Offshore outsourcing is so mainstream that by next year, more than 80 percent of U.S. companies will have had high-level discussions about the topic. And 40 percent will have completed some kind of pilot program or will be using near-shore or offshore services. Despite that assessment, made by Gartner Inc. at an outsourcing conference here this week, offshore outsourcing remains a difficult issue for executives to talk about. In fact, many attendees were skittish about responding to questions for this article, except in the most general terms.
Corporate officials did, however, acknowledge trends related to the politically charged issue. For instance, BP PLC in London is discussing offshore work with its existing outsourcers, IBM Corp. and Accenture Ltd. "They are offering us an opportunity to have consistent performance at a lower cost," said Russell Taruscio, downstream chief financial officer at the oil company.
Adding offshore components to outsourcing contracts is on the rise, according to IDC. In a report last week, the Framingham, Mass., research firm said offshore outsourcing is the dominant trend in the IT services industry, with 42 percent of the application management contracts now having some offshore component. A big reason is cost.
Bob Walters, IT director at supply chain system provider Intermec Technologies Corp. in Everett, Wash., surveyed development costs recently at an SAP AG user conference. He determined that U.S. companies are charging US$80 to $120 per hour for programming work, while the fee for offshore providers is about $40.
When you can pay a third of the price, offshore is "something that has to be considered," said Walters.
As offshore business grows, so does competition for it. Pioneering India-based offshore companies, such as Tata Sons Ltd., are facing increasing competition from the large U.S. IT consulting firms. Accenture CEO Joe W. Forehand, who spoke at the Gartner conference, compared the trend to the previous exodus from the U.S. of many manufacturing operations. "The way we look at it, the industrialization of IT is a reality, and we have to embrace that," he said.
Competition is also becoming more global. In the vendor exhibit hall, Bamboo Networks Ltd.'s mere presence raised eyebrows. Some rivals said it was the first China-based outsourcer to set up a booth at a U.S. outsourcing conference.
China is considered something of a sleeping giant in the offshore world that isn't quite ready to compete with India. China "represents the next wave" in offshore outsourcing, said Traci Gere, an IDC analyst.
Rajesh Rao, chief operating officer at Hong Kong-based Bamboo, which operates an offshore development center in Guangzhou, China, said the company believes it has developed its offshore processes sufficiently to compete for U.S. customers.
One user of offshore services, Sudhir Agarwal, senior manager of architecture and services at Verizon Communications in New York, said India's talent pool, its populace's proficiency with English and the country's U.S. connections will ensure India a dominant role for years to come. But China's emergence "is good for companies in the U.S.," Agarwal added.
Business Process Outsourcing Gains Momentum
According to Gartner Inc., business process outsourcing (BPO) is on the rise, with outsourcing of the human resources component expected to grow the fastest. Approximately 85 percent of U.S. companies will outsource one or more human resources functions in the near future, with payroll processing often being the first step.
Key to any successful outsourcing relationship is the ability to measure the cost of providing existing services, said Gartner analyst Rob Brown.
Another hot BPO area is insurance. Liberty Insurance Services Corp., a subsidiary of Toronto-based Royal Bank of Canada, is one provider.
Its insurance BPO work can involve a combination of offshore and onshore development, said Ted Coia, vice president of the Greenville, S.C.-based subsidiary. But customer data stays in the U.S. An offshore center may see a policy image that requires data entry, but that's the extent of the interaction. Regulators don't like insurance data to go offshore, he said.
Insurance BPO covers a range or services, including transaction and claims processing, any kind of data entry, underwriting and policy administration. Gartner expects the insurance BPO market to increase from $6.8 billion this year to $8.9 billion by 2005.
Human resources outsourcing services are expected to reach $46 billion this year and $51 billion next year, Gartner said.-- Computerworld (US)
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