SG KE 2008 – The year of multisourcing and offshoring

Source:http://knowledge.computing.co.uk/2008/01/offshoring-driv.html

Tuesday, 08 January 2008

Analyst Gartner predicts the global outsourcing market will grow at a steady pace of 8.1 per cent in 2008 – and such growth will be driven by multisourcing and offshoring.

Publicly reported IT outsourcing and business process outsourcing contract values decreased overall by 50 per cent last year. Gartner says more firms are using a multisourcing strategy that includes a range of smaller deals that are not reported in the press.

Such results correspond with outsourcing advisory TPI, whose partner Duncan Aitchison told me recently that he expects multisourcing to increase in popularity as any remaining hesitancy surrounding offshoring subsides because of an increasing requirement to source specialist workers (see link 1 at the end of the post).

Gartner also says users are moving work to lower-cost, offshore locations. Indian providers gained business in 2007 and are growing approximately 40 per cent annually in the United States and 60 per cent annually in Europe. And although spending on offshore services is three times higher in North America than in Western Europe, the gap is closing.

Again such results correspond with TPI – in 2007, India-based service providers won more than 24 per cent of all the deals on which TPI advised, up from an average of 13 per cent during the previous four years (see link 2). Despite Indian dominance, Gartner expects other countries to emerge and challenge Indian providers in 2008.

Ian Marriott, research vice president at Gartner: “Strong demand is putting a strain on the available Indian labour force, while staff attrition and cost increases remain high. Global companies continue to accelerate their demands for a presence in countries other than India, and providers are seeking to expand their geographic footprint of delivery centres accordingly. More-sophisticated buyers are seeking a multi-country strategy to minimise risk and align nearshore and offshore delivery centres with their primary time zones. Although India’s offshore revenue will continue to grow, the country’s share of total offshore spending will decline slightly in 2008.”

Gartner recently revealed its top 30 locations (see link 3) for offshore services, many of which it expects to challenge India – with countries such as China, Russia and Brazil providing increasingly credible alternatives:

• Americas – Argentina, Brazil, Canada, Chile, Costa Rica, Mexico and Uruguay

• Asia/Pacific – Australia, China, India, Malaysia, New Zealand, Pakistan, the Philippines, Singapore, Sri Lanka and Vietnam

• Europe, the Middle East and Africa (EMEA) – the Czech Republic, Hungary, Ireland, Israel, Northern Ireland, Poland, Romania, Russia, Slovakia, South Africa, Spain, Turkey and Ukraine

Aitchison, meanwhile, lists a collection of countries that have been been keen to join the offshoring bandwagon: Argentina, Uruguay, Philippines, Russia, Ghana, South Africa and Mauritius. Despite such interest, Aitchison told me India stills wins on every offshoring dimension (see link 4) – probably because of the high level of English skills.

The conclusion? If you’re thinking of buying external service provision in 2008, you would be well-advised to buy a compass and to also seek the advice of a trusted analyst. With new countries and providers entering the fray, users will find outsourcing an increasing challenging proposition.

Further reading:

1. Outsourcing and the lack of skilled UK workers – http://knowledge.computing.co.uk/2007/12/outsourcing-and.html

2. Where next for offshoring? – http://knowledge.computing.co.uk/2007/11/where-next-for-.html 

3. Gartner reveals top 30 offshoring locations – http://knowledge.computing.co.uk/2007/12/gartner-reveals.html

4. TPI locations for offshoring – http://knowledge.computing.co.uk/2007/11/where-next-for-.html