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.