Satyam fraud, Mumbai attacks hit India as outsourcing destination

WASHINGTON - A downturn in worldwide economy, Satyam’s fraud case and the terrorist attacks in Mumbai and supply chain and shipping cost issues in China are causing US technology companies to pull back from the two traditional outsourcing locations.

Citing these three global factors, an annual survey by BDO Seidman, LLP, one of America’s leading accounting and consulting organizations, Tuesday suggested several technology firms would choose US as future outsourcing location over India and China.

‘While last year may have produced an outsourcing bubble, 2009 will see companies retrench to survive in the face of reduced demand. The US has become a far more viable option for them,’ said Douglas Sirotta, a Partner in BDO Seidman’s Technology Practice.

‘This year we are seeing three global factors that are causing US technology companies to pull back from traditional outsourcing locations, led by the recent boom and bust of the worldwide economy.

‘Satyam’s fraud case and the terrorist attacks in Mumbai are causing a lot of companies to reconsider operating in India. And supply chain and shipping cost issues in China are negatively impacting the attractiveness of outsourcing technology operations to the Far East.’

Currently nearly two-thirds (62 percent) of chief financial officers (CFOs) at leading US technology businesses say that their companies outsource services or manufacturing, it said.

However, the survey results point to a likely decline in international outsourcing in 2009: 22 percent say the United States is the outsourcing destination they are most likely to consider in 2009, compared to 16 percent for China and 13 percent for India. Another nineteen percent report no interest in additional outsourcing.

The survey conducted in January 2009 examines the opinions of 100 chief financial officers at leading technology companies located throughout the US. Other major findings:

* Less than half (42 percent) of the CFOs indicate that they have operations outside the US, compared to nearly double that amount (79 percent) last year.

* Nearly a third (29 percent) of respondents say their primary concern regarding international growth is an uncertain business or political climate.

* About a quarter (26 percent), cite international business and tax regulations, with 21 percent citing currency risk, 14 percent intellectual property risk and exploitation, and 10 percent training of international employees as their primary concern.

* Currently the most common non-US locations for outsourcing are India (50 percent), Southeast Asia, including the Philippines (31 percent, down from 50 percent in 2008), China (19 percent, down from 46 percent in 2008), and Western Europe (19 percent).

* For future outsourcing, the CFOs most frequently cite the United States (22 percent), followed by China (16 percent), India (13 percent), Southeast Asia, including the Philippines (7 percent), Latin America (7 percent), Western Europe (6 percent), Canada (5 percent) and Eastern Europe (3 percent).

* Of those outsourcing, the most common functions being off-shored currently are: manufacturing (54 percent), IT services and programming (46 percent), research and development (35 percent), distribution (35 percent) and call centres (35 percent).