Here’s an interesting press release I received last week:
“IBM bucked tech industry trends this week by reporting a healthy fourth quarter profit and even a feel-good forecast for 2009 – based heavily on the contributions of the company’s software and service business. IBM registered a 20% jump in outsourcing contracts and related work – solid proof that while many companies are cutting back on overall IT spending, the recession appears to be giving a boost to IT and business oursourcing, particularly as a means to cut core operating expenses. For some industry context behind IBM’s strong performance – we offer the latest annual review of Global Sourcing Trends by law firm Morrison & Foerster.
This is the third year that Morrison & Foerster has produced a macro year-end/year-ahead review of the global sourcing landscape. This year’s report comes amidst some extreme events impacting the industry – not only the economic crisis, but in the wake of the recent terror attacks in Mumbai and the startling financial fraud unfolding at India sourcing giant Satyam.
Among the current trend lines reported by Morrison & Foerster for the coming year:
A pronounced shift toward cost-driven deals: “Many companies are looking to drive further value and cost improvements on existing deals, often via re-negotiation, service levels and other key terms.” In other words, this could be a good sourcing buyer’s market;
A probable slowdown in new sourcing activity among financial service firms, which traditionally have fueled sector growth; instead, look for institutions to “maximize value and rationalize existing deals” – again putting pressure on cost structure;
Some shakeout is all but guaranteed among service providers, some of whom will endure not current market conditions; survivors will be those “that have sector and geographic diversity, well-managed overheads, and deep, long-term customer relationships.”
At same time, consolidation among largest sourcing firms will mean “less leverage for customers in future negotiations;”
Expect to see more attention on new risk and liability provisions in existing contracts regarding data and privacy breaches;
The Satyam scandal is certain to prompt a “flight to quality” by sourcing customers, with an attendant surge in due diligence;
An unfortunate bi-product of the financial crisis will be a rise in disputes, including litigation, as corporate purchasers become less inclined to waive or ignore potential liability claims.
Morrison & Foerster has one of the most active sourcing law firm practices internationally. Recent engagements include representation of the UK’s official Revenue & Customs authority as well as New York University Hospitals Center in its long-term IT sourcing agreement with IBM and Lenovo Group valued at more than $600 million. The group’s key members handle global projects primarily from the firm’s New York, London and Hong Kong offices.
Please click here to see the full 2009 Sourcing Trends “