What is IT
Outsourcing?
The procuring of services or products in Informational Technology, e.g.
applications
development,from an outside vendor or manufacturer in
order to cut costs and achieve other benefits of IT Outsourcingin order
to make business processes more effective and be more competitive on
market.
Outsourcing is not something new, as larger companies have
always considered using outside resourcesfor performing particular
tasks instead of resorting to their own workforce. As a result,many
small companies based in a low-cost climate have entered into long term
partnerships withwestern corporations that have realized that going
beyond national boundaries to search for costeffective,highly skilled
workforce is the way to success. But since in the early days cost was
considered the only reason for hiring outside contractors, nowadays
there’s a turn, as companies become more and more aware of the rest of
the advantages outsourcing can bring. Today, most IT managers consider
outsourcing to be the most affordable solution for a company interested
in becoming more efficient by reducing costs and accessing
state-of-the-art technologies without spending additional funds on
research and development.
Offshore IT Outsourcing
Although it currently represents more then $10 billion global IT
services market, offshore software outsourcing is playing an
increasingly important role in the information technology (IT)
strategies of major corporations and attracting the interest of
business and technology decision makers across the vertical industry
spectrum. Meanwhile, global and regional U.S. and European consulting
and systems integration companies are incorporating offshore delivery
into their go-to-market strategies, joining established Indian
suppliers and emerging software services from other countries in a
growing and dynamic market. In short, offshore delivery is becoming
part of the global IT services industry mainstream.
Offshore software development is characterized by two basic business
models linked by a common set of value propositions. The first model
based on ownership. The Enterprises set up wholly owned facilities
overseas or form joint partnerships with offshore sup-pliers to take
advantage of low wage scales and skilled labor and/or to establish a
market presence in a particular country. The second model is based on
contracting an existing IT consulting and software development firm.
Clients contract with offshore suppliers to carry out all or part of a
software project. Increasingly, this model is characterized by
on-site/offshore delivery where supplier personnel work at a client
site performing requirements gathering, architecture, prototyping, and
related activities. Coordination with offshore facilities and client
interactions is the responsibility of a dedicated project manager.
Each of these business models has it’s own advantages, as well as drawbacks.
Contracting
As a business strategy, Contracting is more popular then previous
model. Compared to Ownership, it needs far less money, but is not
devoid of risks either, though of a different kind. The real problem
here is to find the right team of developers. For lack of comprehensive
and independent information about the IT Outsourcing market, not many
foreign companies get it right the first time and often fall victim to
the “jack of all trades, master of none” syndrome common to some of the
IT Outsourcing companies. In a good case it is a company with global
presence and can provide services with high level of project management
and on-site presence at clients location.
Key Reasons for IT Outsourcing
- Reduce and control Operating Costs - The major benefits of outsourcing are significant
cost-savings. Offshore outsourcing is particularly cost beneficial. A typical company can
save up to 60-70% on outsourcing to low labor-cost countries.
- Faster time-to-deployment — By integrating onsite and offshore teams, service suppliers
are often able to work on a 24/7 basis, spanning time zones and deploy “follow-the-sun”
development to reduce time-to-completion on high-priority projects and testing schedules
and deliver rapid cost-effective results.
- Focus on core activities — Outsourcing non-core functions, either locally or offshore, frees
internal resources to focus on business-critical initiatives and reduce dependency on thirdparty
contractors.
- Access critical technology skills — Offshore outsourcing has opened up a global technology
talent pool, providing enterprises with affordable access to critical IT skills.
- Improved quality — Led by Indian suppliers, offshore outsourcers as a group have embraced
third-party quality standards and software life cycle processes that,
in some cases, are more rigorous than those of their customers.
IT Offshore Markets
With 2001 export revenues that surpassed $6.2 billion, Indian suppliers dominate the offshore
software services industry. Suppliers from Russia (and other former Soviet bloc nations) among
with China, Taiwan, Pakistan, Jordan, Egypt, Mexico, and other
countries entered the market and adapting business models established
by Indian firms that have dominated the services sector in the past
decade. The emergence of new offshore centers has been marked by new
approaches and skill sets, adding to the services and value
propositions that define the offshore sector today.