Offshore outsourcing is evolving into a more sophisticated
model, according to Forrester Research, Inc. What
used to be a simple hop from the US to India, for
example, now includes work being done across a global
network of multiple offshore locations that deliver
services at even lower cost. As a result, suppliers
are shifting their focus from serving the needs of
local clients, or supporting remote operations of
multinational firms, to expanding their talent pools
in developing areas like China and Southeast Asia.
New research from Forrester further defines this
new low-cost global delivery model (GDM) and finds
that none of the IT services vendors is leading in
To assess the large investments that IT
services vendors are making in a low-cost
GDM, Forrester compared the capabilities
of the three major onshore suppliers (Accenture,
EDS, and IBM), and three offshore outsourcing
suppliers (Infosys, TCS, and Wipro). Using
its Forrester Wave? Methodology, Forrester
evaluated the offshore outsourcing suppliers
against 60 criteria, reflecting a fully developed
low-cost global delivery model, and found
that while the six offshore outsourcing suppliers
are making a broad range of GDM investments,
no one is a clear leader yet.
"The grouped ranking of the vendors
is an indication that the move to a low-cost
GDM is at the beginning of an evolution that
will take place during the next three to
five years," said John C. McCarthy,
vice president, at Forrester Research, Inc. "As
providers expand into new locations, develop
new capabilities, and increase GDM services,
they will face unique challenges."
Forrester sees the adoption of this distributed
approach of offshore outsourcing as a complex
evolution with specific hurdles around account
management in offshore outsourcing, process,
skill sets, and culture.
Challenges for Indian Suppliers (Infosys, TCS, And
- Improving account management.
- Moving away from technology-centric messages
that often alienate business buyers. Investing
in vertical-specific skills.
- Building out their middle management.
- Becoming more multicultural organizations.
Hurdles for Onshore Suppliers (Accenture, EDS, And
- Motivating local sales people to sell their GDM
- Further investing in consistent global processes.
Expanding their offshore technical and quality skill
sets. The research, "Low-Cost Global Delivery
Model Showdown," also presents a more in-depth
look at the unique strengths of each offshore outsourcing
supplier, including a second weighting toward a simple,
basic delivery model.
Will Offshore Outsourcing Kill U.S. IT
The threat may not be as serious as many U.S.
tech workers fear.
To save money, some U.S. firms are looking
beyond the United States for IT services. However,
this shift doesn't necessarily translate into
a doomed outlook for U.S. IT services jobs
or U.S.-based services firms, according to
a research report from IDC.
IDC says U.S. services firms will continue
to use offshore workers to lower costs. However,
most U.S. workers at risk will transform their
current knowledge into new skills that will
remain in demand, according to IDC. "Several
facts have been lost in the debate about offshore
sourcing," says Ned May, program manager
of IDC's Worldwide Services research. "One
is that much of the spending to date has focused
on only a few activities, which limits the
impact of offshore on the broader market. Another
is that much of the offshore spending will
be captured by locally-based vendors, who are
currently building up their own offshore delivery
resources. But the most important fact being
overlooked is that, while there will be a migration
of some jobs overseas, it will be coupled with
steady growth in a number of service activities
on U.S. soil."
To get an idea of the impact that offshore sourcing
may have, IDC applied a supply-side survey to the
U.S. IT services market. This survey took two perspectives: "macro
markets," which demonstrate how IT services
contracts are bought and sold, and "activity
groups," based on the underlying tasks workers
According to IDC, offshore sourcing will affect the three macro markets -- project-oriented
services, outsourcing, and support/training -- about equally, although additional
market factors will cause a net decline for project-oriented services.
When looking at activity groups, the researchers found the impact of offshore
outsourcing will focus on maintenance and support, implementation, and operations,
while planning and IT education and training will remain relatively unaffected.
According to May, the work that will move offshore is mostly activities that
require low skill, as process and repeatability are strong underpinnings of the
work. Companies will still look with in the United States for innovation and
detailed business expertise.