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September 2009 Quick Hits - News, Trends & Analysis

Significant Software Development Growth In China
China is known as a large producer of consumer goods, but also as the producer of low-quality goods, and that stigma does not normally go well with software development. India is without a doubt the dominant force in the global offshoring market with almost 90% of the market share, but the recession bodes well for China as companies look to reduce costs as China can be around 30% cheaper. As commented by Michael Peng on his blog via sourcingmag.com "Software development is becoming a booming business in China, where the growth has exceeded 40 percent the past three years. By 2012, China's software-outsourcing market is expected to exceed $9 billion. Application software development, system tests, software localization, and tailored embedded software development account for about 80 percent of China's software outsourcing market. As demand for global outsourcing increases, the competition gets more intense. And China's having some difficulty keeping pace where software quality management system, software talent, enterprise scale, and internationalization are concerned". China's government policies are quickly ensuring that the software industry is spreading from traditional places like Beijing and Shanghai to Shenyang, Xi'an, Chengdu, and Guangzhou. Unfortunately, the internal demand from within China has kept their appetite for international business lower than expected. However as that demand slows down, we will undoubtedly see Chinese outsourcers pursue international contracts and given the continued focus on reducing costs, they are expected to win more and more projects.

Local Government Not Equipped To Outsource
As reported recently on outsourcemagazine.com, many UK Local authorities feel ill-equipped to manage risks involved in outsourcing - and in particular offshoring - since they have limited experience in this area, yet central government has asked them for £20BN in savings over the next 3 years. "The recent and rapid migration of local authorities from service providers to strategic commissioners has engendered initial cost and efficiency savings, but also given rise to new risks that could mean higher costs in the end. Our research and discussions with customers reveals a disparity in current risk understanding and preparedness. To ensure local authorities continue to reap the benefit, rather than suffer the burden, of outsourcing, chief executives, risk managers and partnership directors alike need to work together to manage risk at a strategic level." When outsourcing a critical service, risks need to be actively identified and managed. It is then down to efficient procurement processes, careful supplier vetting, and building strong partnerships to make the new model work.

Belgium Economy Embraces Offshoring
Belgium is famous for its high quality chocolate, ultra-strong beer, and good deals on diamonds, but the little Benelux country is now trying to fight its way out of the recession by offshoring IT services. As commented on offshoringtimes.com, "Companies such as AXA, Dexia Bank, Belgacom, and car insurer Allianz explore IT offshoring and back-office projects, making it almost USD6.5-billion opportunity for Indian outsourcing vendors including TCS, Infosys and Wipro apart from MNC rivals. According to Quantum Step, an outsourcing advisory firm, customers in Belgium will spend around USD1.8 billion on infrastructure management outsourcing, almost USD2.6 billion on application development and maintenance and nearly USD2 billion on BPO this year." An interesting reversal in trends is that while many Indian offshoring firms have been attempting to hire more local European sales professionals and project consultants, it appears that now customers only want to deal with Indian offshore delivery managers. The Nordics, Germany, France and Benelux are first timers to offshoring and have historically been underserved by the large offshore providers who were focusing on US & UK companies, so this focus shift to continental Europe is no surprise.


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