ilolab - Fotolia

Offshoring IT services: Beyond the usual suspects

India is the prime location for offshoring IT – but it may not be the best fit for every business, and there are now many alternatives around the world

This article can also be found in the Premium Editorial Download: Computer Weekly: Beyond India – the emerging outsourcing destinations

India once again topped a list of best places to offshore IT and business process outsourcing (BPO) services but, as global delivery becomes the norm, organisations will increasingly look for other locations for a better balance.

An annual study from management consultancy AT Kearney revealed its top 55 locations, with India leading the way. 

But organisations now have many more options, as their criteria for choosing a particular destination extends beyond cost. And it is now common for organisations to use several offshoring locations.

This has become known as "rightshoring". It may be a buzzword coined by IT supplier marketing teams – but businesses now benefit from a mix of locations for different services, to maximise the advantages of outsourcing.

A UK business might have callcentre services delivered from a low-cost region in the UK, while its digital software development is undertaken in Ukraine – and application development in India. Then it might use a BPO supplier in sub-Saharan Africa to improve corporate responsibility.

Asia dominates the top 10 destinations for the delivery of IT and BPO services, according to AT Kearney.

India, China and Malaysia respectively comprise the top three – and neighbours Indonesia, Thailand and the Philippines follow at five, six and seven. Brazil broke up the Asian dominance at number four and was joined in the top 10 by South American denizens Mexico at eight, and Chile at nine. Poland was Europe's sole representative at number 10.

The technology ecosystems of India

But despite the options available, India remains top of the pile – and talk of its decline, with suppliers only growing in single digits, are greatly exaggerated.

The old saying “you don’t get fired for buying IBM” could be relevant today if IBM was replaced by “in India”, such is the country’s association with IT and BPO services.

And this is unlikely to change any time soon, according to Peter Schumacher, director at business consultancy The Value Leadership Group. He said there are cities in India where global technology companies, multinational businesses, investors and academics, have converged to create ecosystems with IT advancement at the core.

He said Bangalore, Gurgaon, Pune and Hyderabad are now the places to go for IT brains, experience and capital – as well as research and development (R&D). He said setting up operations in these cities can yield a huge advantage, to companies of different sizes. “These cities have become the largest, most diversified ecosystems in the world. There is a lot of interaction and cross-pollination for businesses.”

To put this in context, he said the city of Bangalore receives more venture funding than the whole of Germany.

And it is not just huge global businesses that are accessing these ecosystems. Schumacher said India has the infrastructure and skills that can help companies start from zero and scale up to operations with thousands of staff. “Although some big companies have huge operations, most captive centres in these cities are small.”

The challenge other regions face in breaking India’s dominance is substantial, and could take many years. India overcame many hurdles – such as language problems, security fears and the lack of localised delivery options – to becoming an offshore centre many years ago. Other regions are a long way behind and do not have the ecosystems Indian cities offer.

Soviet legacy in Eastern Europe

But one region that is putting up a fight is Eastern Europe. Poland may be the only country in the top 10 – but there are other countries that have joined the fray, such as Moldova, Romania and Ukraine.

Despite political troubles in Ukraine, it comes in at number 24 on the Kearney list, representing a jump of 17 places compared to the year before.

Sam Kingston, former UK head at IT services firm T-Systems, is now COO at Ukraine-based Ciklum.

Ciklum helps businesses find and recruit IT staff in Ukraine – which has a large software engineering skillset – and provides office space for customers at its operations in Ukraine, Belarus, Poland, Romania and Spain.

Kingston said Ciklum’s biggest market are the US, Denmark and Germany – with a growing UK business.

He said the former Soviet Union used Ukraine for space research and, as a result, has a legacy befitting the IT industry: “It spawned lots of mathematicians and computer scientists. You now have a population of young Ukrainians that are computer literate.”

He said this is not enough to make the country a leader in IT outsourcing, but companies in the Ukraine are adapting – as Indian companies did before them – by investing in delivery capabilities to meet customers' needs.

IT skills in the Middle East

But other regions offer alternative skillsets, whether it’s a specialist language or a social conscience that is required.

Lesser known destinations for services in the AT Kearney list include: Kenya (39), Ghana (29), South Africa (48), Mauritius (30), Tunisia (38), Morocco (34) and Senegal (45) in Africa; and Jordan (35) and Israel (54) in the Middle East.

And there are countries in these regions that have yet to appear on the list. For example, Palestine might not necessarily spring to mind as an IT services destination, but it has a growing IT and BPO sector.

A partnership between Palestine, the UK and the US established Transcend Support in 2012 in Bethlehem. The founders wanted to access the high level of language and IT skills in Palestine to create a high-value BPO sector.

Initially a callcentre, the business has extended into software development and is currently moving to a 300-seat office. Clients come from Israel, Palestine, US and UK.

According to Jerry Marshall, director at Transcend Support, in Palestine there is a high standard of education, especially language and IT skills; it has good access to the Middle East region, including Israel; it is in a nearshore time zone for European clients; and it has low overheads.

There is also a broad range of programming and testing skills, including but not limited to .Net, PHP, Java, Android, Oracle, SQL Server, NoSQL, and MarkLogic.

Sourcing social responsibility in Africa

But it is not always just about helping a business meet financial or technological targets. Outsourcing has a social angle, and businesses often come in for criticism when IT outsourcing results in jobs going overseas – but few can complain if low-level IT and business process work goes to some of the world’s most deprived countries.

With the corporate conscience to think about, countries such as Zambia offer an option through "impact sourcing" – or socially responsible outsourcing, as it is also known. This type of outsourcing uses workers from poor and vulnerable communities to perform functions with lower and moderate skill requirements. The benefits for businesses include social responsibility, low costs and low attrition rates.

According to the philanthropic organisation the Rockefeller Foundation, by 2050, 400 million people under the age of 25 in Africa will need sustainable employment, if the continent continues on its current growth trajectory.

Read more about offshore services

In 2013, The Rockefeller Foundation launched its Digital Jobs Africa (DJA) initiative, to create sustainable employment opportunities and skills training for African youth, with a focus on the IT sector. “Our goal is to positively impact one million lives in Egypt, Ghana, Kenya, Morocco, Nigeria, and South Africa, and ultimately, improve the social and economic well-being of entire families, communities, and nations,” said the foundation.

Promoting digital jobs in Africa, the organisation said: “The rise of the IT sector, as well as the adoption of business outsourcing practices that intentionally hire underemployed demographics such as youth, provide a clear opportunity to the right course.”

In Zambia, Impact Enterprises – which offers BPO – was set up to reduce unemployment. Zambia is an English-speaking southern African country of about 14 million people, where 59% of youth aged 20-24 are unemployed

Impact Enterprises provides services around lead generation, order management and data entry. It provides customised services for a client base comprising startups, front- and back-office operations, and research firms.

Projects currently require medium- to low-level skills, such as web research, invoice processing or social media moderation. “These are simple enough for us to progressively train our staff on, but are still high value for our clients,” said Dimitri Zakharov, founder of Impact Enterprises. “Beyond simply providing jobs, as a social enterprise we are committed to the professional development of our employees.”

So whether an organisation wants to engage itself in the IT ecosystem of a city like Bangalore, take advantage of the Soviet Union’s Space Race IT legacy, or improve its social responsibility credentials, global delivery has something for everyone.

Read more on Offshore IT services

Data Center
Data Management