Friday, January 29, 2010

Outsourcing Potential 2010 – How Does It Look Like? (Part 2)

Another pronounced trend of the coming year shows up in the shifting global markets. The survey by the global consultancy PricewaterhouseCoopers (PwC) and Duke University's Offshoring Research Network stated that the outsourcing industry is transforming due to the emergence of new providers around the world and efforts of existing outsourcers to expand into new markets. "Outsourcing companies in North America and India, which have long dominated the industry, are being challenged by competition from Latin America, Eastern Europe and Asia in service areas such as contact centers, business process outsourcing, and information technology outsourcing," the survey revealed.

Near-shoring has gained momentum among companies considering outsourcing services. Growing competition has transformed outsourcing industry into a global race for market share where emerging economies are rapidly seeking to expand in the sector. In particular, Central and Eastern Europe has revealed its potential as a strong rival grabbing its market share on the global scale. In our previous post we’ve drawn your attention to the latest Everest research featuring EPAM Systems as a leading vendor from the CEE region challenging some established global leaders in the software outsourcing industry. This year’s NOA predictions also touch upon this trend noting “Russia will increase in prominence on the world stage”.

Apart from that, NOA's annual predictions scrutinize over such issues as public sector deals growth, growth of green technologies and 'green sourcing' arrangements, innovation in services and products, and a declining trend in signing big contracts.

Douglas Hayward, analyst at IDC, draws our attention to the shift in the outsourcing models and states that in the new decade outsourcing suppliers will increasingly be paid depending on the volume of services used. "2010 will see a strong increase in the use of outcome-based payment models, as enterprises extract better value from service providers. Outcome-based models allow enterprises more easily to scale service consumption up or down, making costs more variable. […] They will cease to be seen as experimental, and will become accepted as a normal part of the contract toolkit," he says.

Wednesday, January 27, 2010

Outsourcing Potential 2010 – How Does It Look Like? (Part 1)

In the passing tough year best remembered for crisis, loss of jobs, and overall uncertainty, the outsourcing industry has made many gloomy headlines in the news resources. Interesting enough to note that the end of the year brings forecasts for the IT community as optimistic as long not heard. After the brutal 2009, we’re glad to receive some encouraging news again. With the leading and most trusted Forrester and Gartner at the front of the line, most other analyst houses and industry associations including IDC, IAOP, NOA echo with optimistic releases. Rejoice, IT! We’ve made it through!

The Forrester’s loud statement “Tech downturn officially over” gave way to numerous sequential prognostications the quintessence of which sounds as follows: IT spending is set to grow in the coming year. Below we’ve summarized the key findings from leading analyst firms with most significant predictions and relevant figures for 2010.

The analyst guru Forrester predicts that spending in the IT industry will rise 8.1% to more than $1.6 trillion, driven by an improvement in the wider economic situation and a new cycle of tech innovation and growth. “2010 will be a much better year. […] We’re not talking boom yet, so we are not predicting double-digit growth rates across the tech market,” said the Forrester report’s author Andrew Bartels. “But, as our latest tech market report shows we do think there will be a solid tech recovery in 2010, with growth rates in the high single digits.”

Bartels also said that he expects big businesses will lead the IT spending, rather than SMBs. “For large corporations, the financial crisis is mostly over – they can tap the corporate bond, commercial paper, and equity markets as they did before. But SMBs depend on banks for financing, and banks are still making it hard to borrow.”

Forrester is expecting that spending on computer hardware and software will lead the way in 2010, with hardware spending up 8.2 percent and software spending up 9.7 percent. Communications equipment makers will see an increase in spending of 7.6 percent, IT consulting and system integration services will rise by 6.8 percent, and outsourcing services will exhibit 7.1 percent growth.

Thursday, January 14, 2010

Indian Outsourcers Get Shivers As Local Rivals Push Up

A new trend is rapidly developing on the current global IT market – instead of sending all projects to offshore locations like India, emerging local rivals are becoming more and more attractive for big outsourcing customers. Let’s analyze the reasons why.

Globalization imposes tougher competition on the market, solely performance and capacity are no more enough, and even cost issues presently lose ground as the key differentiating factor. Customers seek quality, innovation, and value to their business. That is exactly what rivals in emerging outsourcing destinations like Central and Eastern Europe are staking on and are eager to provide. An increasing amount of companies are looking closer at local vendors who are winning through mature software engineering processes, reputation, and IT service quality. This is also recognized by leading analyst firms, including Everest.

“For many customers who already have significant presence in offshore locations like India, it’s a risk diversification,” said Jimit Arora, Research Director of outsourcing advisory firm Everest Group. “Some customers having 70-80 per cent of their offshore resources in India are realizing that they need to look at the third category of suppliers that are local and niche,” he added.

Everest has recently researched six emerging destinations mature enough to be considered as viable alternatives to the India-centric outsourcing model. Scrutinizing one of the world’s top 3 outsourcing locations – Central and Eastern Europe - the report features EPAM Systems as a leading, “must-know” IT outsourcing services supplier with roots in the region.

A free copy of Everest’s “Emerging Market Suppliers: A Valuable Lever for Risk Diversification” report is available at http://epam.com/analysts.htm.