Offshoring interest shifts from India to Americas
SOURCE: MidMarket CIO
DATE: July 1st, 2008
Mohit Soapbox:
It is an interesting article. I am sure the Indian vendors will like to see the country ‘glutted’ with contracts so they have to stop accepting any more deals! That would be a good problem to have but I don’t believe that is the case right now. Mid market CIO’s we deal with do have the problem of identifying and managing the right partner be it offshore or closer to home. What is important for these firm CIO’s is to understand why they are doing offshoring. For some of them going local and leveraging local talent which is now available at a reasonable rate to get over a short term cost constraint is a great idea. A # of firms have engaged contractors locally for project work or outsourced complete development components. If the aim is to build a larger operating model to leverage global 24X7 model, support clients across regions offshoring to other regions is an option. Mid market firms do not have the appetite and budget for setting up large program management offices to manage complex vendor relationships and rely on third party firms to help identify and set up programs. The reality with the programs though is that at the end the firms have to manage those and have to build in house expertise to manage these relationships - be it contractors or employees related time zones apart. Are the large vendors out there the right mix for mid market companies - probably not but are there vendors out there who can deliver what you need both locally and globally there are a number of them out there. Sifting and getting to the right one is the challenge
With the U.S. economy in a rut, the value of the rupee rising and wages increasing, midmarket CIOs have good reason to look beyond India and instead evaluate opportunities in places such as Canada and South America as offshoring alternatives, analysts say.
Not that India can be dismissed, but the country is no longer as synonymous with offshoring as it once was. Particularly when the options have growing promise.
India can be a confusing, intimidating spot for midmarket CIOs to outsource work to, said Ian Marriott, a research vice president at Gartner Inc. in Stamford, Conn. Midmarket companies may want to steer away from the “big guys,” powerhouse firms with billions of dollars in revenue and more than 100,000 employees, Instead, Marriott suggested, CIOs can look for a company that is “going to retain an interest in you for the long term.” That may be in India, but it may just as well be closer to home, he said.
The best-known providers (usually the biggest ones) are the ones midmarket CIOs may be most familiar with and, hence, consider first. But they may also be “just too big to maintain an interest [in midmarket companies],” Marriott said. “A lot of the decisions [the large outsourcing companies] are making now is ‘What are the type of deals we want to sign up?’” Upshot: They may not want your business if it’s considered too small.
While a big provider makes sense if what you want is basic commodity outsourcing services, a smaller company may be more flexible if you’re looking for something more customized. There are plenty of those in South America or even other Asian countries such as China and Vietnam, both of which are experiencing a rise in outsourcing interest.
“Culturally, particularly Mexico, the clients feel they understand [and] are a little more attuned to the business markets in North American than India,” said Paul Schmidt, partner and managing director at outsourcing consulting firm TPI in The Woodlands, Texas.
“A lot of it is travel time, NAFTA, the free trade,” he said. “And the whole visa issue is much easier if you’re in Mexico.”
Schmidt said companies based in Brazil and Chile are also worth a look. A Gartner list of top outsourcing countries released last December also identified Argentina, Canada, Costa Rica and Uruguay as countries to look at in the Americas.
The Gartner report also found, however, that the lack of government support in some of these countries 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, Argentina was the only country to rate lower than “good.” Canada earned excellent marks in most categories, except in the big rate limiter: cost.
There’s also EMEA
While the Americas are seeing a surge in contracts, it is still outpaced by Europe, the Middle East and Africa (EMEA), according to TPI. For the first year on record, EMEA outpaced the Americas both in total contract value and in the number of contracts awarded. EMEA countries now account for more than half the global outsourcing contract value tracked by TPI.
And outsourcing companies in those countries could see even more business coming their way as India becomes glutted with contracts and the poor U.S. economy forces IT departments to hold a tight budget line and even consider outsourcing domestically.
Wages at Indian outsourcing firms continue a steady 15% annual rise, Marriott said. Pay in some jobs is going up even faster than that. The major outsourcing firms there have improved business processes elsewhere, tempering the actual cost increase to countries, according to Gartner research.
Of course, offshoring to anywhere is rarely a quick financial fix.
But Andrew Bartels, a vice president at Forrester Research Inc., said the pained U.S. economy could at least speed up some midmarket offshoring efforts that were already under way. It could also get previously in-house IT departments into the conversation of whether or not offshoring is viable for the business.
Midsized companies have an especially hard time finding someone to oversee outsourcing operations, Schmidt said. Clients at TPI often ask about preparing to manage offshore relationships.
“It’s very challenging to do offshoring effectively,” Bartels said. “You really have to have people who can go to the offshore vendor, do site inspections, check up on work.”
Combine all the barriers and offshoring IT work — even as it becomes more viable closer to home — is not something every CIO will feel smoothly about.
“The important thing for companies to think about is even if they’re not looking to go to many different countries and many different providers, they’ve got to have a methodology and they’ve got to have an approach for how to make that decisions,” Marriott said. “If you have to look too hard, maybe it’s the wrong move for them.”
No relate
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