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.

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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.

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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.

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Becoming a Preferred Outsourcing Destination

New sourcing destinations which form regional clusters are springing up all over the globe quite often now. Companies looking for alternative to India locations have a wide choice of virtually any sourcing region to do business. And countries within these clusters face the challenge of becoming a preferred sourcing location.

Here are some of the key success strategies for winning destinations:

- focus on establishing favorable tax and regulatory environments, implementing government incentives, investing in high quality infrastructure, reducing attrition, and facilitating access to a qualified workforce;

- learn from the experience of established destinations noting the policies, incentives and initiatives these former emerging locations undertook to achieve success;

- ensure a sustainable supply of qualified labor. Countries should have a workforce strategy to continue to scale as well as diversify their skills sets;

- find your niche. As the playing field becomes more competitive, it’s necessary for countries to differentiate not only on the basis of cost, quality etc. but also in terms of the depth, specialization and expertise of their workforce;

- let the world know about you. Ensuring global visibility — especially in prime markets such as US and Europe — should be top priority. Branding that accentuates the region’s uniqueness can have a great impact;

- encourage import of expert resources from established locations and target markets, especially if there are ex-pat’s who can be convinced to return home. Inviting well-known industry evangelists (read consultants, analysts, etc) is also very effective in building goodwill and positive buzz;

- promote benefits of outsourcing industry within the local market. This can be done by convincing domestic or multinational firms to outsource locally or “carve out“their internal operations. Local service providers can be incentivized to build a domestic market.

Source: Global Services

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Europeans Unhappy and Look Beyond India

According to Forrester Research at least 60% of the polled European companies are willing to outsource to destinations different from India.

The volume of India’s ITO and ВРО service reached 14 billion euro in 2008 with UK, Germany and France making 11, 7 billion. However not many European buyers show loyalty to Indian service providers. The polled companies plan to continue engaging outsourcers from different countries, but very few mentioned India as their preferred offshore outsourcing destination.

Analysts believe that language barriers and challenging tasks to organize cooperation with providers from other countries are additional barriers for the expansion of Indian service business in Europe. The outsourcing model successfully employed by Indian IT service providers on the North American market doesn’t looks successful in continental Europe. As Forrester Research analysts emphasize, business of European companies differs from the American model and optimal outsourcing schemes should vary in these regions as well. So far Indian IT service providers have employed the American model in Europe. In particular, they keep launching client support offices in their target markets in order to solidify their market position locally.

Source: CNews

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Central and Eastern European Software Engineering Conference Gains Momentum

The 5th Central and Eastern European Software Engineering Conference in Russia (CEE-SECR 2009), the key software event in CEE region, was held in Moscow at the end of October. What initially was positioned as a Russia focused event back in 2005, gradually evolved into a large-scale regional software developers’ conference attended by over 500 software experts from 15+ countries.

The conference is an excellent meeting point for software professionals from Central and Eastern Europe and Russia providing them with an opportunity to share valuable experience and best practices, discuss challenges and innovations, to communicate with colleagues, find partners and clients.

This year the agenda, to say the least, was full. Keynote speakers from Google, IBM, Microsoft, Tibco and other companies covered such hot topics as the synergistic effect of Agile-CMMI combination, Enterprise Security Assessment Sharing system, best practices in software architecture, including Total Architecture approach, new content-based communication services, and testing software. Russia and Eastern Europe at large are nowadays listed among the most favorable and fastest growing software outsourcing spots gaining increasing attention of Western clients.

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ICT Sector as a Tool for Overcoming Crisis

Recently RUSSOFT Association and Brazilian Association of Information and Communication Technology Companies (BRASSCOM) held a video conference "BRIC IT-Initiative". IT community members from New-York, Hong-Kong and Saint Petersburg discussed the importance of joint efforts of BRIC countries aimed at the development of ICT sector as a tool for overcoming crisis and its consequences, as well as for building the New Economy based on knowledge and innovations.

In the course of the conference the text of the appeal to the governments of BRIC countries to develop the IT sector and to support international cooperation between these countries in the ICT field was approved. This appeal was also approved by the China Council for International Investment Promotion (CCIIP).

One of the speakers of the conference, Valentin Makarov, President of RUSSOFT, said: "The opportunity created by IT has to be seen by the national authorities and decision makers as a priority and tools for both - recovery from the crisis and creation of New Economy based on Knowledge and Innovations. This is especially true for the BRIC countries, once the emerging economies need a broad support from the Government in order to intensify the implementation of IT into their respective countries and to expand their competitiveness in the global market".

Another speaker, Wolfgang Petersen, EMEA SSG Director of Intel, noted: "….the other thing that is definitely worth for investing resources is software development. We see a strong raising opportunity in the software development area for BRIC countries which are the source forge for the world."

Source: RUSSOFT

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