Strong growth for offshoring predicted for 2008
April 21, 2008 – 7:54 pmThe outsourcing and offshoring landscape has changed considerably in the last few years. Despite the fact that the opportunity for cost savings has been reduced, major gains in both capabilities and processes mean that outsourcing continues to be an attractive option for many companies. Offshore spending is predicted by some analysts to grow by 40% in 2008, even as overall spending and investment slows down.
According to Gartner, India remains the “undisputed leader” in offshore services, but China, Russia and Brazil are providing credible alternatives.
Top 30 offshore locations
Gartner Inc.’s top 30 locations for offshore services, by region, are:
Americas: Argentina, Brazil, Canada, Chile, Costa Rica, Mexico and Uruguay.
Asia/Pacific: Australia, China, India, Malaysia, New Zealand, Pakistan, the Philippines, Singapore, Sri Lanka and Vietnam.
Europe, the Middle East and Africa: The Czech Republic, Hungary, Ireland, Israel, Northern Ireland, Poland, Romania, Russia, Slovakia, South Africa, Spain, Turkey and Ukraine.
Gartner’s criteria:
- Language
- Government support
- Labor pool
- Infrastructure
- Educational system
- Cost
- Political and economic environment
- Cultural compatibility
- Global and legal maturity
- Data and IP security
While there is a growing consensus among the analyst firms, including Gartner, that IT investment and spending will be lower than anticipated in 2008, offshoring is not an area where companies (and vendors) are pinching pennies. Indeed, Gartner predicts that offshore spending in the U.S. will grow 40% in 2008. In Europe, where companies have been slower to use overseas labor as part of their IT strategies, Gartner pegs the growth even higher, at 60%.
During a Forrester Research conference call last week warning of lower-than-anticipated IT growth rates for 2008, analyst Andrew Bartels pointed to the offshore market as an exception.“If you look at the IT outsourcing market, the offshore portion certainly has seen the strongest growth. Vendors like Wipro, Tata and Infosys have been growing at far stronger growth rates than a lot of North American vendors,” said Bartels, vice president of research at Cambridge, Mass.-based Forrester.
The rising interest may not immediately correlate with higher spending, however, as it usually takes nine to 12 months for offshore contracts to be sourced and deals to materialize. That is about the time Forrester expects the IT overall growth rates to rebound from a 2008 slowdown.
Takeaways
The aim of the Gartner study was not to rank each country but to help sourcing managers determine which locations are right for their particular needs, Huntley said. “There are risks and rewards to any part of the world you go to, and everything from service delivery to concerns about security and language to consider.”
Here are some main findings in the report, listed by regions:
The seven countries from the Americas are becoming or already are attractive destinations for U.S. companies, but a lack of government support is restricting offshore development. Only Mexico rated “very good” in this area, followed by Canada and Uruguay. Canada and Mexico rated higher than Brazil in the quality of the labor pool. In terms of infrastructure, think twice about Argentina, the only country to rate lower than “good.” Canada earned excellent marks in most categories, except in the big rate limiter: cost.
The Asia Pacific region boasts the most countries in the top 30 list—10. India rules, with China at its heels. Language skills have come a long way. Only China, Sri Lanka and Vietnam rated less than “good.” You can expect strong government support in China, India and Singapore.
The rest of the countries are a “mixed bag” of pluses and minuses. Australia, New Zealand and Singapore, and an increasingly proactive China, rate high on infrastructure and educational systems. Vietnam leads the pack on cost, earning an “excellent,” while China, India, Pakistan, the Philippines and Sri Lanka rated “very good.”