Demand for offshore outsourcing services will continue
to grow substantially for several years, according to recent
reports from three major analyst firms.
Meta Group predicted that offshore outsourcing will grow more by
than 20% every year, pushing it from a $7bn (£4.4bn) market today
to about $10bn (£6.3bn) by 2005.
Almost all application outsourcing services will include an
offshore component, and the market will reach $15bn by 2007.
A Gartner report claimed the focus on lowering IT costs is
accelerating the use of offshore services. Although companies are
tapping offshore vendors primarily for application management
purposes, demand is also emerging for business process outsourcing
and infrastructure management services.
"There is a growing sense that IT infrastructure management is
something that can be packed up in a box and shipped off to someone
who can do it more efficiently and at a lower cost," said Gartner
analyst Bruce Caldwell.
People are looking to offshore as a low-cost and immediately
available alternative to buying and deploying such technologies
themselves, he added.
Meridian IQ, a subsidiary of Yellow, a company that provides
transportation management services, expected its use of offshore
services to increase, said chief information officer Dan
Bentzinger.
Driving that trend are the same three factors that led Meridian
to first outsource services to Infosys Technologies in India in
1998: speed to market, quality and cost of services.
Infosys has given Meridian the ability to acquire reliable IT
resources quickly to deploy services, while also giving it the
flexibility to ramp down when they are not needed.
"Meridian is in an upswing right now, which means we are going
to be growing our relationship," Bentzinger said.
Even though IT budgets are shrinking or remaining flat in the
face of the recession, the amount of money being allocated to
offshore outsourcing is increasing as a percentage of overall IT
spending, said Infosys regional manager Prasad Thrikutam.
One offshore services company, Cognizant Technology Solutions,
reported record growth in 2002, as annual revenues rose to $229m
(£143m) from $178m (£111m) in 2001.
Increasingly, offshore companies are being viewed not just as a
"tactical cost-saving option but as more of a strategic proposal",
said Ram Mynampati, chief operating officer at Satyam Computer
Services. This is reflected in the higher-end jobs Satyam is being
asked to do for its US clients.
However, a report by Forrester Research claimed project
management remained a major challenge for many companies that
outsource to offshore vendors.
One-third of the respondents in the survey of 145
"decision-makers" at North American companies said they used
offshore services and planned to spend more money on them in the
future.
But "18% of respondents using offshore providers reported a
major challenge in measuring performance, while 20% have serious
issues specifying the work needed to be done," the Forrester report
concluded.