New Horizons for Outsourcing

The recent world economic recession, when everybody was trying to stay afloat, made many cut their IT budgets. Now, when the worst seems to be behind, companies are starting moving forward with renewed trust in the stability and growth of economic markets, leading to increased outsourcing activity. But there’s been a certain shift in how corporations regard outsourcing trying to answer why, what, how and where questions. Why do we outsource? Why do we offshore? What do we actually get in return? How do we really benefit? How, if at all, do our customers benefit?

Michael Morris, Head of Outsourcing Search and Selection at Essentia Consulting, is sure that outsourcing is back now, it has weathered the economic storm and businesses will return to using outsourcing to recapture innovation and maximize their ROI in 2010. But if some five years ago outsourcing was considered primarily a good way to reduce costs, from 2010 onwards, with new deals signed and new management potentially in place in many companies, everything is screaming return on investment (ROI). Clients are demanding quicker, more transparent results and this development will shape the majority of future outsourcing deals.

As for offshoring, India still remains its hotbed but with more options available. With more delivery centers in Eastern Europe as well as in Asia, Central and South America the competition between outsourcing providers will strengthen and that will “drive a focus on services differentiation, bundling of services and greater intimacy with customers through outsourcing relationship management (ORM)” as Matt Shocklee, COP, president and CEO of Global Sourcing Optimisation Services and IAOP US Ambassador, says.

Source: EUcommerz

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EU Enlargement and Nearshoring

With the accession of new Member states in 2004 and 2007 the European Union grew to 27 countries. The trend of nearshore software development outsourcing to Central Europe that started in mid 1990s, became much stronger. Initially it started as outsourcing smaller projects by small and mid-size companies. Shortly, the region has arrested the attention of the global IT players like Capgemini and EPAM Systems, therefore enhancing the scope of the projects outsourced, and enabling the region to compete with well-established Indian and Chinese IT providers.

According to the recent data provided by Deutsche Bank Research, the overwhelming majority of German, Swiss and Austrian vendors still outsource their IT activities to Czech, Slovak Republic, and Hungary preferring them to more remote Asian destinations. However, the impact of EU enlargement on the Central European outsourcing market is forked. While expanding the market of IT services, fostering both demand and supply growth, it may lead to labour costs increase, consequently rising the development costs. And as Natasha Starkell, CEO of Goal Europe has noted the “higher wages will push offshoring further east”, namely to Russia, Ukraine, and Belarus. Product development, software testing, and application reengineering are already in high demand in the emerging markets.

Eastern Europe enjoys cultural and geo proximity to Western Europe, has a large pool of highly educated professionals, especially in the field of math, science, physics, and IT which makes it an attractive nearshore outsourcing destination for EU enterprises. Moreover, as baby boomers retire and Western Europe runs out of engineers and other highly qualified staff, even more IT work will move to Eastern Europe.

Source: levhouse.com

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Looking Eastern Direction: Russia's IT Landscape

In the present post we’d like to catch your eye to the recently issued “Russia Information Technology Report Q1 2010”. The report gives a comprehensive view of the Russian IT market for the next couple of years. The main point, looking forward Russia is on the course to emerge as one of the largest IT markets in Europe. In 2010, after the downward year 2009, the Russian IT market is forecast to recover to US$15.9bn, up 12% on 2009, which looks like a good start. Growing computer penetration, government ICT projects and immense potential for IT spending by Russia's traditional industries could drive an increase in IT spending per capita from around US$113 to US$185 over the 2010-2014 period.

Below we present a more detailed description of the most significant market segments.

• IT Services – The Companies and Markets’ analysts project an IT services market value of US$4.1bn in 2010, which is definitely a recovery from 2009 when the market experienced a sharp contraction. The IT services opportunity is forecast to grow to around US$7.0bn by 2014, as the IT market gradually recovers. Systems integration is the largest IT services component, with as much as one-third of segment revenues and, together with implementation of hardware and software, probably account for about half of all IT services. More value-added services such as consulting and applications development are growing fast. Outsourcing is also on the rise.

• Software – The domestic software market is projected at around US$3.2bn in 2010. Going forward, the market is projected to grow at a CAGR of 14% to US$5.4bn by 2014, making Russia potentially one of the most significant global software market opportunities.

• Hardware – The computer hardware market is forecast to recover to US$8.7bn in 2010, up from US$7.5bn the previous year but still short of 2008 levels.

• Competitive Landscape – Russia is strengthening its positions as a lucrative spot for doing business, which has already been recognized by a good many industry leaders. In November 2009, Microsoft said that it was considering launching its own retail presence in Russia in 2010. Acer brand Packard Bell said that it plans to achieve a 10% share of the Russian notebook segment by 2012, from just 1.5% currently. And that is just to name a few. Don’t overlook your business opportunities in the lucrative destination gaining momentum.

Source: Companies and Markets

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