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A Brief Overview of IT Offshoring Destinations: Where and Why

Economic downturn puts pressure on companies to reduce costs - variable vs fixed, management vs technical. Organisations are looking for a good bargain, and there are plenty around. Companies that haven't considered offshoring before are now giving it a serious thought. How much can companies save by sourcing IT services from offshore? On average, around 25%, according to aggregated estimations from numerous sources.*

Where to find the supplier? It is daunting task for an SME IT director to navigate through the offshoring list. In the 2007 A.T. Kearney Global Services Location Index, countries providing IT services and support, contact centres, and back-office support were ranked on 43 measurements including financial attractiveness, people and skills availability, and business environment. It is common that countries with relatively strong cost advantages to have less favourable business environments.

It is one more good reason to know what your enterprise can't sacrifice and what it can in order for costs to be saved. "We will only partner with organizations that we believe are world-class in their particular domain," agrees Peter Wierenga chief executive officer of Philips Research. "When you're trying to build up a new kind of business, a weak partner can easily break the value chain." (November 2006 survey of 300 global executives by the Economist Intelligence Unit of the Economist). When it comes to a key business process, such as research for example, quality and added value are weighed much more heavily than cost or location. The same survey revealed that India (26%) was considered the best offshore location for research and development. The U.S. was the second most popular choice (22%), China was third (14%), and Canada was fourth (7%).

What really set India and China apart from the rest are their people - i.e. their skills availability scores. Further, India remains the "offshoring jewel" for sourcing IT services, as it has been for the past two decades. Azim Premji, the 63-year old "Indian Bill Gates", and 12-year director of IT offshore pioneer Wipro, stated the following in his interview to Le Monde, "...We run one site in Philippines. But the costs are still 15% higher then in India. We have a site in Shanghai, China, but the English-speaking workforce is 30% more expensive then in India". India also has relative financial stability going for it. The majority of Indian banks are only locally established: they borrow, but do not lend. Indian currency is fairly stable to the Dollar and Pound. With the exception of one slightly affected bank, the industry hasn't experienced the downturn. India's 2008 GDB is expected to grow by 7.5% to 8%.

"In Poland and Romania you may find people capable of speaking many languages: Hebrew, Arabic, Italian, French, German. It's unique. Tunisia, Morocco and Algeria score somewhat down on workforce expertise." In places like Latin America and the Philippians, you can find large numbers of highly-proficient English speakers.

When deciding on IT outsourcing destination the business strategy must be agreed upon; what type of culture closely matches your own, does the destination have a large pool of talent to available, and does the business case make sense from a numbers perspective.

Kearney summarises those factors into four categories: risk tolerance, scale requirements, availability of key skills and cost profile. It is also important to strategically analyse the company's "tomorrow" and even better - evaluate how it correlates with "tomorrow" of their outsourcing destination. In the world of SMEs as well as among the Blue Chips, those that adopted a holistic approach took the most out of IT outsourcing. 44% win is the realistic figure. As proven by numerous examples, the most successful companies balance all of the relevant factors, rather than looking at cost alone.

For the full AT Kearney report click here
 

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