| A recession is defined as a decline in a country's | | | | whatever available resources they have. And they |
| Gross Domestic product (GDP) or negative | | | | would look at outsourcing option as one which |
| growth for two or more successive quarters of a | | | | could lead to sustained profitability because of the |
| year. | | | | lower costs involved and 24/7 availability of the |
| Recession is caused by any one or combination of | | | | outsourcing vendor. |
| the following factors: | | | | But at the other spectrum of the debate is rising |
| 1. Currency Crisis:- This happens when the value | | | | unemployment. In Nov'08, unemployment in US |
| of a currency changes quickly, undermining its | | | | was at 4.9% with economists predicting a further |
| ability to serve as a medium of exchange. | | | | rise to about 6% to 7%. In fact, in October, |
| 2. Inflation;- It is the result of a rise in the general | | | | 2008, the service sector of US shed about |
| level of prices of goods and services in an | | | | 240,000 jobs. And that's a huge number we are |
| economy over a period of time. | | | | looking at! |
| 3. National Debt:- Recession follows when a | | | | And this has stirred the conscience of many a |
| sovereign government is unable to pay off | | | | businesses. The thinking is: when my own |
| national debt. | | | | countrymen are losing jobs, why do I ship jobs to |
| 4. Speculation & economic bubbles:- | | | | other countries? I could very well help few of my |
| Speculation causes prices to deviate from their | | | | countrymen offering jobs at reduced costs. |
| intrinsic value. Recession follows when such hyped | | | | While this line of thinking is certainly appreciable, it |
| prices crash. | | | | is pertinent to note that outsourcing is not a tool |
| 5. War:- When two or more nations are at war | | | | to reduce job opportunity in a country. |
| over a considerable period of time, it can prove | | | | Outsourcing should be used as a strategic tool for |
| to be a drain on the economy and can result in | | | | a business to grow and not look at it as a mere |
| recessionary trends. | | | | tool for cost control. |
| 6. Under consumption:- When there is under | | | | Here is a small illustration of what it means: |
| consumption it leads to a situation where | | | | Suppose a businessman A has an in-house |
| stagnation will set in as production will be stopped, | | | | accountant to record his daily transactions and |
| resulting in recession. | | | | prepare the monthly Income & Expense |
| 7. Over production:- If there is over production on | | | | Statement for helping the businessman to take |
| a large scale, it would lead to the reduction in | | | | strategic decision about his business. On an |
| value of the produced goods, thereby leading to | | | | average, the hourly rate for an accountant (with |
| lower prices and unsold stock. | | | | less than 1 year of experience) is $14.14. The |
| The current recession seems to be the fallout of | | | | monthly fixed cost assuming a 40 hours week |
| bursting of Economic (read Housing) bubble and | | | | would be $2,262. And this is only for accounting. |
| overproduction (read over availability of mortgage | | | | The businessman has to again shell out $300 |
| credit). | | | | upwards for preparing his business's tax return |
| The real estate prices had been growing to | | | | from a CPA. |
| astronomical figures due to hyped demand. This | | | | On the contrary, if businessman A decides to |
| hype in demand had been caused by | | | | outsource his entire accounting function to an |
| over-availability of easy credit. When there was | | | | outsourcing vendor in India, at the lowest quote |
| snap in one of them, the entire bubble burst. Add | | | | available for outsourcing accounting, he would be |
| to that, the continued rise in oil & steel prices | | | | charged $1,280 per month for all services including |
| and the stage was set for recession in US. The | | | | the tax return preparation. Add to this, the |
| involvement of big players the world over | | | | benefit of getting highly professional reports on |
| resulted in this enormous recession in the entire | | | | the current state of the business which would be |
| world. | | | | far better than reports generated by an |
| The recession in US has been confirmed by a | | | | accountant with less than a year's experience. |
| negative growth of GDP. In fact the GDP in US | | | | So, cost wise, it makes sense to outsource |
| has shrunk 0.5%, the most since 2001 (when the | | | | accounting to outsourcing vendor in India. But |
| last recession took place). | | | | doesn't that mean making one person jobless? |
| What has been the fallout of this recession in US? | | | | Not necessarily. The person's time can be split |
| Bankruptcies | | | | into: time to interact with the outsourcing vendor |
| Squeeze in credit availability from banks | | | | for reports etc. and time for the core area of the |
| Foreclosures | | | | business. This would have two pronged effect on |
| Reduced sales | | | | the person and the business:a) The person would |
| Stock Market crash | | | | be able to generate additional direct revenue for |
| Rise in Unemployment | | | | the business and also learn a lot from associating |
| So, how does recession impact outsourcing? | | | | with professionals at outsourcing vendor's office.b) |
| As it has with all other forms of businesses, | | | | The business gets additional revenue while cutting |
| recession also has a huge impact on outsourcing. | | | | down the overhead. |
| And the impact on outsourcing can be as varied | | | | Thus by associating with an outsourcing vendor in |
| as the two poles! | | | | India, you can do business without hurting your |
| Since in recessionary times, there is severe credit | | | | conscience! |
| & fund crunch, businesses will like to optimize | | | | |