Offshore outsourcing gains steam

Offshore outsourcing gains steam

As chief information officers and IT managers continue to grapple with tight budgets and seek to lower costs, they are increasingly resorting to offshore outsourcing, according to analysts at Gartner's Dataquest division.

The IT tasks that CIOs and IT managers outsource most often abroad are still related to applications such as application design, development and maintenance, Dataquest said. However, other areas were also part of the overseas outsourcing trend, such as business process outsourcing (BPO) and IT infrastructure management.

Offshore outsourcing referred to IT services a client received from resources - labour, infrastructure or capital - that were located abroad, principal analyst at Dataquest, Debashish Sinha, said.

Although offshore outsourcing had been around for about 12 years, it was now becoming a mainstream IT services option, because there was now a critical mass of providers that had increased services quality, reduced the complexity of offshore engagements and managed to mitigated its risks.

"This has made the offshore services model more effective over the past 3 or 4 years, to the point where now it's reaching the mainstream," he said.

A big draw of offshore outsourcing in these times of economic uncertainty was its lower costs, that came mostly from the use of less expensive labour, Sinha said. But CIOs and IT managers were realising they could benefit greatly from the bigger pool of qualified workers they encountered when they looked outside their countries' borders. A bigger pool increased the quality and quantity of workers available to CIOs and IT managers.

The US was the largest, but by no means the only, receiver of offshore outsourcing services, and India was the largest provider, Sinha said.

Depending on where the client was located geographically, the offshore service was referred to as "near-shore" (if the services were coming from a nearby country) or "far-shore" (if the services were being delivered from a far away country), he said.

Aware of the rising popularity of offshore outsourcing among CIOs, IT services vendors were beefing up their offshore services portfolios by partnering with, and sometimes acquiring, offshore services providers.

A survey of 36 outsourcing vendors conducted by Dataquest in November 2002 showed that they consider offshore application management their biggest growth opportunity in 2003.

"All the major services providers have, over the past two years, understood the value of the offshore sourcing model," Sinha said.

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