The Current Global Tensions Affecting the ITES Outsourcing Industry

IT-enabled services (ITES) outsourcing has grown exponentially over the past two decades. Currently, its market size stands at $92.5 billion, with cloud computing amongst one of the most outsourced services.

ITES outsourcing is expected to grow by around 20% annually over the next decade as businesses worldwide speed up digital transformation initiatives and renew existing contracts with IT vendors, according to Economic Times.

This industry, like any other, is impacted by global changes concerning new trends adopted, economic fluctuations, and geopolitical situations.

The current global tensions impacting the ITES outsourcing industry are as follows

The COVID-19 Pandemic Situation

The COVID-19 Pandemic was a disruptive force that necessitated significant changes in the functioning of businesses, with the top priorities being business continuity and employee safety. The ITES sector remained relatively resilient during the pandemic and experienced a faster bounce back.

Business process management companies that handled critical functions for some of the world’s largest corporations were forced to halt a large part of their operations in severely affected countries like India, the Philippines, China, etc. This resulted in many countries adopting self-reliance strategies and near or back shoring of IT services to reduce risk and expenditure.

Moreover, the ITES outsourcing industry also had to deal with the many challenges of the remote working system, such as data security, internet bandwidth, and fraud risk, further enhancing the expense burden.

The Ukraine Crisis Effect

The Russia-Ukraine discord and the ensuing crisis is another global situation that has profoundly impacted the ITES outsourcing industry. 

Ukraine is a critical outsourcing region that exports $6.8 billion in IT services annually and employs more than 240,000 technology workers, according to the trade group IT Ukraine Association. 

The dispute in this region triggered a talent relocation drive of thousands of IT professionals to nearby safe zones, affecting the IT service supply to North American and European client organizations.

Since Russian and Ukrainian companies also form a critical part of the semiconductor supply chain, with Russia being the largest producer of palladium used in semiconductor chip production. The unrest intensified the ongoing global chip shortage induced by the pandemic, affecting the supply of hardware such as laptops, personal computers, smartphones, etc. 

This not only meant a disruption in the functioning of the hardware-reliant ITES industry but also incurred extra costs due to the resulting hardware price inflation.

The Tensions Due to Inaccessibility of The Taiwan Strait

Another global situation that threatens to impact the ITES outsourcing industry is the brewing tension between China, Taiwan, and the USA due to the inaccessibility of the Taiwan Strait.

Since Taiwan accounts for 63% of semiconductor production and manufacture of 90% of the high-performance chip under 10nm worldwide, according to TrendForce. Political tension in the region could further aggravate the global chip shortage and disrupt the hardware supply, forcing a wave of price inflation across the ITES outsourcing industry.

Any conflict in the region could also hamper the growth of the Business Process Outsourcing (BPO) Industry in China, impacting ongoing outsourcing projects with Japan, Korea, and the USA.

The Looming Fear of Recession

There is mounting anxiety globally over the raised U.S. debt ceiling and economic growth stalling. This could affect the global ITES outsourcing industry, although analysts think the overall demand for IT services is unlikely to dry up.

Additionally, IT-Business Process Management services are expected to experience some recessionary impact on growth as concerns over inflation and recession grow across the United States and Europe.

If the recession occurs, outsourcing vendors will probably face reduced deal size, shorter contract periods, or even requests for more value at lower prices. 

On the upside, a recession may result in a greater emphasis on cost efficiency, pushing organizations to outsource their non-core business processes to specialized outsourcing service providers who can offer them sustainable business and financial advantages in the long term.

Other Global Situations Impacting the ITES Industry

There has been a sharp increase in phishing attacks, ransomware/malware attacks, and other cyber threats in 2021, impacting the ITES outsourcing industry by threatening critical data security and disrupting supply chains.

In 2021, nearly 40 percent of breaches featured phishing, around 11 percent involved malware, and about 22 percent involved hacking, according to Verizon. These cyber-attacks have also increased fears of monetary loss and reputational damage among both IT outsourcing customers as well as service providers.

Conclusion

Despite the various global situations affecting the ITES outsourcing industry, it has adapted well and continues to show prolific growth, with more organizations outsourcing their operations to enhance business productivity and efficiency.

BackOffice Pro is a global business process outsourcing company that works towards sustaining business continuity in the ever-changing global situation, ensuring strict adherence to ISO quality standards, high accuracy levels, and quick turnaround times.

Tags: Business Process Outsourcing, IT enabled services, IT Outsourcing, IT outsourcing customers, IT services, ITES Outsourcing, ITES Outsourcing Industry