Outsourcing…The Numbers Tell The Whole Story

In 2003, Forrester Research, Inc., predicted that 3.3 million U.S. service jobs would go offshore by 2015. The respected Cambridge, Mass.-based market research company was pretty close to the mark. Approximately 3.3. million American jobs are indeed expected to be outsourced to India and China during the next several years. No wonder most Americans (more than 66 percent) report that their biggest fear is having their job outsourced overseas.

The scary question that keeps organizational decision-makers up nights is how to pinpoint the countries that will be outsourcing’s beneficiaries this year. That amounts to a daunting task for IT companies.

Each year Gartner, Inc., the Stamford, Conn.-based IT, research and advisory organization, identifies the 30 top countries providing offshore services. In 2009, India and China were cited as the hands-down leaders, but market changes are expected to alter that in 2009. Brazil and Russia, for example, are now  considered viable alternatives.

Here are Gartner’s top 30 locations for offshore services, by region, in 2008:

  • Americas: Argentina, Brazil, Canada, Chile, Costa Rica, Mexico and Panama
  • Asia/Pacific: Australia, China, India, Malaysia, New Zealand, Pakistan, the Philippines, Singapore, Thailand and Vietnam
  • Europe, the Middle East and Africa (EMEA): the Czech Republic, Egypt, Hungary, Ireland, Israel, Morocco, Poland, Romania, Russia, Slovakia, South Africa, Spain and Ukraine

Interestingly, only seven countries from the Americas appeared in Gartner’s list. The reason is that these countries are particularly attractive to the United States, the largest buyer of offshore services. Understandably, Canada was rated “excellent” for language (with fluent English and French). However, Latin American countries have been increasingly leveraging their Spanish-language skills in the U.S., requiring that parts of their offshore workforce speak Spanish as a first language.

There also have been strategic shifts in the outsourcing power mix, according to Gartner. Four countries dropped from Gartner’s list include Northern Ireland, Sri Lanka, Turkey and Uruguay. They’ve been replaced by Egypt, Morocco, Panama and Thailand. The reason is strong interest in near-shore locations because of language skills, cultural compatibility, time zone and travel.

Finally, Gartner also noted that external service providers are exploring countries not included in the Top 30 in order to get closer to developed countries, such as the Nordic regions and France, that are showing an increasing interest in offshore prospects.

It will be interesting to see what Gartner’s top 30 outsourcing list will look like next year. Considering the long-lasting effects of the 2008-2009 fiscal crisis, cost will remain the deciding factor.

In 2008, TPI, Inc., the Houston-based outsourcing advisory firm, predicted there will be less multisourcing, which will dramatically cut costs. Outsourcing buyers feel that working with a limited number of vendors will minimize vendor selection and management costs. Time will be saved, and buyers can reap the rewards of faster project turnarounds. TPI also projects that outsourcing pay scales will plateau. Retaining consultants to service outsourcing destinations such as India and China has been a mounting cost for organizations. TPI said that attrition rates have grown by double-digit percentages, largely triggered by skyrocketing salary expectations from consultants. This has resulted in service interruptions and additional costs for  restaffing. Outsourcing buyers are cutting their costs by choosing nontraditional outsourcing destinations that are more affordable, where attrition is kept at a stable pace and salary levels are kept in check.

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