28.08.2006

Outsourcing jobs to low wage destinations has been a topic of heated discussions in the US, with many quarters steadfastly opposed to the trend. However, Economists Gene Grossman and Esteban Rossi-Hansberg of Princeton University stated that on the contrary, outsourcing has bolstered productivity, because of which blue-collared jobs have witnessed a slight increase in real wages between 1997 and 2004.

While presenting their paper in Kansas City, the economists contended that as against the general perception that outsourcing caused unemployment, it helped increase competitiveness by bringing down costs and maintaining high quality due to expertise in destination countries, increasing real wages in the US.

According to Grossman and Hansberg, the critics of outsourcing were relying on incomplete information that outsourcing had been pushing wages in the US southwards. They believe that because of Internet and relatively cheaper transportation, global trade practices are no longer traditional and included not only complete products, but also smaller tasks, not requiring geographical concentration.

21.07.2006

Offshore outsourcing is set to increase, according to a report released by a sourcing advisory firm TPI.

The company's figures show that almost half of all outsourcing projects contain an offshoring element, compared to 28 per cent last year.

India is still proving to be the big winner, with market share rising to 5.2 per cent of offshore contracts won this year from 3 per cent in 2005.

The size of contracts being won by Indian companies is also on the increase, with average deal values of ˆ101m in 2005 growing to ˆ126m this year.

TPI's managing director Duncan Aitchison says contrary to speculation about rising levels of dissatisfaction with offshore outsourcing, the data it has gathered predicts further growth in the value of work being moved offshore.

'In our experience, the approach of many companies to outsourcing has now matured to the extent that it is now no longer a question of whether to offshore, but rather which elements and to what degree,' he said.

15.05.2006

European IT services companies are quickly ramping up their offshore capabilities in a bid to compete with the big US players and home-grown rivals in cheaper locations such as India, according to new research from IDC.

European providers still have a lower share of their staff offshore than their US or Asian competitors but this is set to change with European companies increasing their offshore assets by 65 per cent during 2006.

IDC says this will put them in a stronger position to compete with major global players such as Accenture and IBM, as well as Indian outsourcers such as Infosys, Tata Consultancy Services and Wipro.

IDC also predicts the threshold for entry to using offshore outsourcing services will get lower. Cheaper labour now outweighs the increased management cost on projects worth as little as $50,000 to $100,000.

That will mean an increasing number of smaller and medium-sized businesses opting for offshore outsourcing, according to Mette Ahorlu, senior analyst at IDC's European services group.

He said in the IDC report: "Offshore will not continue to be an 'exotic' way to save money; it will soon be taken for granted by all customers. Use of offshore resources began as application development services but has expanded to all types of application services, infrastructure services and business process outsourcing."

25.04.2006

Demand for offshore outsourcing services among UK and European companies is set to increase by 50 per cent per year over the next two years, according to Gartner.

Globally the analyst predicts the number of organisations doing offshore outsourcing will increase from 13 per cent to 20 per cent over the same period. In the next decade China will move from manufacturing to services. But being able to speak English is one thing. Being able to think it is another.

Ian Marriott, research VP at Gartner, said: "We are seeing increasing uptake in offshore services in the UK and Europe both with traditional providers and Indian providers. It's not an add-on anymore. Deploy those resources wherever they can be found."

India remains the first choice of offshore destination for European countries and China also features as a potential top three choice, although it is still hampered by a lack of English language skills and a focus on the US.

But Marriott said that many organisations are increasingly looking at nearshore destinations among the former Eastern Bloc countries such as the Czech Republic, Hungary, Poland, Romania, Russia and Slovakia.

He said organisations need to cast their net wider and consider other options based on their individual needs.

Marriott added: "There's a huge amount of activity. We are tracking 60 countries offering services around the world."

Speaking to silicon.com at the Gartner Outsourcing Summit in London this week, Rajeev Sawhney, corporate VP at Indian outsourcer HCL, which recently won a ?150m offshoring deal with Dixons, admitted India faces challenges addressing labour shortages, attrition and rising salaries.

He said: "You cannot ignore the war for talent. Good people are hard to find. To get the best and retain the best is hard."

But he added that China still has a long way to catch up before it can compete with India in the offshore outsourcing market because of its lack of English language skills.

Sawhney said: "Going forward, in the next decade China will move from manufacturing to services. But being able to speak English is one thing. Being able to think it is another."

15.02.2006

Outsourcing and offshoring among European businesses is set to increase as boardrooms continue to pressure their CIOs for more IT cost savings, according to a new report.

The survey of 161 CIOs and IT executives in European organisations by Capgemini found that 58 per cent of the respondents are considering outsourcing and 39 per cent are considering offshoring in the next two years.

The report said: "The cost chase is far from over and CIOs remain under heavy pressure, facing challenges from increasingly common, low-cost delivery options such as offshoring and distributed delivery."

But offshore outsourcing remains the preserve of big global companies and the survey found that 80 per cent of those who are currently using offshore IT services have an IT budget of more than ˆ40m per year.

The report said: "This may change in the future as the offshore market matures, enabling mid-size[d] companies to use offshore delivery models."

By 2008 almost half (47 per cent) of European companies will be outsourcing or offshoring IT services, according to Capgemini.

With IT budgets flat, CIOs say they are looking to fund new investment by making savings on the amount spent maintaining and supporting the IT operations. An average of 60 per cent of the total IT budget is currently spent on operations, maintenance and support, with just five per cent devoted to strategy and planning.

The survey also points to a "clear correlation" between profitability and how well IT is aligned with the business; those companies that innovate using IT instead of just focusing on costs have 10 per cent or higher operating margins.