Companies have been shipping off projects to far-off lands for a while now, but the outsourcing process is shifting. Here are three trends to look out for.
Small Deals Rule
The number of global outsourcing deals worth less than US$50 million increased in 2008, while those more than US$50 million declined, according to U.S. IT research giant Gartner Inc.
The global economic crisis has continued to drive the move to small deals in 2009—and that won’t end anytime soon, says Crowe Mead, PMP, partner and practice leader at Ceptara Corp., Seattle, Washington, USA.
“In the past, there were lots of big deals written at lightning pace,” he says. “What will probably happen over the next 18 months, as the market recovers and more outsourcing deals happen, [is that they] all will be done for smaller value.”
More Countries Are Jumping Into the Game
The sizes of the deals may be shrinking, but the number of countries securing outsourcing contracts is growing, says Raghuveer Subodha, a senior manager at Aditi Technologies Pvt. Ltd., Bangalore, India.
According to a 2009 survey by New York, New York, USA-based investment management research company Tholons, China's Shanghai, Beijing and Shenzhen, Ho Chi Minh City and Hanoi, Vietnam, Krakow, Poland, Buenos Aires, Argentina, Cairo, Egypt and São Paulo, Brazil, are the up-and-coming outsourcing destinations.
And countries in Eastern Europe are seeing their prospects as outsourcing destinations rise as skilled laborers leave the United Kingdom to return to nearby countries like Poland, says Chris Tiernan, managing partner, Grosvenor Consultancy Services, Twickenham, Middlesex, England.
Organizations could outsource more work to these countries at a lower cost than the United Kingdom, Mr. Tiernan says.
But the allure of Eastern European outsourcing may not last against the fluctuation of foreign currency, says Antonius C.M. Heijmen, senior advisor, outsourcing and offshoring, at The Conference Board, New York, New York, USA.
“While Eastern Europe has been active, within six to eight years they will have priced themselves out of the market,” Mr. Heijmen says. “The rise in income and equalization with income will make it less attractive to companies.”
India Tops the IT List, But Has Competition in Other Sectors
IT continues to rank as one of the top outsourced services in the world. And India has remained the leading software outsourcing destination, in part, says Mr. Subodha, because of its abundant and affordable talent.
But a joint 2008 study conducted by Durham, North Carolina, USA-based Duke University and The Conference Board Offshoring Research Network indicates that finance and insurance, manufacturing, technical services, retail and other professional services are becoming major sectors of the outsourcing business.
Not all of these projects end up in India.
“China has been dominant in manufacturing, but is much less relevant in IT and back office—but they are starting to come on board,” Mr. Heijmen says.
While some analysts say “tier 3 suppliers”—including countries such as Poland and Egypt—will never dominate as main outsourcing hubs compared to China or India, they do provide great sources of niche skills.
Malaysia, for example, is fielding work in human resources and manufacturing. And in Russia and Eastern European countries, companies have had success finding highly educated workers who have come out of the former Soviet military or space programs.
