Is Outsourcing Risky in a Recession?

December 16, 2019

By Sue Weerasinghe ACA, ACMA, MBA

Even in a boom, businesses and individuals alike seem to have gotten accustomed to being always prepping for a recession. With the sophistication of technology and our complex lifestyles, the drop to a trough from a high point seems even steeper. Today, amidst the fabulously positive economic indicators, the worries of a slowdown in the economy are hovering in the air.

Why are we worried?

Not too long ago, this past summer of 2019, we had an inverted yield curve, which simply means that the long-term investment stocks showing a lower yield than the short-term ones; which is not the norm. The depth and breadth of the inverted yield curve were steep and wide enough to worry. A steep and wide inverted yield curve has preceded all 9 US recessions in the past. Since then, the Feds have brought down the interest rates and the Trade War has normalized to more amicable terms, so the inversion is currently minute. However, the concerns remain at a low level. While the unemployment is down the wages are yet to catch up. As a result, numbers indicate individual credit repayment defaults are on the rise. Recent stats by the National Association of Business Economics predict a sharp downturn in small business growth this year. 


Taking the old grasshopper ‘s predicament as an example, it is a no brainer to realize that the companies who ‘tighten’ their belts well in advance of a recession, win. This is where the outsourcing option comes in handy. The world has become closer and more of a cultural and socio-economic ‘hodgepodge’ in the current day and age. The opportunity is present to dip into the goldmine of the very educated, capable, professional but cheaper in relative terms labor pool in the third world countries where the literacy rates are often times in the 90s. Once the initial training is completed, businesses can get more done at the same quality for approximately one fourth of the cost. With a blend of outsourced team and a capable in-house staff in key positions, companies can more robustly weather a recession. Moreover, you will be setting yourself to shoot off the start line the moment the economic recovery begins, while your competitors are still licking the wounds of bankruptcy, negative gross/net margins and sudden loss of ill-treated workers the moment better prospects become available.

All in all, outsourcing seems to be a lucrative tool; to fight a recession as long as it is introduced with the below 4 Ts;

1) Training – The outsourced staff should be able to get relevant training on the areas they will be handling as well as the overall company structure, culture, vision and goals. It is super important that a training schedule and goals are established at the onset.

2) Technology – Successful outsourcing is possible only with the appropriate technology that makes ‘virtual’ integration & interactions, access to systems and automated processes are present. Being Tech savvy is no longer an expensive option but rather a more affordable, necessity to get an edge in business today.

3) Time – It is pertinent that the upper management comes up with a time frame for training, test running and fully implementing the outsourcing. These time frames must be clearly communicated to all parties involved and the direction the company is taking must be explained to the internal staff so they will be more inclined to train within the time frames specified.

4) Thoughts – The entire ‘mindset’ of all the stake holders of the company should be to see ‘outsourcing’ as a long-term, strategic partnership for success as opposed to a short-term band aid to fix an issue. Therefore, initial setbacks should be dealt with great attentiveness with the understanding that better and quicker you get the outsourced team running, better and quicker you will be able to channel your resources to running your business in survival mode in a recession with the intention of being able to expand faster with a readily available workforce once you come out of it! 

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