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Near-shoring... Will Grow Significantly

 
The Indian outsourcing giants have dominated the IT off-shoring industry for several years, and the 4 outsourcing corporations (IBM, Accenture, HP, CSC) have a strong foothold on the UK IT outsourcing industry with tier 1 companies (turnover + £2BN). However, trends are pointing towards near-shoring experiencing significant growth. This trend is further supported by direct investment into Eastern Europe by Indian and the large global outsourcers. But why are companies in the UK seeking alternative outsourcing strategies?  
   
The near-shore advantages:
The near-shore model provides a gain over off-shoring in the following areas:

- Time zone differences: The overlap of team communication in the off-shore model is only 40% of that when you have a team 1-2 hrs away. This will have a significant impact on application release cycles, testing and development. It can be very frustrating to lose access to your off-shore team after lunch as the working day ends in Asia.
- Cultural/communication: The Nordic countries have been using the Baltic States for software development for the past 2 decades, and generally the cultures & communication are much more in sync. In the case of Canada being a near-shore destination for the US, there has been minimal impact on productivity due to closely aligned cultures/communication.
- Infrastructure: The EU neighbors of the UK have a more advanced IT infrastructure with extensive broadband capabilities still not present in India & China.
- Public opinion: In the past few years we have seen companies bringing back customer contacts jobs from off-shore (Dell, LloydsTSB) to help improve customer satisfaction.
- Government incentives: The EU is already making legislation favorable for certain EU member states. For example, in Germany, companies get a tax break if they derive their energy from wind. Clients might favour near-shore vendors with green credentials.  
   
Summary:
We will continue to see commodity services move to India/China, but as for higher value-add services, the near-shore providers will continue to grow and strengthen their position. The SME market does not have the same appetite for globalisation and will favour near-shore providers due to time zone, cultural and legal comparability. Additionally, EU government tax breaks and public opinion will further strengthen the position of providers closer to home. 

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