Offshore Outsourcing Picking Up After Recession

With the recovery of the global economy, work which was outsourced locally is also now being shifted to offshore locations. In accordance with a report by Everest Research Institute, as the global economy gradually recovers from the recession of 2009, the outsourcing market is experiencing an increase in activity. The development of offshore outsourcing business was in process, but it was delayed during the recession for financial reasons or for lack of management focus, said Anand Ramesh, research director at Everest. However, it is now picking up momentum again, he added. Cost reduction after the recession has drawn more and more concern, and customers in the U.S. and other markets are planning to offshore more of the work which was earlier being outsourced to suppliers in their countries, he said. Companies having not delivered work offshore so far are also now considering outsourcing to low-cost locations like India and China, he added. Over a period, the credibility and scale of offshore suppliers in countries like India has also increased, he said. Currently, most buyers plan to expand offshoring and a large proportion of them plan to do so aggressively, said the Everest report. About 75 percent of small and medium adopters and 90 percent of large adopters make a plan to expand their offshore outsourcing by more than 500 FTEs (full time equivalents) within the next two years, it indicated. Everest defines small adopters as organizations with already less than 500 FTEs offshore, medium adopters being organizations with 500 to 2,500 FTEs offshore, while large adopters are organizations that already have more than 2,500 FTEs offshore. The report surveyed companies that currently send IT services and business process outsourcing (BPO) work to either their own subsidiaries or to third-party suppliers in off-shore locations like India, China, Mexico, and the Philippines. Many analysts have indicated that offshore business will pick up. A lot of the offshore business which was affected by the recession is recovered, said Sudin Apte [CQ], principal analyst at Forrester Research. However, there no large new deals yet, he added. The increase in business is also likely to improve the demands for staff in countries like India, then pushing up costs. For instance, companies in India have started to hire workers, and it seems that staff attrition will go up to over 15 percent in the current quarter, said Apte. According to Everest, India continues to be the most outstanding offshore location where more than 70 percent of buyers planning to expand in the country. The Philippines that ride mainly on its strong presence in the BPO business and China are two other key countries where companies plan to expand. Companies plan to expand offshore outsourcing in other locations, including Malaysia, Brazil, and Mexico. However, companies are looking to spread their risks, and may not send all their work to India. In accordance with Everest, buyers are paying more and more attention to other complementary locations in Asia, Latin and Central America, and Eastern Europe for setting up delivery centers. Everest said the drivers of this approach included risk diversification and business continuity, need for specific skills and support in specific languages, regulatory requirements, and time zone coverage requirements. Approximately 60 percent of India’s outsourcing business is from the U.S., followed by the U.K. which accounts for about 15 percent. While companies are planning to expand offshore outsourcing, they are also seeking to expand in near-shore locations, such as Latin America for U.S. companies. The drivers for near-shore outsourcing, for example, the need to keep sensitive work closer to home, are different than for off-shore outsourcing which is mainly driven by cost and the ability to scale, said Ramesh. Even though near-shore outsourcing is growing fast, it is a smaller market than offshore outsourcing, and will not necessarily compete with the offshore locations for business, he added. Although companies try hard to expand near-shore and to other locations apart from India, they may still turn to Indian service providers to provide services from these new locations, Ramesh said. They may focus on an existing relationship with a service provider rather than assign the business to a local provider, he added. A great many of Indian outsourcers have set up operations in Europe, U.S. and Latin America to target the near-shore and onshore requirements of their customers. [Source] Software Outsourcing Blog Section: http://www.unisoftchina.com

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