Following the reduction in outsourcing prices in 2009, analysts are predicting further falls in 2010. The price drops are not just the effect of the recession, other factors include price pressure from customers, increased use of offshore services, and de-scoping of outsource vendor services.

One school of thought suggests that if the economy begins to grow again some outsourcers will try to recoup some of the concessions they have had to make. This, however, is unlikely given increased competition from offshore.

In an effort to reduce carbon emmissions the UK government is introducing the Carbon Reduction Commitment (CRC) in April 2010. This legislation applies to all UK companies consuming over 6,000 megawatt hours of electricity per year.

Whilst this legislation is a laudable effort to reduce the UK’s carbon emissions, it could have the unfortunate effect of disadvantaging the UK outsourcing industry and favouring offshore outsourcing operations.

From 1st January 2010 EU businesses will have to account for the reverse charge to VAT on the cost of services provided from offshore locations outside of the EU as a result of the Finance Act 2009.

Under current legislation the place of supply for VAT purposes is deemed to be the country where the supplier is based. If a supplier is based outside of the EU there is no VAT liability.

An important change to VAT rules could potentially increase offshore service costs for EU businesses from 1st January 2010.

Under current VAT rules the basic place of supply rule for VAT purposes is the country where the supplier is based. This means that offshore suppliers outside of the EU charged no VAT - giving them a substantial commercial advantage.

From 1 January 2010 business customers will have to account for the reverse charge to VAT on the costs of these services.

Offshoring can be defined as relocation of business processes (including production/manufacturing) to a lower cost location, usually overseas.

Offshoring can be seen in the context of either production offshoring or services offshoring. China has emerged as the preferred destination for production offshoring while India has emerged as the dominant player in the services offshoring domain.

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