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Trends in Offshoring

In spite of all the controversies attached to it, offshore outsourcing has today become increasingly main stream. In fact, offshore outsourcing is today growing at a rate double that of overall

outsourcing. Studies conducted by leading analysts estimate that as much as 25% of all IT work is currently outsourced. In addition, 53% of the companies' intent to increase spending on outsourcing as opposed to only 5% who plan to cut back on their outsourcing expenditures.

The worldwide market for offshore IT services is estimated to grow to $17 billion in 2007 from $7 billion in 2003, posting a cumulative average growth rate of 20%. By 2006, it is estimated that most IT organizations will have an offshore strategy. In addition the average enterprise is expected to offshore as much as 60% of its application work by 2009.

Cost savings is the primary factor driving the trend to offshore IT. With global resources costing just about one fifth that of their own employee costs it makes financial sense for companies to outsource their IT requirements to offshore vendors. For instance, application development and maintenance constitute 30% of the total IT spending for a typical company. Offshoring these could very well enable the company cut this expenditure down by 30%. While outsourcing does help companies' cutback on their IT spending, it also brings in certain additional expenditures into the picture over and above contract costs.

Outsourcing exposes companies to costs associated with the operation and management of outsourcing contracts the estimates of which vary from 3% to 11% of the cost of the outsourcing contract itself.

Apart from mere cost savings, companies are also increasingly looking at the savings in the time to market and the skill sets of vendors as important criterions while awarding outsourcing contracts .Today, offshore vendors have matured to such an extent that they are considered at par with companies like IBM or EDS while bidding for contracts, a far cry from the earlier days when offshore vendors where seen as nothing more than coding factories fit to perform only low end tasks.

USA remains the largest market for offshore IT services accounting for over two third of the total offshore spending and applications remain the key driver of this outsourcing trend to the US . Offshore IT service providers accounted for 17% of the US spending on custom application development, system integration and application maintainance in 2004 up from 11% in 2003. While offshore IT service providers will account for just around 6% of the overall IT services spending in the US in 2008, they will have garnered a 24% market share in of the total US spending on custom application development, system integration and application management services.

India remains the most preferred offshore destination for companies seeking to outsource their IT requirements. India 's export of software and services grew to $12.5 billion in 2004 from $9.8 billion in 2003. This represents a growth rate of 30.5% in an industry growing at 20% implying that India is steadily increasing her market share in the worldwide market for offshored IT services. India currently enjoys a 80% market share in the business process outsourcing arena .This figure, however is expected to come down to around 55% by 2007 as cost escalations and shortage of qualified workers begin to dilute the India advantage and newer offshore destinations like China mature.