Growing U.S. Unemployment to Hurt Offshore Outosurcing Demand

The worsening unemployment rate in the U.S. is likely to hurt offshore outsourcing since domestic wages may decline, eventually becoming cheaper than wages abroad. Employers in the U.S. have slashed 533,000 jobs in November, 2008 - this is the most rapid rate of cuts in about 34 years, tagging the total for 2008 at 1.9 million.

"Unemployment can drive people to work at much lower costs than they are used to," CEO of Genpact Pramod Bhasin said, adding, "it's something we should watch," reports Bloomberg.

According to analysts, Outsourcing firm Genpact Ltd, a spin-off from Fairfield, Connecticut-based General Electric, is expected to face stiff competition from bigger rivals including Tata Consulting Services and Infosys Technologies with dwindling demand amid a recession. Nonetheless, the outsourcing sector is bound to continue growing as it helps customers slash costs. Genpact operates in Indian cities like Bangalore and Hyderbad.

Genpact has said that the outsourcing industry's growth rate is likely to decline by as much as 50% in the wake of the recession as clients will make attempts to curb spending on software and technology services.Income generated by outsourcing firms is forecasted to grow in the mid-teens - this projection is down from yearly rates of approximately 30% in the last few years, Bhasin told Bloomberg News in an interview.

"You see delays, you see postponements, you see a few cancellations," Bhasin was quoted as saying in an online Bloomberg news report. Adding, "You're just seeing a lot of slowdown in decision-making."

Genpact was once General Electric's finance unit, founded in 1997 and most of its shares were sold in 2004.