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Offshore Outsourcing Grows Up

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 its adoption.


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 Wipro)

  1. Improving account management.
  2. Moving away from technology-centric messages that often alienate business buyers. Investing in vertical-specific skills.
  3. Building out their middle management.
  4. Becoming more multicultural organizations.

Hurdles for Onshore Suppliers (Accenture, EDS, And IBM)

  1. Motivating local sales people to sell their GDM capabilities.
  2. 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 Services Jobs?

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 are performing.
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.




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