Tholons, an advisory, investment and research company for IT/BPO/KPO services globalization, earlier announced the firm’s predictions for 2009 outsourcing trends. Against the backdrop of a global economic downturn, service providers in the outsourcing industry are experiencing sluggish growth, diminishing margins and downsizing. Service buyers are reducing IT budget allocations but still under immense pressure to reduce cost and survive.

Despite the uncertainty, Tholons maintains that the long term demand for outsourcing remains intact. Lower margins will push providers to better utilize existing resources, leverage operational levers, implement new technologies efficiently to differentiate themselves and improve service delivery processes. Clients, with reduced IT budgets will be more selective – demanding stringent SLAs, greater contractual flexibility and output/result based payments.

The top ten Global Outsourcing trends in 2009 according to Tholons:

1. The market downturn will impact revenues during the first 2-3 quarters before picking up and ending the year on a stronger note

2. Focus on domestic markets (such as China, India, Argentina and Brazil) to increase

3. Global economic downturn will lead to increased outsourcing in Healthcare, Education, Retail, Telecom and Legal Process Outsourcing (LPO)

4. Governments to take special initiatives in promoting destinations. Cebu City, Shanghai, Beijing, Ho Chi Minh and Krakow make up the top 5 spots in a recent Tholons study.

5. Clients will increase geographic diversity in their service delivery locations. Newer service delivery geographies are emerging with niche capabilities – “the Philippines has exhibited spectacular growth, with BPO export value aggregating close to 50% of India’s BPO exports.” Vietnam is emerging in IT services.

6. Pricing pressures will result in reduced rates and new measures to achieve cost savings and higher productivity

7. Consolidation imminent for small players – focus away from large deals

8. Outsourcing revival by 2009 end – driven by small to mid sized (SME) clients

9. Strong focus on innovation, R&D and technology adoption will be key differentiators for providers.

10. Sourcing deal sizes will increase for large clients

According to Avinash Vashistha, CEO, Tholons, “Service buyers will need to re-assess their outsourcing strategies and implement a better mix of multi-sourcing, nearshore and offshore models, while service providers will look to tap growing domestic markets as a means to hedge against the volatility of existing offshore contracts.”

These shifts will significantly induce a high degree of consolidation – smaller and less efficient providers may face difficulties in tapping new revenue streams and will be prone to acquisition or outright dissolution. Paul Santos, Managing Director, Tholons Capital says, “It’s an opportune time for the larger players to continue their string of strategic, niche acquisitions. In an increasingly competitive market, and improbable economic state, the mantra of only the strong will survive has never been more relevant.”