Software outsourcingThursday, June 16, 2005
At present software outsourcing to India is booming and all companies are having enough orders. But the future may not be as rosy as it looks to be. In the US and Europe, so many companies are looking to start offshore outsourcing. But this booming industry is not free from dissatisfied customers. According to Gartner, one out of every four outsourcing deal is failing and ending with termination of the order.
According to the diamond clusters 2005 global IT Outsourcing report, the number of customers terminating software outsourcing deals prematurely has doubled to 51% – a drastic increase. While the number of customers satisfied with their offshore outsourcing has decreased to 62% from 79%. According to Tom Weakland, the blame is not totally on the shoulders of software outsourcing service providers. But it also lies in the customers. Many companies are using offshore outsourcing for the last few years. But yet they don’t have effective measures to gauge the success of the offshore outsourcing deal. This outsourcing study included 210 customers and 242 software outsourcing service providers. All participants were from global 1000 companies and were of senior executive level. The research was conducted at the end of 2004 and at the beginning of 2005. IT budget of the companies which were involved ranged from less than 5 million dollars to more than 500 million dollars. The survey also points in the direction that, around three fourth of software outsourcing companies are expecting growth in offshore IT outsourcing.
However, the survey reflected on a few core issues also. Like, 7% of the customers mentioned that they will decrease onshore outsourcing. While 5% of customers mentioned that they will decrease offshore outsourcing. Other key factors found in the survey are, employee backlash has continued to be a major concern for customers along with worries over US anti-outsourcing legislation and political pressure.
For Indian software outsourcing companies, bad news in the report was an alarming interest in China. 40% of the customers mentioned that they are expecting to outsource some part of their IT business to China in the next three to five years. This was just 8% a year ago. For software outsourcing, the reallocation of internal resources to more critical functions was considered the biggest benefit of offshore outsourcing. While cost-saving was next to it. This shows that companies are finding very high cost-savings as very difficult to achieve. And they are understanding more about the loss of good people and the value of their institutional knowledge.
The report also mentions the rise of china in the offshore software outsourcing market. It mentions that china is looking like India was looking 10 years back. When software outsourcing capabilities of china will take off, it will put very high pressure on the traditional providers of offshore outsourcing services and it will set a new competitive price. Some CEOs and senior management people of software outsourcing companies were not agreeing with the report mentioning that buyer dissatisfaction and premature cancellation are away from reality. Nowadays, buyer confidence in software outsourcing and offshore software development is increasing and so are the repeat orders from customers. However, they also mention that threats from China can not be overlooked, but it is not going to be there in the nearby future.
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