The last few years have already been difficult because of the Covid-19 outbreak and Russia’s invasion of Ukraine. Nevertheless, when analysts started talking about the impending global recession, every business owner probably felt, “As if this isn’t enough.”
The term “recession” has come to represent a period of stagnation and decline in the global economy that many people take great pains to avoid. During periods of recession, consumer spending is drastically reduced, resulting in decreased economic activity which causes businesses worldwide to downsize or even close their doors.
What does it mean for businesses? Businesses must remain focused on the tried-and-true strategies for success in a world of limited growth. Companies will likely face rising inflation and more expensive capital, implying that they need to ensure their strategies are properly allocated to maximize their success. In tech, Peter Drucker’s advice of “Do what you do best and outsource the rest” is as relevant as ever.
How Does a Recession Affect Your Business?
Thinking about a recession can be worrisome, especially for small and medium-sized companies. It can have a devastating effect on businesses, as their revenues and profits may take a hit while costs remain the same.
For companies that are already experiencing financial difficulty due to the current economic downturn, this could mean further losses. Companies may need to cut costs or even reduce staff in order to stay afloat. However, these measures can often be too little and too late.
While such conservative measures are adequate, they can cause individuals to overlook the potential opportunities that accompany a recession. It is important to accept the new challenges and view them as chances to become more innovative and efficient with your processes and practices. This may help you overcome any difficulty you may face during this time, while also allowing you to come out of the recession better than when it began.
What Advantages Does A Recession Provide?
When others are stagnating or contracting, recessions offer opportunities for companies who are flexible enough to seize them in order to thrive, maintain profitability, and even expand their market share. A Harvard Business Review case about the 2008 recession reported that downturns tend to “shuffle the deck” in competition. That means the bottom 20% of any industry can become the best, and the top 20% can become the worst.
This can be done by leveraging outsourcing. Outsourcing is a business strategy that allows companies to reduce costs by delegating certain tasks or services to outside vendors. It enables companies to provide higher-quality services and focus on their core competencies, while also increasing efficiency and innovation. Companies can use this strategy in order to quickly respond to changing market conditions, stay competitive, and generate cost savings that can be reinvested into their operations.
Why a Recession is a Good Time for Outsourcing
When the global economy is in a recession, companies with limited capital can capitalize on outsourcing services to reduce costs and improve efficiency. Outsourcing during a recession brings several benefits that include cost savings, access to new skills and technology, improved customer service, and more flexibility. Let’s dig deeper at the potential benefits of outsourcing in a recession:
New labour markets
Outsourcing in a recession can help you access new labour markets with cheaper costs. In times of economic uncertainty, companies might find it more cost-effective to outsource certain work overseas instead of hiring domestic employees.
Budget-friendly alternative
Outsourcing can be a budget-friendly alternative in difficult economic times. You’ll have access to high-quality services at lower costs than you would have to pay for domestic services.
Cost transparency
Outsourcing offers cost transparency, so you’ll know exactly what your costs are and how they will be understood by the vendor. This helps you manage your budget and resources more effectively.
Flexibility in resources
By utilising outsourced services, companies are able to take advantage of a greater skill and resource set than they would have without them, allowing them to offer better products, faster turnaround times, and greater convenience. By using the right combination of technologies and resources through outsourcing, businesses are now able to provide unparalleled customer service.
Established processes
Outsourcing provides a well-defined process to follow, and reputed vendors like 9NEXUS have established processes they use to ensure efficiency and quality. This can help reduce costs and eliminate the need for in-house training and management.
Expanded vision and expert insights
Outsourcing provides a fresh perspective on your business goals and strategies. It gives you access to industry experts who can provide valuable insights that can help you make informed decisions during the recession.
Reducing stress for current employees
Outsourcing in a recession can reduce stress for current employees who are already stretched thin. Outsourcing allows companies to delegate certain tasks and services to dedicated teams, giving their current staff a break from the workload.
How Did Companies Use Outsourcing to Weather the 2008 Economic Downturn?
The Great Recession in 2008 was one of the deepest economic downturns since the Great Depression. During this time, many companies suspended capital projects, reduced operating costs, and laid off employees. Following this, 1.8 million small enterprises filed for bankruptcy, resulting in an 8.7 million job loss in the market.
Nonetheless, some companies managed to succeed despite the recession. Take a look at some excellent examples of business leaders who used IT outsourcing to make it through the 2008 recession.
Google was one of the few companies that managed to stay profitable and expand their business during the recession. They leveraged vendor relationships to reduce costs, improve scalability, and gain access to new technologies.
Microsoft
Microsoft took advantage of the low-cost labor markets during the recession to reduce their operational expenses and emerge as a more profitable business. Outsourcing enabled them to increase productivity through working with external partners and experts providing specialized services.
Bank of America
Bank of America used IT outsourcing to reduce overhead costs and increase operational efficiency during the 2008 recession. By using a vendor’s experience in technology and services, they were able to create new processes that increased their customer service levels, resulting in improved customer satisfaction.
Apple
During the recession, Apple took advantage of outsourcing to produce new products at a reduced cost. This cost-saving measure enabled the company to remain competitive by quickly introducing new products in a difficult market. Taking efficient measures like outsourcing allowed them to stay ahead and not just maintain but grow their business despite an economic downturn.
Netflix
The entertainment startup has kept up even during economic downturns. Netflix switched to a partner’s infrastructure starting in 2008, and in 2016, they unplugged the last company data centre. That made the company more agile because the “operational load” of managing their technology has been transferred to a third party.
Outsourcing has allowed these big players to focus on their core R&D competencies, relying on vendors for more routine and less strategic tasks. As a result, businesses have been able to survive and thrive during economic downturns.
How to Outsource During a Recession 2023
Outsourcing during a recession can give you access to a wider pool of resources, help you save on costs, and increase your chances of success. Here are some tips for making the most out of outsourcing during a recession:
Identify a clear scope of work
Determining which scope of work your company can benefit from is the first step to getting outsourcing to work correctly. The tasks or departments that you decide to outsource will depend on what type of value they can provide and how they fit within your budget. This information is extremely valuable because it will influence decisions such as cost estimations throughout the outsourcing process.
Compare the costs
By comparing the rates of multiple vendors, you can make an informed decision that’s suitable for meeting your budget needs. It’s important to do a cost-benefit analysis when evaluating the price of doing these tasks or operations with an outside company versus internally. Consider factors such as time and labour costs, taxes, overhead expenses and employee benefits. Evaluating all of this information will allow you to make the most informed decision and decide if outsourcing would be budget-friendly in the long run.
Choose the right vendor
Choosing an experienced and reliable vendor is crucial for ensuring that your outsourcing venture runs smoothly. Make sure to look into different vendors’ experience, customer reviews, and services offered before making a decision. This will help ensure that you are partnering with the best fit for your project’s needs and objectives.
Decide on the engagement model
Once you’ve chosen the right provider, learn about pricing models and bundling options to optimise your budget during a recession. There are three standard outsourcing models:
- Time and material
- Fixed price
- Dedicated development teams
When choosing the most appropriate engagement model for your project, carefully consider each type’s pros and cons and discuss the most suitable option with your software vendor.
Sign the contract
Drafting a contract for outsourcing projects is an absolutely crucial step because it will provide both you and your partner with peace of mind that any issues that arise during the project can be dealt with on equal terms and without unnecessary dispute. A well-drafted agreement should clearly outline everyone’s rights, obligations, costs and responsibilities, and should form the basis for a fruitful relationship going forward.
By following these tips, you can take advantage of the numerous benefits that come with outsourcing during a recession. It’s important to note that every situation is unique and requires careful planning before making an informed decision. With careful consideration and research, businesses can make smart decisions while accounting for budget constraints and taking full advantage of available resources.
Partner with 9NEXUS to Survive a Recession
As a tech outsourcing company, 9NEXUS has been helping businesses survive and thrive during economic downturns. Our team of experienced engineers and data scientists have the tools and skills necessary to help you stay ahead of the competition. With projects ranging from web development to data automation, our cost-effective solutions can help your company succeed during a recession.
Whether you need to outsource part of your R&D efforts or take advantage of our cost savings programs, the 9NEXUS team will help you navigate these uncertain times. Contact us today to get started!
Conclusion
Outsourcing can be a great way to save money and stay competitive during a recession. By following these tips, you can make informed decisions that adhere to your budget requirements and ensure the success of your project. With the right partner, such as 9NEXUS, businesses can use outsourcing to their advantage, even in difficult economic times. Reach out to us today and see how we can help your business survive and thrive in a recession.
Key Takeaways
- Outsourcing during a recession can give businesses access to a wider pool of resources while helping them save on costs.
- Businesses should identify a clear scope of work, compare the costs and choose the right vendor before starting the process.
- It is important to select an appropriate engagement model, such as time and material, fixed price or dedicated development teams.
- With careful consideration and research, businesses can make smart decisions while accounting for budget constraints and taking full advantage of available resources.
