'Blood on the carpet' ahead for outsourcers, says analyst research Spare a thought for those poor multinational outsourcers, who continued to work a lot harder just to maintain the same level of business seen in the last quarter, due to the worldwide trend away from mega deals. According to analyst house ISG, for the third quarter this year, global IT outsourcing spend remained flat at $5.6bn …
I agree - locals *should* get a boost - which led to another thought:
What would happen, if for whatever reason, China decided to shut all their electronic component lines down? How long would it take for a country to tool-up to produce components like motherboards, processors, etc?
Quite a while, I would expect - my guesstimate would be two to three years as a minimum, provided several billion euros were available on demand.
The really scary thing is that China could just decide to stop selling to the round-eyes and subsidise the workers for a while. It would have to take a fair-sized international bust-up for them to do that, but they might do it if pushed too far.
Outsourcing is another thing that illustrates the most fundamental security principle of all - if it's not under your direct control at all times, there's a risk that Something Bad could happen to it. But try telling that to Wall Street or the City.
But how much Chinese money has now been sunk in to western economies? Can they afford to cut us off at the knees?
There is still a deadly embrace between east and west and I'm sure it will continue until at least the home demand (e.g. rising Chinese 'middle-classes') rises enough to cover a significant amount of the short-fall in demand from the west.
I believe a reason Chinese growth acceleration is now beginning to fall off could be the lack of internal demand for goods and services.
Don't forget that while China is the largest manufacturer of electronics it isn't the only one by a long way. If they suddenly decided to stop supplying the rest of the world there would be shortages and price rises in the short term but long term new plants would be built to take up the demand.
Chip manufacture goes on around the world, before China the big players were in Japan and Taiwan, now you have South Korea to add to that mix. Those are only the biggest players. There's a chip fab plant around five miles from where I live in the UK, for example.
Ramping up capacity is what takes time, these days the clean room environment that's needed takes around four to five years to establish once a plant is built meaning that you're looking at around a six year lead.
"He said many of those large providers have been reliant on being friends with the CIOs in large enterprises, but in the future that will no longer be sustainable."
Interesting. That's basically an admission that the reason so many of the outsourcing deals have happened is due to 'insider trading' - i.e., the deals never went properly out to tender to find good quality, good value propositions. The exhaustion of those relationships might very well be the reason these deals are becoming less common.
The exhaustion of those relationships might very well be the reason these deals are becoming less common.
In part, but there's another major difficulty, and that's the number of companies (like mine) that sucked good and hard on the outsourcer's Kool-aid, and then found that the outsourced service was crap, the savings were illusory, and then found that they didn't have the capacity to take it all back in house because the outsourcer had transferred any good TUPE victims to their newest (or most valuable) contracts, and sacked the balance of moderately good but highly experienced TUPEs on cost grounds.
So when the deal with the first round outsourcer comes up for renewal, all the other board members point at the CIO and say that this time round they hope that there will be both the better service and the savings originally promised. There won't be, of course, but that is for the ghost of Christmas future yet to reveal.
And they will keep on wondering until the situation gets bad enough that they have to lower their bonuses.
At that point, Something Must Be Done, and that will be the point where this outsourcing malarky will finally fall through the floor.
With a bit of luck, someone might point out to them that The Cloud is on a similar track, albeit for different reasons (mainly security), and let them take their time for the light to turn on.
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