A Big Slowdown expected in Outsourcing by 2013: Morgan Stanley

A recent report from Morgan Stanley predicts a big slow down in outsourcing by 2013. They claim that since the financial crisis in 2008, revenue growth in outsourcing industry is facing severe crisis and is on a steady decline.

Morgan Stanley is a multinational firm offering financial services, security based services, asset management services and credit services. Their business are mainly scattered in areas of wealth management, asset management, and institutional securities. They operate in 42 countries with 1300 offices and 60,000 employees.

ms outsourcing leading indicator model

Katy Huberty, IT services analyst, Morgan Stanley and Adam Parker, chief U.S. equity strategist introduced a new model that can indicate the quarterly revenue growth of outsourcing industry. This model is called as ‘Morgan Stanley Outsourcing Leading Indicator Model or MSOSLI’. It is used to find out the growing outsourcing trends based on the data from IT majors like IBM, HP, Dell Accenture, etc.

Though revenue outlook for each of these firms is company specific, it will affect global outsourcing trend also. Industry majors like GM has decided to bring their IT operations in-house. The outsourcing revenue growth model of Morgan Stanley, MSOSLI, consists of three macro as well as three company specific factors.

The graph as well as the table shows a decelerating growth in business process outsourcing trends by 2013. The inflection is BPM sector is quite noticeable and it is in a wave of fall similar to the downthrown trend shown in 2009. After that recession period, IT outsourcing showed positive signs of improvement.

Reports show that, Accenture’s revenue growth remained healthy till F4Q12. In case of IBM 3Q12 revenue grew +1%. Atos reported an outsourcing revenue growth of +1% on an organic basis in 3Q12. The figures given here strengthen the prediction made by Morgan Stanley in their recent reports that outsourcing industry is going to face a slowdown in 2013.

Firms can expect a deceleration in outsourcing as predicted by leading indicator models. Therefore it is better for them to look on the measures that can resist this global slowdown that tends to arise in the coming year. Analyzing present situations and making their strategic planning intelligently will help firms to minimize the impact of this big outsourcing slow down that is expected in the global outsourcing industry next year.

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