The Continued Growth and New Face of IT Outsourcing
Although economic recovery is slowly improving the world of commerce and IT projects that have been held back are gradually starting to receive funding, many CFOs are still very mindful of cost savings.
May 12, 2010
It should come as no surprise that outsourcing giants like China and India still take the lead in the IT outsourcing "revolution." According to findings from the BDO 2010 Technology Outlook Survey, China now ranks as the number one preferred outsourcing destination for both current and future markets. After China, the next highest ranked outsourcing destinations are Southeast Asia and India. Asia is at the forefront of the reversal of the IT insourcing trend as more Western companies have found it cheaper and better to invest in Eastern markets such as China and India. Even countries in the East have started to outsource their IT needs, and according to some analysts, Asia will account for 26.3 percent of the global consumption of IT and business process outsourcing services in the next decade, up from nearly 20 percent today. With the expected rise of the outsourcing industry, Asia’s chip makers are also expected to see significant growth and profit in 2010.
As discussed in a previous column, in 2009 companies in the U.S. took steps toward cost savings by outsourcing locally. This approach is a recent phenomenon that has accounted for significant activity based on pulling work back into the U.S. Many companies took advantage of a robust job market that was mostly due to a sagging economy. For example, Qwest Communications International Inc. (NYSE:Q) recently opened its new Washington-area facility to take advantage of cheap local technology talent rather than outsourcing a component of its IT base. In addition, Staples, Inc. (NYSE: SPLS) recently expanded in the U.S. in order to provide IT outsourcing services to small businesses. However, the recent data is still somewhat contrary to the perceived trend that IT outsourcing growth will be losing speed in the future. While some factors indicate that companies are moving away from IT outsourcing, it still makes sense for most to continue the practice as technology and infrastructure in the East catch up to meet Western demands. In fact, the IT outsourcing industry is alive and well and it appears to be growing. According to the BDO survey, 46 percent of the CFOs surveyed say IT services and programming are the most common functions that are currently being offshored. Competition in the outsourcing world has grown and the IT outsourcing industry is poised for continued expansion in 2010.
This expansion has led to some interesting trends. In order to compete for U.S. businesses looking to send more of their IT outsourcing components offshore, IT outsourcing companies are employing new strategies to set themselves apart from the competition by forming "strategic partnerships" and consolidating resources. A strategic partnership is generally formed among several outsourcing service providers to help broaden market share and improve offerings; essentially replicating the "bigger is better" approach. While unofficial strategic partnerships have existed in many variations unbeknownst to U.S. customers that purchased IT outsourcing services from these companies, the official practice has grown to become more commonplace among IT outsourcing providers that are looking to team up with their competitors to deter market entry.
IT outsourcing service providers are also refocusing and streamlining their business models to prepare for greater demand in 2010. Simply put, the practice of IT outsourcing allows companies to focus on business. Thus, IT outsourcing firms themselves have decided to employ the same principle to their own operations and business models. On March 4, customer relationship management firm Convergys (NYSE:CVG) sold its human resource management line of business to NorthgateArinso, a large human resources software and services provider. With this move, Convergys will be able to refocus on its core business model without having to maintain and leverage resources. This will also give Convergys an opportunity to focus on its investments in and efforts to grow its Customer Management and Information Management businesses. Also, on March 5, business consulting firm Infosys (NASDAQ:INFY) announced plans for new services such as cloud computing and platform-based offerings. This is in line with adopting a pay-per-use business model, wherein customers will be paying only for what they use, and what results they achieve with regards to certain aspects of IT outsourcing.
Another innovative trend for IT outsourcing is the practice of going green. IT outsourcing firms are spending a great deal of time, money and effort on state-of-the-art green data centers, such as the one recently built by Affiliated Computer Services (ACS) in the United Kingdom. The center boasts "best-of-breed technology with the highest caliber of green credentials," and the ability to save up to 70 percent of energy costs while reducing the carbon footprint of the company by approximately 4,200 metric tons annually. With this impressive data center, ACS is flexing its green muscles and showing its potential IT outsourcing clients that it supports the practice of becoming a more environmentally friendly IT outsourcing firm, thus ushering the company into the general public’s (or any potential client’s) good graces.
Technology company CFOs see competition and innovation as important factors that will define the landscape of the IT outsourcing industry. The continued growth of the IT outsourcing industry through competition and innovation allows these CFOs to take advantage of the best IT outsourcing services and products they can afford.
This article was originally posted by globalservicesmedia.com and is the property of Global Services
As discussed in a previous column, in 2009 companies in the U.S. took steps toward cost savings by outsourcing locally. This approach is a recent phenomenon that has accounted for significant activity based on pulling work back into the U.S. Many companies took advantage of a robust job market that was mostly due to a sagging economy. For example, Qwest Communications International Inc. (NYSE:Q) recently opened its new Washington-area facility to take advantage of cheap local technology talent rather than outsourcing a component of its IT base. In addition, Staples, Inc. (NYSE: SPLS) recently expanded in the U.S. in order to provide IT outsourcing services to small businesses. However, the recent data is still somewhat contrary to the perceived trend that IT outsourcing growth will be losing speed in the future. While some factors indicate that companies are moving away from IT outsourcing, it still makes sense for most to continue the practice as technology and infrastructure in the East catch up to meet Western demands. In fact, the IT outsourcing industry is alive and well and it appears to be growing. According to the BDO survey, 46 percent of the CFOs surveyed say IT services and programming are the most common functions that are currently being offshored. Competition in the outsourcing world has grown and the IT outsourcing industry is poised for continued expansion in 2010.
This expansion has led to some interesting trends. In order to compete for U.S. businesses looking to send more of their IT outsourcing components offshore, IT outsourcing companies are employing new strategies to set themselves apart from the competition by forming "strategic partnerships" and consolidating resources. A strategic partnership is generally formed among several outsourcing service providers to help broaden market share and improve offerings; essentially replicating the "bigger is better" approach. While unofficial strategic partnerships have existed in many variations unbeknownst to U.S. customers that purchased IT outsourcing services from these companies, the official practice has grown to become more commonplace among IT outsourcing providers that are looking to team up with their competitors to deter market entry.
IT outsourcing service providers are also refocusing and streamlining their business models to prepare for greater demand in 2010. Simply put, the practice of IT outsourcing allows companies to focus on business. Thus, IT outsourcing firms themselves have decided to employ the same principle to their own operations and business models. On March 4, customer relationship management firm Convergys (NYSE:CVG) sold its human resource management line of business to NorthgateArinso, a large human resources software and services provider. With this move, Convergys will be able to refocus on its core business model without having to maintain and leverage resources. This will also give Convergys an opportunity to focus on its investments in and efforts to grow its Customer Management and Information Management businesses. Also, on March 5, business consulting firm Infosys (NASDAQ:INFY) announced plans for new services such as cloud computing and platform-based offerings. This is in line with adopting a pay-per-use business model, wherein customers will be paying only for what they use, and what results they achieve with regards to certain aspects of IT outsourcing.
Another innovative trend for IT outsourcing is the practice of going green. IT outsourcing firms are spending a great deal of time, money and effort on state-of-the-art green data centers, such as the one recently built by Affiliated Computer Services (ACS) in the United Kingdom. The center boasts "best-of-breed technology with the highest caliber of green credentials," and the ability to save up to 70 percent of energy costs while reducing the carbon footprint of the company by approximately 4,200 metric tons annually. With this impressive data center, ACS is flexing its green muscles and showing its potential IT outsourcing clients that it supports the practice of becoming a more environmentally friendly IT outsourcing firm, thus ushering the company into the general public’s (or any potential client’s) good graces.
Technology company CFOs see competition and innovation as important factors that will define the landscape of the IT outsourcing industry. The continued growth of the IT outsourcing industry through competition and innovation allows these CFOs to take advantage of the best IT outsourcing services and products they can afford.
This article was originally posted by globalservicesmedia.com and is the property of Global Services