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News January 31, 2011

Healthcare Legislation Could Boost Outsourcing Activity in 2011

Given the slow economic recovery, outsourcing hit a plateau for most industries in 2010.

Law firm Morrison & Foerster's annual Global Sourcing Trends report looks at the international sourcing market, as well as national and regional activity, with intelligence on key business drivers and industry sectors to watch in the year ahead.

Although the report does not key in on packaging, it did note that healthcare and pharmaceutical deals hardly budged in 2010, but the new U.S. healthcare legislation should spur activity in the near future. Although the report showed that the healthcare and pharmaceutical industry declined year-over-year in 2010 but was consistent with activity in 2008, these companies seemed to generate significant activity in 2010. Industry professionals expect that healthcare and pharmaceuticals will be strong in the near future as these companies struggle to comply with the U.S. healthcare legislation passed in 2009.

Among additional highlights from the firm's latest findings were the following:

• Market uncertainty continues: nagging high unemployment and near-bankruptcies of some European countries have left companies unsure about the value of entering into long-term outsourcing arrangements.
• As Business Process Outsourcing picks up, companies will increasingly demand innovation from providers, hoping to ensure more long-term and embedded value in the sourcing relationship.
• Cloud computing has become the biggest money-saving sourcing tool, but privacy concerns have generated industry-specific “private clouds
• Financial services bounced back in 2010 due to large restructurings and the adoption of outsourcing by middle market institutions. Regulators' close watch on the industry means banks and insurance companies will insist on stable and creditworthy sourcing providers who might even be called upon to assume responsibility for system failures at banks.
• As the recession eases and short-term cost-cutting is replaced by a longer outlook, “green IT” will become more popular, driven by corporate social responsibility agendas, government requirements, and bottom-line savings. More companies are holding sourcing service providers to green standards of energy efficiency and minimizing waste.
• In the U.S., a significant exception to outsourcing's relatively tepid performance in 2010 was Legal Process Outsourcing, which law firms are adopting at an unprecedented rate. Further, the types of work being outsourced continues to increase in complexity and sophistication, suggesting a rosy future for LPO--something investors and other strategic buyers have noticed.

The report primarily covers sourcing news in the U.S., Europe and Asia. It was prepared by Morrison & Foerster sourcing partners Christopher Ford (Washington), Alistair Maughan (London) and Nigel Stamp (Hong Kong). Here is a link to the full report.

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