Outsourcing and Recession - What is the Connection?

Outsourcing is defined as subcontracting a process such as accounting, payroll or tax preparation services to a third party.

The main criterion for outsourcing is:
a. Making better use of time and energy; or
b. Redirecting or conserving energy directed at the competencies of the business; or
c. Make more efficient use of resources.

So, how are recession and outsourcing connected to each other? To understand the connect between the two, we would have to delve a bit deeper into recession and its impacts.

Normally, economists declare recession for any economy if there has been a negative growth in the GDP for more than 2 quarters. Because of the negative growth in the GDP, people normally take defensive actions to protect the outflow of money which in turn goes to aggravate the sluggish growth further.

The solution to beat recession therefore is to create opportunity for having higher margin from lower costs.

In a recent survey done by Offshoring Research Network (ORN) in alliance with Duke University and PricewaterhouseCoopers, 40 out of the 100 companies interviewed said they plan to put pressure on service providers for more favorable contract terms in order to trim costs. In fact the conclusion of the survey is summarized as "Enhancing efficiencies has become more urgent in recent months as pressure on margins forces companies to increase productivity while spending less."

This bears direct testimony to the fact that during recessionary times, it is more feasible for business to opt for outsourcing and create higher margins in order to pump liquidity inside the economy.

However, it is pertinent to understand that any outsourcing which involves capital outlay like some IT projects will definitely be impacted adversely. The areas that can be looked as prime targets to be outsourced would be services like project designs, bookkeeping, tax preparation services, AR & AP services etc.

It is thus safe to assume that the entire accounting function may be considered to be outsourced by businesses in order to reduce costs and increase profitability.

Businesses will however do more research during these recessionary times before deciding to outsource accounting and will opt for an outsourcing vendor only if:

a. There are visible gains in outsourcing the services.
b. The outsourcing vendor shall not charge any avoidable costs like initial set up charges.
c. The outsourcing vendor shall be able to provide value added services which can directly be converted into profitability.

Many of the outsourcing vendors have therefore taken extra care to ensure that businesses in US are able to tide over the tight fund situation in these recessionary times.

At many such outsourcing vendors,

a. There are no initial set up fees.
b. The pricing is lowest among all the outsourcing vendors.
c. There is a lot of flexibility in pricing that suits any need of a business in US.
d. The staff members are highly trained are proclaimed experts in bookkeeping and accounting.

Thus, it makes sense for a business to outsource its accounting function and beat the recession blues.

Steve is a qualified accountant (Indian CPA) and co-founder of APT Services, the fastest growing outsourced accounting service provider in India. Steve has over 10 years of expertise in audits, accounting (both US & Indian GAAP), payroll and tax preparation services.