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Guidelines For IT Management: Planning for Offshore Outsourcing

Even though the US presidential election was full of sound and fury about offshoring, the political backlash has not deterred its market adoption, according to a new METAsprectrum report from Meta Group. "Corporations are trying to develop an offshore strategy in spite of the noise," says Dane Anderson, Program Director with META's Technology Research Services group.

The research group predicts the offshore outsourcing market will continue to grow nearly 20 percent annually through 2008. By that time META estimates "the average enterprise will outsource 60 percent of its application work offshore."

The October report says several offshore outsourcers now exceed $1 billion in annual revenue. META estimates the total offshore market currently is greater than $10 billion.

Anderson says the "fear, doubt, and uncertainty" of the election has had a positive effect on offshoring. That climate has forced companies who are considering offshoring "to be more cautious." This cautiousness has led to more in-depth research before making the decision, which typically promises better results down the road. "Companies are asking themselves, 'How can we make this work effectively?'" he says.

Factoring in the Hidden Costs

The research has added some reality to the savings numbers that labor arbitrage can produce. "Today people understand that the rate is not the cost. They now know they have to factor in the hidden costs to the published rates to determine the true cost," he explains.

Anderson says the research is clear--offshoring will not go away as a business practice in North America. According to the report, "The application and BPO markets are fundamentally about labor--both its cost and efficiency. With global resources costing one-third to one-fifth of American employees--without accounting for hidden costs--and higher process discipline (as measured by the Capability Maturity Model), offshore strategies now pervade North American IT organizations."

Publish Date: December 2004

Copyright © 2004 - Everest Partners, L.P.

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