I believe we all agree that 2009 has been a horrible year for many of us. But not necessarily for all of us. Despite or maybe even thanks to the economic downturn the IT outsourcing market didn’t lose that much, or even gained. To save cost companies started to outsource their software development to low-cost nearshore and offshore locations.
Today the future looks brighter, it looks like the economy will recover, although many things are still uncertain. Whatever happens, for sure it will have a big impact on nearshoring and offshoring. Below I will show you my personal forecast. Please don’t blame me in a year time if my forecast tuns out to be either right or wrong.
1. The increasing lack of IT resources
IT studies are not that popular in “The West” and that won’t change. Considering the economy will recover the demand for IT capacity will dramatically increase. Rates and salaries will rise again. It will be hard to find well skilled people perfectly fitting the job. And this will be especially hard for the SME market. This big corporates will be better fishers in the same pond.
2. The SME market uses outsourcing to gain competitive advantage
The past year already showed an increase in the usage of nearshoring by SME companies. Recent research shows that in the UK only about 22% of the SME market wants to outsource. For sure this will only increase when the success stories will be told, but this report shows they want to do it disregarding the negative emotions around outsourcing. And honestly they won’t have many alternatives to maintain their competitive advantage.
3. India and China remain the leaders in the outsourcing industry
For sure India and China will remain the main providers of IT resources. These countries are so huge that others won’t be able to compete at the big figure level. But specialized nearshore providers will for sure manage to beat the big ones. They have several advantages compared to offshore providers. Especially SME’s will tend to look for a nearby solution. For them this is in general the best way to go.
4. Nearshoring locations show their competitive advantage
Several analyst reports show the value of nearshore locations. I already wrote about the importance of Poland as a nearshore country. Nearshoring has several advantages over offshoring. Especially SME’s will face issues with exactly defining their needs. A more Agile work method will lead to better results. In such a case it is best when you can meet face to face with the development team from time to time. A nearshore location is usually just some hours of traveling. Besides the mutual understanding will be better because of a common cultural background. Communication is easier thanks to little time differences. The legal background is similar in most cases, which prevents unpleasant issues.
5. 2010 is the year of the soft factors
The importance of cost saving will further decrease. Outsourcing, and especially offshoring, has been treated as a cost saving option for years. Companies will increasingly consider outsourcing to find the best fitting specialist, who deliver what they really need. In that case cost will not be the key driver. The availability of high skilled people, good work practices, beautiful graphical design, adequate project management, good client communication, mutual understanding and customer intimacy will become way more important.
Bonus: Specialized players will be the winners
Reading the above you might think it will be an easy time for nearshore and offshore providers. But fortunately for the outsourcers this is not the case. As mentioned before today you have to offer more than cost savings. The winners will be smaller more specialized providers.
I am curious about your 2010 forecast and how the outsourcing landscape will change. Feel free to discuss. Any pointers to research resources you know are much appreciated. I invite you to leave your opinion by commenting below.
I don't know if these are rated by importance or such, but I can certainly agree #1 and #4 are about spot-on. I haven't quite been into the matter to have some insight in the others.
I would like to add a note btw… In my school the increasing lack of IT forces is also a little bit thickened by the fact that not only IT is less popular, but IT … See Morestudies nowadays offer a wider range of domains. This implies that IT studies deliver service managers, interface designers, business people, system & network people and software engineers. Of which especially the last one is of lesser popularity.
Hi Walter, no I did not put them on purpose in this order. I believe for everybody another one will be most important. Yes, I agree that IT-studies in Holland are becoming more general. Soon we do not have anybody in The Netherlands anymore who can do the job.
Yeah, that could be an issue. I wonder how this will affect the Dutch IT market in the long run.
It might be that IT companies here relocate to other countries to find their employees, but that wouldn't sound really likely due to the costs involved. Maybe IT companies here will raise salaries again to lure students into IT and skilled foreigners to companies here. It sounds probable, since I think that is what happened before aswell. Or maybe companies here will accept and invest in employers that don't have an IT background? Could this pose a threat to Nearshoring companies too? That 'the West' will try to draw away the most skilled personnel?
I think we will see a hybrid solution with a mixture of all things you mention. For sure many parts will be outsourced, there is just no other way. The main challenge for companies will be to secure the core knowledge and to arrange their demand management well.
For sure clever guys from abroad will be hired as well. But this will not completely fill the resource gap.
Depending on what you will outsource the relocation cost is not too high. Consider for example the development of a new application. There won't be any additional cost. Most probably bottom line it will be cheaper when you arrange it offf/nearshore.
Great Article because Now a days not only big companies like Adobe, Microsoft are doing software and product development in India at their development center. But now many other small to medium scale companies have started software and product development and started entering into outsourcing software product development. It is considered that, increase in business will be around 100% in offshore outsourcing product development.
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Great that you liked it and notice a similar trend. I also believe there will be a nice increase in near/offshore outsourcing.
I agree that SME market uses outsourcing to gain competitive advantages. We are now living in Techie world so everything seems to be fast and easy. I observed that business world become competitive because of technology. With that, IT business also need the help of outsourcing company so they would not spend much time in finding manpower or testing products. Outsourcing company can be a prototyping manufacturer who will introduce the products one market. So businessmen can save their time and money.
Actually, outsourcing opens jobs opportunities for fresh grad or to those who have experiences. Because they introduce the applicant to the company. So it is an easier way to find job, manpower, and quality of the products
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Outsourcing is needed in order to make company focus to their core competency. So, this opportunity cost wil be a budget for outsourcing
We are in the middle of 2010 recently, I believe outsourcing will growth as economic raise. Nowadays, we can see a lot of platform released. Social network and efficiency could be a driven factors towards outsourcing growth.
Hi Fauzi, thanks for your reply. I agree outsourcing could be an opportunity for many companies. I'm not sure if you could claim outsourcing will be needed for every company to focus on their core competencies. This just depends. One company will be more outsourcing ready than the other. For sure outsourcing doesn't suit every company. You have to be ready for it as well.
Hi Yudo, thanks again! You are right, it's high time to update my post 🙂 For sure economic improvement will lead to more outsourcing, that's a fact of life. And you are right that new (social) media only make things easier.
Even if the US economy picks up, more and more businesses would prefer and will be resorting to outsourcing. Not only is it cost-effective and time-saving, Business owners would be able to focus more on their business core than thinking about employee hiring and training and operational costs.
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I am working with an offshore software development company. I have noticed that only software development services will not sell anymore. They will have to be bundled with innovative offerings and/or niche domain to make it salable. Also, one more important factor is that it is very essential to know local culture and thinking. http://www.decossoftdev.com/
Thanks for your reply. I agree the market is shifting. People have learned that just hiring a remote low cost software developer mostly won't do the job. A good partnership can only exist when there's mutual trust and understanding. The developer will have to understand his client's business, habits and local culture. Besides, it would be very powerful if the outsourcer tries to gain similar knowledge about his developer.
The trend in companies who prefer to outsource their business will continue to increase because there are a lot of advantages that they can get from that business setup. It is now considered to be cost-effective and time-saving for online businesses these days. Calgary web design company
Hi Alex, thanks for your reply. Really appreciate it. I fully agree the outsourcing trend will go on and probably it will intensify as soon as the market is really fully recovering. But I predict there will be a shift visible. Outsourcing won’t be only considered for cost effectiveness only any more. More and more it will be a more strategic decission.
There are a lot of outsourcing advantages such as the ability to focus on core activities, saving money, reduced overhead, staffing flexibility and risk management.
I am interested to find out how the IT trends of 2010 will affect the incoming trends of 2011. There is a correlation in between both years.
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Yes India and China will be leaders in the outsourcing world. I think a lot of people are looking outsourcing companies to get earn a good money…..Its all easy work done by most of the client. I think so…