Offshore market set to fragment

The meteoric ascent of offshore outsourcing amongst Western-based businesses throughout the past decade has been nothing short of impressive. With dramatically improved communication capabilities brought about by such technologies as broadband networks, IP telephony and reliable videoconferencing offerings, distances have essentially been eliminated as a barrier to conducting international business.

One of the most popular destinations for offshored IT has been India. Utilizing a modern communications infrastructure and a large, employment-starved base of capable applicants, India has succeeded in capturing a significant chunk of the overall business outsourced away from the shores of first-world countries — 59 per cent of all U.S. spending, to be exact, according to Gartner Inc.

There have been difficulties, to be sure. Discomfort among many customers with the thought of their assets being controlled at facilities halfway around the world, coupled with unforeseen cultural complexities, led many outfits to pull the plug on their Indian experiment and relocate their assets to onshore locations. The extra cost was deemed acceptable by the customers as long as the assets were within their reach.

Despite those setbacks, however, the Indian movement can be deemed an unqualified success — and other countries are starting to do their darndest to get a piece of the offshoring pie. With wages for Indian engineers climbing — U.S. analyst firm Forrester estimates that salaries of Indian staff employed in IT services delivery are increasing by 12 to 15 per cent a year on average — other nations are beginning to look attractive to Western organizations.

Within the last few years, the expansion has been underway into Russia, China and the Philippines, to name but a few of the top outsourcing targets that have risen to challenge India. But even in these areas, where populations are not as big as that of India, labour and operational costs have been rising, causing outsourcers to venture into the greener fields of countries like Bulgaria and Romania. Similar things are happening in Latin American locales such as Brazil, Costa Rica and Uruguay. These smaller states will also benefit from the West’s increasing level of comfort with the idea of outsourcing to multiple countries simultaneously.

Looking ahead to what 2007 will hold for the offshore outsourcing market, no one should expect India to be usurped by any other nation. But what we can expect is the further division of the market amongst a great many more countries. How much of India’s market share will be eroded is anyone’s guess, but it seems safe to say that its lead will be chipped away to some degree.

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Jim Love, Chief Content Officer, IT World Canada

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