Businesses are continuing to offshore IT during the
recession but they are spreading the risk by engaging with
suppliers in more locations.
Traditionally, India has dominated the offshore IT industry, but
businesses are increasingly looking further afield.
Multi-sourcing, whereby businesses form
relationships with a large number of suppliers for small chunks of
business, is a
growing trend. Increasingly, firms are hedging their bets by
choosing suppliers in multiple locations.
Professor Leslie Willcocks of the London School of Economics'
(LSE) outsourcing unit likens the process to spread betting. If one
location fails to deliver you can transfer IT work to another.
Alternative
offshoring locations
But without the emergence of new offshore locations and readily
available information about their pros and cons, IT departments
have limited options.
Earlier this month, LSE published a report entitled
Beyond Brazil, Russia, India and China (Bric), which revealed
that businesses looking to offshore IT have a wider choice of
possible locations than they might think. He says it is the first
detailed study of alternative offshoring destinations.
The Beyond Bric research, commissioned by the Egypt Information
Technology Industry Development Agency, analysed the strengths and
weaknesses of 14 emerging offshore destinations.
| Non-Bric locations
studied |
|---|
| Belarus |
| Bulgaria |
| Costa Rica |
| Czech Republic |
| Egypt |
| Mexico |
| Morocco |
| Philippines |
| Poland |
| Romania |
| Slovakia |
| Tunisia |
| Venezuela |
| Vietnam |
The study looked at the performance of all the non-Bric
countries for cost, skills, environment, infrastructure, risk and
market potential
(see box).
Willcocks says India will dominate offshoring for the next 20
years, but predicts that other locations will win business from IT
departments.
He says India has the problem of high staff attrition rates and
is using non-Bric countries to support it on some deals. China has
language and cultural obstacles to overcome. Brazil and Russia are
huge offshore locations but have so far failed to reach their
potential.
| The six factors analysed |
|---|
- Cost: labour costs, infrastructure costs, corporate taxes
- Skills: size of skills pool, size of local IT sector
- Environment: government support, business environment, living
environment, accessibility
- Infrastructure: telecoms and IT, real estate, transportation,
power
- Risk: security, disruptive events, regulatory issues,
macro-economic risks, intellectual property risks
- Market potential: future attractiveness as an offshore
locationa
|
Innovation over
cost
Non-Bric countries could take advantage of the recession by
differentiating themselves through innovation rather than competing
on cost alone. "Rather than going down the lowest cost route
companies are asking for more innovation. This is an unexpected
effect of the recession," says Willcocks.
Innovation and reduced costs do not have to be mutually
exclusive. "The suppliers have improved their capabilities over the
past four or five years," he says.
Businesses are looking for innovation from outside the UK
because there is a major skills shortage, says Willcocks. By 2010,
there will be a shortage of 714,000 people with IT skills in the
UK.
Multi-sourcing is a growing trend as businesses attempt to
reduce risks. Multi-shoring, in which suppliers offshore their IT
and business servicesto a variety of offshore centres, is also
likely to take off.
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