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Offshore outsourcing picking up after recession: Everest

John Ribeiro | July 12, 2010
Work that was outsourced locally is also now being moved to offshore locations

BANGALORE, 12 JULY 2010 - The outsourcing market is witnessing an increase in activity as the global economy recovers from the recession of 2009, according to a report by Everest Research Institute.

Offshore outsourcing business that was in the pipeline, but was delayed during the recession for financial reasons or for lack of management focus, is now gathering momentum again, Anand Ramesh [CQ}, research director at Everest, said on Saturday.

More concerned about cost reduction after the recession, customers in the U.S. and other markets are planning to offshore more of the work that was earlier being outsourced to suppliers in their countries, Ramesh said.

Companies that have not sent work offshore so far are also now considering outsourcing to low-cost locations like India and the Philippines, he added. Over a period, the credibility and scale of offshore suppliers in countries like India has also increased, Ramesh said.

Most current buyers plan to expand offshoring and a significant proportion plan to do so aggressively, the Everest report said. Approximately 75 percent of small and medium adopters and 90 percent of large adopters plan to expand their offshore outsourcing by more than 500 FTEs (full time equivalents) over the next two years, it added.

Small adopters are defined by Everest as organizations with already less than 500 FTEs offshore, while medium adopters are organizations with 500 to 2,500 FTEs offshore. Large adopters are organizations that already have more than 2,500 FTEs offshore.

The report surveyed companies that currently send IT services and business process outsourcing (BPO) work to either their own subsidiaries or to third-party suppliers in off-shore locations like India, Mexico, China and the Philippines.

A number of analysts have forecast a pick up in offshore business. A lot of the offshore business that was delayed by the recession is back, said Sudin Apte [CQ], principal analyst at Forrester Research. But there are no large new deals yet, he said.

The improvement in business is also likely to place demands for staff in countries like India, thus pushing up costs. Companies in India, for example, have started hiring again, and staff attrition is likely to go up to over 15 percent in the current quarter, Apte said.

India continues to be the dominant offshore location with more than 70 percent of buyers planning to expand in the country, according to Everest. The Philippines, riding mainly on its strong presence in the BPO business, and China are two other key countries where companies plan to expand.

But the offshore market in China is primarily for work done for neighboring countries like South Korea, and Japan, according to Ramesh. The number of U.S. companies outsourcing to China are few, and the size of their operations are small, he added.

 

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