software outsourcing

A blog related to software development company and offshore software outsourcing

Thursday, June 16, 2005

Software outsourcing

At present software outsourcing to India is booming and all companies are having enough orders. But future may not be as rosy as it looks to be. In 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 order.

According to diamondcluster's 2005 global IT Outsourcing report, number of customers terminating software outsourcing deal prematurely has doubled to 51% - a drastic increase. While, number of customers satisfied with their offshore outsourcing has decreased to 62% from 79%. According to Tom Weakland, blame is not totally on the shoulders of software outsourcing service providers. But it also lies on the customers. Many companies are using offshore outsourcing since last few years. But yet they don't have effective measure to gauge success of offshore outsourcing deal. This outsourcing study included 210 customers and 242 software outsourcing service providers. All participants where from global 1000 companies and were of senior executive level. Research was conducted in the end of 2004 and in the beginning of 2005. IT budget of the companies which were involved ranged from less then 5 million dollars to more then 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, survey reflected on few core issues also. Like, 7% of the customers mentioned that, they will decrease onshore outsourcing. While 5% 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 report was alarming interest in China. 40% of the customers mentioned that, they are expecting to outsource some part of their IT business to China in next three to five years. This was just 8% a year ago. For software outsourcing, reallocation of internal resources to more critical functions was considered 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 loss of good people and value of their institutional knowledge.

Report also mentions the rise of china in 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. Now a days, buyer confidence in software outsourcing and offshore software development is increasing and so is the repeat orders from customers. However, they also mention that, threat from China can not be overlooked, but it is not going to be there in nearby future.

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