Outsource to Get Better Performance

The first thing to come to mind when talking about outsourcing is cutting costs. Or at least it was so… One of the modern trends for outsourcing providers today is to deliver excellence and quality, and consequently businesses are increasingly outsourcing to improve their performance. As Allie Young, VP at Gartner, said the shift towards enhancing business through outsourcing is a sign of a "maturing market".

Buyers of IT outsourcing anticipate increasing its use over the next two years and 88 per cent of the organisations currently outsourcing expect moderate to high levels of outsourcing compared to 67 per cent in 2007".

About 85 per cent of Europe, the Middle East and Africa organisations expect to continue at the same level or increase their outsourcing during the next two years, up from 62 per cent in 2007".

Source: Silicon.com

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Everest Reveals Q2 Trends in Outsourcing

The Everest Research Institute’s Market Vista: Q2 2008 Report on global outsourcing and offshoring revealed that, despite the unstable economic conditions in the United States, the outsourcing market continues to stably grow with help from European investments. Europe accounted for 41% of all outsourcing contracts in the second quarter, signing 417 new outsourcing contracts (70% of which were ITO, 28% of which were BPO, and 2% of which were both ITO and BPO) with a contract value of $2.6 billion dollars. Similarly, the report demonstrated an increase in the use of the captive model, in which a company builds a captive offshore center to either eliminate the middleman (thus saving money) or to exercise total control over outsourced operations. Additionally, Everest, based on the Q2 report’s profiles of outsourcing activity in Central and South America, deducted that labor savings in Brazil, Chile, and Mexico, will not be realistic for the next five to ten years.

According to the Everest Q2 Report, the outsourcing market experienced a 3% growth in outsourcing contracts compared to the first quarter. This growth is largely attributed to Europe (particularly the UK, whose outsourcing activity has gathered incredible speed) where contracts were signed in the UK, Germany, Sweden, and Switzerland with manufacturing and telecom industries. Fifty four deals were made with financial services in the second quarter, with $240 in annual contract values; a marked increase was seen in the amount of these contracts signed by North American companies - 41% compared to 26% in the first quarter. The captive model, despite much negative speculation, is also growing in popularity; with 18 new set-ups and 3 divestitures, the 2008 total for captive offshore centers has totaled 34 set-ups and 6 divestitures.

Source: Everest Research Institute

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European Outsourcing: current state of affairs and future trends

TEAM International shared some findings of the latest Annual Outsourcing Survey conducted by Ernst & Young. The 2008 survey questioned more than 600 members of upper management in the largest European companies with a turnover of at least 100 million Euros. The survey came up with these findings:

• 70% of respondents reported outsourcing at least one business process to lower-cost countries;

• 49% of respondents agreed that offshore outsourcing served as an efficient cost saving tool;

• 33% pointed to better quality through hiring the specialists among the major reasons for outsourcing;

• At the industry level, the finance industry is reported to be the most mature in adopting outsourcing; banking is considered to be the most focused on IT and telecommunications outsourcing with a 75% take-up rate;

• Medium-sized companies and multinationals are the major users of offshore outsourcing;

• The majority of respondents generally report positive experience they have had with offshore outsourcing.

• 20% of European companies admitted intending to increase their outsourcing level within the next two years.


Source: Ernst and Young

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IT Outsourcing on the Rise despite Global Economic Downturn

The global economic downturn is placing pressure on more and more companies to cut costs and maximize profits, leading them to outsource IT functions. According to research from Gartner, the IT services market will continue to grow in 2008, with spending on IT functions estimated to increase by 9.5%, reaching $819 billion. The strength of the IT services market can be further exemplified by the decrease in profit warnings among UK IT software service providers; in the hardware and equipment sector, only twelve profit warnings were issued in the second quarter compared to the twenty in the first quarter. Outsourcing consultants claim that companies seeking to reduce expenditures (as a result of these unfavorable economic conditions) should not even consider reducing spending on projects that affect the operation of a business, such as outsourcing contracts and major IT implementations.

So far, IT service providers have been left unscathed from any IT budget cuts. It is highly unlikely for long-term projects to be postponed due to economic factors. Additionally, small businesses continue to increase spending on IT, hoping to increase business and decreases dependence on manual processes (thereby reducing labor costs).

In this period of economic downturn, purchasers looking to outsource are increasingly searching for value-oriented contracts, heading towards locations in the east, hoping to save big and to eliminate the need to transfer staff. Although India has traditionally been seen as the place to outsource, China, Morocco, and Hungary are rapidly growing in popularity. In fact, the twenty largest IT services suppliers in the UK opened 21 new global delivery centers in January 2007, with four set up in China, three in Eastern Europe, three in Morocco, and only two in India.

Seeing as we are in a downturn rather than recession, companies have the resources to outsource; it is an expense they are willing to invest in, knowing the future benefits and savings. When outsourcing, companies should find IT service providers capable of catering to their needs; the provider should have quality resources and tools to find a strategic solution to the company’s needs. Similarly, finding a provider with a skilled tech team and personnel capable of communicating with the company and listening to its demands is of utmost importance in developing a quality product.

Both vendor and customer should look at this economic downturn as an occasion to do business more rigorously.

Source: ComputerWeekly

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Russian IT reports brilliant half-year

Last fall, a study was conducted by Linex analysts that helped formulate the assumption that there will be a change of trend in the IT market: the IT market, which was experiencing a slow rate of growth, is hypothesized to undergo a period of rapid growth.

The results of monitoring the first quarter validated the forecast that the market will be experiencing a faster rate of growth. The services that were most in demand on the Russian IT market were network and system integration, IT consulting - including consulting and custom application development, and maintenance and support of software and hardware.

Comparing characteristics of IT business from the first half year in 2008 with its analogous period last year showed that network and system integration, despite all forecasting and predictions, will not give up its place as the leader in Russia’s IT.

According to Linex’ “Real IT Market - Q2 2008” report, the results of the second quarter, and first half-year as a whole, allow the following conclusions to be made:

• The forecast that the IT market will experience a change in growth rate was accurate. The rates of growth during the first half-year increased by 55%, resulting in a 23.6% increase in profit compared to the 15.3% increase of last year.

• The growth rate of the Russian IT market for 2008 will be closer to the rate of market growth in the second quarter (20.8%), than to its anomalous high growth temps in the first quarter (27.3%). The irregular first quarter growth can be attributed to a marked increase in spending by the government sector on IT.

• The highest rates of growth in the first half-year were from the IT Services segment - 34.7% (in the second quarter, 27.7%). IT Services have become the engine driving the whole Russian IT market.

The full report is available in Russian at http://www.linex.ru.

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