Offshore outsourcing shrinks services prices

The rising popularity of offshore outsourcing will continue to push down the prices of IT services for the next several years,...

The rising popularity of offshore outsourcing will continue to push down the prices of IT services for several years, according to a study by IDC.

India has emerged as the world's largest provider of offshore outsourcing services, and the US as the largest consumer.

Forty-two per cent of all active outsourcing engagements have an offshore component, and offshore outsourcing will "continue to spread to new segments and deepen its hold on the industry", IDC said.

Other factors that led to price reductions on IT services last year included the rough economy and an increase in competition.

The increasing availability and reliability of offshore outsourcing services give IT buyers new options and strengthens their negotiating positions with IT service providers, said Traci Gere, an IDC analyst.

However, IT buyers need to realise that managing an offshore engagement can be complicated, by issues such as distance and time differences, so good communication and project-management skills are vital, she said.

Offshore engagements also contain a higher risk factor, which must be considered when outsourcing tasks and processes that are central to the daily functioning of a business, Gere said.

Meanwhile, suppliers must respond by building up a portfolio of offshore services, either developed in-house or provided with partners, to meet rising demand, Gere said.

Juan Carlos Perez writes for IDG News Service

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