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While India is still a favourite destination for offshore IT, Eastern Europe and South Africa are emerging as alternative contenders, according to Gartner.
At its annual Outsourcing Summit in London this week, the analyst firm examined the changing strategy of offshore outsourcing and advised users to make the strengths of individual countries a primary concern.
Analyst Roger Cox said, "CIOs need to select the country first, then the service provider, then the service they require." While India offers high-quality development at a low cost, users may face cultural difficulties. "Indian outsourcers tend to provide sophisticated project and programme management, which many users may not be prepared to take on."
Gartner identified China and Russia as competing strongly in terms of price, but said they fall down in terms of infrastructure and data/IP security.
Commenting on the growth of offshore outsourcing, Cox said, "The IT-enabled services market is going through enormous change, which will lead to a restructuring in salary levels."
Gartner has predicted that off-shore outsourcing by Western European countries will rise by 40% during 2003. But Cox warned users against signing long-term contracts to solve short-term problems. He said such a strategy was flawed on two counts. First, the business will have evolved radically two years from now and, second, the nature of supplier relationships is changing due to a move towards greater consolidation in IT services.
Cox is concerned that many businesses lack the internal skills needed to manage complex outsourcing relationships once a deal has been signed. "€6bn [£4.15bn] is wasted each year because of poorly structured IT deals," he said. "The big issues arise once the ink has dried on the contract, when the business is left with just a few people who understand the contract.
"Users need to build a deal around a governance structure to manage change." The people and processes that sit between the business and the supplier need to be strong, he added.