Offshore outsourcing gains steam

As chief information officers and IT managers continue to grapple with tight budgets and seek to lower costs, they are increasingly resorting to offshore outsourcing, Gartner Inc.’s Dataquest Inc. division said Thursday.

The IT tasks that CIOs and IT managers outsource most often abroad still are related to applications, such as application design, development and maintenance, but other areas are also part of the overseas outsourcing trend, such as business process outsourcing (BPO) and IT infrastructure management, according to Dataquest.

Offshore outsourcing refers to IT services a client receives from resources – labour, infrastructure or capital – that are located abroad, said Debashish Sinha, a principal analyst at Dataquest.

Although offshore outsourcing has been around for about 12 years, it is now becoming a mainstream IT services option, because there is now a critical mass of providers that have increased services quality, reduced the complexity of offshore engagements and managed to mitigated its risks, Sinha said.

“This has made the offshore services model more effective over the past 3 or 4 years, to the point where now it’s reaching the mainstream,” he said.

A big draw of offshore outsourcing in these times of economic uncertainty is its lower costs, which come mostly from the use of less expensive labour, Sinha said. But CIOs and IT managers also are realizing they can benefit greatly from the bigger pool of qualified workers they encounter when they look outside their countries’ borders, Sinha said. A bigger pool increases the quality and quantity of workers available to CIOs and IT managers, Sinha said.

The U.S. is the largest, but by no means the only, receiver of offshore outsourcing services, and India is the largest provider, Sinha said. Depending on where the client is located geographically, the offshore service is referred to as “near-shore” (if the services are coming from a nearby country) or “far-shore” (if the services are being delivered from a far-away country), he said.

Aware of the rising popularity of offshore outsourcing among CIOs, IT services vendors are beefing up their offshore services portfolios by partnering with, and sometimes acquiring, offshore services providers. A survey of 36 outsourcing vendors conducted by Dataquest in November 2002 showed that they consider offshore application management their biggest growth opportunity in 2003. “All the major services providers have, over the past two years, understood the value of the offshore sourcing model,” Sinha said.