Financial Crisis Changes Outsourcing Behavior

From 2006 through this past summer, there was a fantastic rise in IT outsourcing, primarily driven by rapidly expanding companies in need of additional resources, preferably cost-efficient. At Ciklum, a Danish-owned nearshore provider based in Ukraine, we experienced 100 percent plus increases year by year and today employ more than 700 developers.

Now with the financial crisis hitting Wall Street and worldwide financial markets hard, the effects are rippling into the IT market. In the last few months of 2008, many companies are facing difficulties in funding and reducing operations. The outsourcing behavior of IT companies has changed as well, leading to hits on the outsourcing providers.

However, some outsourcing providers are seeing business open up with the financial crisis. While cost-efficiency is still a factor, companies are turning to providers that are able to go beyond the traditional outsourcing services in popular destinations, such as China and India.

Ciklum has been hit only very lightly because we have pioneered a unique nearshoring model for outsourcing. Our major differentiator is that we provide clients with their own in-house teams, simply “hosted” within Ciklum’s nearshoring facilities in Ukraine.

Since our model is very transparent where Ciklum simply invoices clients for the employee salary and its service fee, clients started to save costs on reduced growth level and even slight drop of salaries in IT sector (see the graph below).

As an example, a company needing a five-developer team could be up and running with such a team in 5 weeks period for fully loaded costs of approximately 3500 USD per month per developer. Many companies now see this as an important step to secure survival and profits in a hard environment.