Source : TMCNET
By Michelle Robart
According to Gartner (News - Alert), a provider of information technology research and advisory, the economic slump experienced by the US will lead IT service consumers to start looking overseas for lower-cost labor.
Due to its size, the quality of available resources, and the amount of local and traditional service providers, India will remain as the central location for IT offshore services for North American and European buyers.
With concerns that the US economic slowdown could extend to other areas, organizations are taking a closer look at IT costs, setting goals to reduce spending, and increasingly outsourcing labor overseas.
Shifting the focus from controlling costs to reducing spending and increasing productivity, IT service buyers will see an increase in their supplier decisions. This will lead to a continuous increase in the adoption and expansion of offshore services - primarily from India, but also from other countries.
Gartner research director, T.J. Singh, believes that India, due to its large and growing global labor group, will continue to be one of the most sophisticated countries to use for offshore IT services. “Factors that will give India the edge over other offshore locations are scale and quality of labor. North American and European buyers of IT services have been the force behind a growing offshore services market and India is central to almost any discussion of offshore services delivery for these buyers,” Singh states.
Gartner research director, T.J. Singh, believes that India, due to its large and growing global labor group, will continue to be one of the most sophisticated countries to use for offshore IT services. “Factors that will give India the edge over other offshore locations are scale and quality of labor. North American and European buyers of IT services have been the force behind a growing offshore services market and India is central to almost any discussion of offshore services delivery for these buyers,” Singh states.
Gartner forecasts two possible scenarios impacting the adoption of offshore services in the coming months. The best case scenarios will be a temporary economic downturn and in the worse case, a lasting recession.
According to Allie Young, vice president and distinguished analyst at Gartner, "In the best case scenario, buyers will aggressively seek cost-saving measures by accelerating offshore delivery or, for first time users, moving IT services to offshore locations. For buyers that haven't used offshore before, this will be a critical step to changing their paradigm for services sourcing towards a global delivery model (GDM) approach in the future.”
Through her research, Ms. Young sees first-time buyers of offshore services looking for IT service providers who are skilled in transition and project management. These characteristics will demonstrate more value from previous clients, and are honest about the costs of offshoring. “Buyers will be more aggressive with external service providers (ESPs) to have greater clarity on costs, and they will seek immediate savings,” Ms. Young adds.
If a longer economic slowdown leads to a lingering recession in the US and possibly other countries, in the worst case scenario, Gartner expects a stronger push to cut IT budgets.
If a longer economic slowdown leads to a lingering recession in the US and possibly other countries, in the worst case scenario, Gartner expects a stronger push to cut IT budgets.
“Again, buyers will aggressively move toward offshore destinations and service providers that can offer a global delivery model to access lower-cost IT labor for routine IT work that must continue for the business to operate. However, noncritical projects may be delayed indefinitely, and for most organizations, any discretionary IT spending will be cancelled", said Ms. Young.
She also believes that, “Some variation by vertical market will occur, but most will experience the overall economic recession in some form, and IT will typically be impacted by budget cuts of some form.” The combination of offshore work will highlight regular maintenance and development work vs. more expensive contracts, and providers will need to work closer with clients to give them cost savings.
“Organizations are likely to conclude that increasing the proportion of work to offshore locations is the best way to reduce labor costs, among other benefits”, said Arup Roy, senior research analyst, Gartner. “In most sectors, the watchword is ‘caution’ - IT budgets have not yet been cut, and offshore services options are being considered or accelerated as a prudent step to contain labor costs.”
According to Gartner, India’s rising wage rates have made them less predictable in cost competitiveness for their offshore services, but the more experienced providers have made important process investments. These assets will hopefully protect their buyers from being impacted by India’s wage increases.
“Organizations are likely to conclude that increasing the proportion of work to offshore locations is the best way to reduce labor costs, among other benefits”, said Arup Roy, senior research analyst, Gartner. “In most sectors, the watchword is ‘caution’ - IT budgets have not yet been cut, and offshore services options are being considered or accelerated as a prudent step to contain labor costs.”
According to Gartner, India’s rising wage rates have made them less predictable in cost competitiveness for their offshore services, but the more experienced providers have made important process investments. These assets will hopefully protect their buyers from being impacted by India’s wage increases.
Michelle Robart is a Contributing Editor at TMCnet. To read more of her articles please visit her columnist page.
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