Outsourcing cost effectiveness

January 13th, 2009 By Scott Savage Categories: Business, software

Satyam Headquarters

The Satyam outsourcing fraud was a story that I found interesting this week. I think outsourcing can be cost effective from a companies perspective, but it appears that it isn’t always cost effective from an outsourcers perspective. From the ZDNet article is was revealed that:

And during the September quarter, the company also reported inflated revenue of 27 billion rupees, vs. actual revenue generation of 21.1 billion rupees. That resulted in artificial operating margins of 24 per cent of revenue, compared with its actual 3 percent margin.

Three percent margins are nothing to be proud of, even in a competitive market. I wonder if the 12%+ annual wage growth is finally catching up to the outsourcers, or whether it is simply an overly competitive market and the weaker players are being squeezed out? I would guess that the market is being squeezed from all directions. I wonder if the global economic problems will help or harm outsourcers. I guess companies will weigh up the risks versus cost benefits as always, I just wonder whether the balance has tipped in the favour of the conservatives wanting to keep their core advantages in-house. I guess frauds like the Satyam one don’t boost confidence much either.

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