Source: www.australianit.news.com.au

AUSTRALIA’s technology outsourcing market will swell almost 5 per cent to $10.9 billion this year, market researcher Gartner has reported.

But vendors and customers alike will struggle with skills shortages and local outsourcing market growth will be substantially slower than the 8.1 per cent increase tipped for IT outsourcing worldwide.

Similarly, India is set to face increased competition as a low-cost outsourcing destination as staff attrition and rising salaries erode the country’s competitive advantage.

“Global companies continue to accelerate their demands for a presence in countries other than India, and providers are seeking to expand their geographic footprint of delivery centres accordingly,” Gartner research vice president Ian Marriott said.

“Although India’s offshore revenue will continue to grow, the country’s share of total offshore spending will decline slightly in 2008.”

Gartner also tipped a shakeout in multi-sourcing practices this year with early adopters of the strategy expected to cull the number of suppliers they work with while maintaining a diverse stable.

The move to a smaller number of suppliers designed to reduce handoff points between vendors and vendor management is also being strengthened, Gartner reported.

In Australia, multi-sourcing continued to gain momentum during 2007 and interest in business process outsourcing was also building, Gartner research vice president Jim Longwood said.

Mr Longwood noted that as customers moved from single supplier to multi-supplier outsourcing they tended to retain incumbents for infrastructure services and engage specialists for services outside mainframes.

On skills shortages, Mr Longwood said: “Staff shortages for internal and outsourced projects are a growing problem in Australia and in most other countries in the Asia Pacific region including India, New Zealand, Thailand and even China for some specialised skills and experienced staff.”

Source: www.businessfacilities.com

Offshoring, the process of moving business functions to another country (either keeping them in-house or using a third-party vendor), is often seen as necessary for large and midsize U.S. corporations to compete in the global marketplace today. Competitive pressure upon operating costs and product-to-market release times have forced thousands of companies to look for cheaper labor pools in countries such as India, China, and Russia.

Once primarily associated with manufacturing, offshoring now affects a variety of industries and functions. Booz Allen Hamilton, a global strategy and technology consulting firm, reports that engineering, design, and research are increasingly being performed outside companies’ home countries. Driven by the growing demand for more complicated consumer and industrial products and a shortage of skilled high-tech workers in the West, the offshoring of these services is expected to continue at a rapid pace.

More than one million U.S. jobs have already been moved offshore, and that figure is projected to jump to 3.3 million by 2015, according to Forrester Research Inc. By then, nearly 6% of today’s U.S. jobs will be moved overseas, the firm reports in its study, “Near-Term Growth of Offshoring Accelerating.” The report notes that while greater communication capability via the Internet was the initial driver of the offshoring trend, other more recent factors have fueled the movement. For one thing, even conservative companies are now willing to experiment with going offshore to protect themselves competitively. Also, overseas vendors have broadened their IT service offerings, and in many cases user companies are establishing “captive,” or self-owned centers, giving them greater control over their operations.

“Driven by flat budgets and an increase in end user-sponsored projects, CIOs see offshoring as a way of doing more with less,” analyst John C. McCarthy writes in Forrester’s report. “Instead of squelching activity, the increased press and savings have spurred senior executives to ask, ‘What is our offshore strategy?’”

Offshoring is even beating previous market expectations, according to the research firm XMG, whose latest study estimates the global outsourcing market will hit $297 billion by year’s end, with an estimated annual growth rate of more than 19%. The forecast includes IT, BPO (business process outsourcing) and call center services, as well as the onshore and offshore delivery of outsourcing services.

India continues to lead the way as an offshore destination, forecast to capture $34.1 billion in total revenue by the end of 2007, and claim an estimated 11.5% share of the global market, according to the XMG study. India’s advantages are its talent pool, including 350,000 college engineering graduates per year, and its English-speaking population, about 2.2 million people, according to the Zinnov research group. When offshoring emerged as a common business tool in the late 1990s, U.S. companies (and their customers) simply found it easier to communicate with vendors in India than vendors in other countries suitable for outsourced operations.

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