of work you set up, the easier it is to estimate the costs. You might also want to compare the prices of several potential partners. Likewise, analyze the costs of performing the jobs within and outside your company. Such a comparison will help you assess the feasibility of each option and determine the most appropriate conditions.
Define your requirements and measurement criteria
A supplier must have an explicit vision of the buyer’s expectations. Vague requirements may lead to a project failure. Therefore, your outsourcing proposal request should contain clear-cut assessment criteria and overall goals. Then, you’ll be able to adequately evaluate the supplier’s work as well as the general project’s success.
Select a trustworthy partner
The gains of your outsourcing endeavor depend on who will perform the job. Work out a compelling request for proposal and share it with a selected range of professional suppliers. Then, meticulously analyze the received offers and choose the best value for money. What factors should you take into account? Primarily, pay attention to the following:
- Contractor’s experience and portfolio.
- Customer reviews.
- The available scope of services.
- Prices.
Choose an engagement model
You can select one of the three typical outsourcing models to optimize your budget:
- Time and material.
- Fixed price.
- Dedicated team.
The most appropriate model in your case will depend on the project scope, timeline, budget, deliverables, and other factors.
Learn more about selecting the right software development pricing model.
Sign the contract
When you are ready to start your cooperation with the chosen supplier, arrange and sign a contract with them. A written agreement is necessary as it outlines the roles and responsibilities of both parties and helps settle potential contradictions.
The contract should indicate all the work that needs to be done, the timeframe of the project, assessment criteria, confidentiality, and intellectual property ownership.
IT outsourcing benefits with Coreteka
Coreteka has been successfully implementing IT innovations for more than seven years. Our team of qualified professionals helps companies worldwide address their software challenges and bring their tech ideas to life.
We offer all types of outsourcing services to match the demands of our customers. Our talents come from Central and Eastern Europe, which brings numerous sound advantages. Overall, this region is considered the best for outsourcing, and there are several good reasons for that.
- Lower taxes than in America;
- Less expensive labor costs of software developers; here is a detailed comparison of software development costs in the USA and Eastern Europe.
- High language proficiency. The average level of English in our team is upper-intermediate, while all PMs have no less than advanced English level;
Furthermore, we treat each project with dedication and responsibility, striving to maximize value for our clients.
Whatever cooperation model you choose, you can be sure that we select the specialists that perfectly match your task requirements. We’ll arrange a team or individual experts for you quickly and effectively, enabling you to kick off your project as soon as you need.
FAQ on IT outsourcing during recessions
Several factors point out an approaching recession in the USA. They include the rising prices, the global supply-chain issues, and the severe monetary policy of the Federal Reserve System to reinforce the U.S. dollar. Furthermore, the downfall of the American stock market and massive layoffs witnessed a receding economic phase. The recession is likely to shake the U.S. in 2024.
The COVID-19 pandemic triggered the shift to remote work and accelerated digital transformation. Overwhelmed by the rapidly changing conditions, companies sought IT specialists to address the emerging software development needs. Today, there is no need for extensive IT teams, while the overall economic situation requires cutting costs. Therefore, companies started to reduce the number of tech staff.
Experts assess the approaching economic downturn as mild and expect it to hit the USA in the middle of 2024. The worsening economic situation, however, is expected to go along with an inflation slowdown by the end of 2024. The impacts of the recession will depend on the monetary policy implemented by the Federal Reserve System. Another global economic giant, China, is experiencing a weakening growth, which will also affect the worldwide economic conditions throughout 2024.
Fortunately, recessions do not last very long. Typically, they persist between six and 18 months. However, the exact duration of the economic downturn depends on numerous external and internal factors and is hard to forecast.
Conclusion
While outsourcing is a proven way to stay on a surge during a recession, it’s vital to approach it strategically. If you develop a wise outsourcing strategy, you can enjoy reduced costs, increased efficiency, access to highly qualified experts, flexibility, and risk mitigation. The experience of global players throughout the past downturns witnessed that outsourcing in severe times allows businesses not only to survive but also to expand.
The right partner will ease your path by helping you at every stage of the outsourcing process. Coreteka’s experience is vast and spans diverse industries. Our tech specialists possess the required knowledge and skills to handle your project during a recession without inflicting extra stress and expenditures.
Contact us to start implementing your idea and be prepared to curb the undesired external impacts on your business.
