Offshore Development: Relative value to growthMonday, December 19, 2005
Successfully developing of BPO sector for software outsourcing is the same as that of any other large-scale business project: planning, implementation, and control. What makes BPO/ offshore development different is that, instead of obtaining goods of a certain specification and price, the Offshore Software Development buyer must contend with the fulfillment of the administrative tasks and integration of the vendor.
Indian IT and business process outsourcing (BPO) companies would soon overtake their Western counterparts. Which means it is basically a metric that reflects the way the market perceives these companies as either growth- or margin-driven. Prior to that, Companies fundamentally have to realign and improve their cost structures before they can grow profitably for successive Offshore Software Outsourcing.
The most significant step in Business Process Outsourcing implementation actually starts before the Software Outsourcing buyer even decides which process to Outsource or enters into discussions with an Outsourcing vendor. This involves identifying the operations, both manufacturing and administrative, without which the firm would cease to be viewed as a source of goods and services. All other processes are secondary and, therefore, may be considered candidates for Outsourcing to others. There is significant potential for the Indian companies to grow in a smart way and potentially to be the winners in the space, but there’s a lot of competition on all sides of corner.
In business like Offshore Software Outsourcing, embedded growth rate is not nearly as high as the recent growth rates because you can think of that as a long-term growth rate, or a perpetuity growth rate. However the market expects that there is significant growth potential with strong margins. And that’s really a composite assessment looking at their marketing capability, their technology, their customer relationships; a whole variety of attributes. This says that the Indian Information Technology Outsourcing Organizations have very strong valuations and they have very strong incentives to grow, as well as being a low-cost supplier for the customer segments.
Major of the things we bring up in the study is the fact that part of the challenge for the Indian Offshore Software Outsourcing companies is to try and understand what their value-added is, as other companies start to see the value of moving their costs down. They need to be thinking differently about their own business models and their own business capability. At that point they might have to move to a higher-end kind of value proposition and reassess where they’re spending their capital for the growth of the Software Outsourcing Development.
There is a phenomenon around the strategy architecture that’s related to pulling this all together in Offshore Software Development. We’re going to see more high-end strategy practices moving towards a global process optimization where they will begin to really understand that the ability of a particular area to handle a particular kind of Outsourcing is probably superior to another area. And we’ll ultimately see — rather than a generalized kind of processing — some of these specialized processing areas start to emerge. Like in insurance processing or claims processing, that become kind of independent, stand-alone centers of excellence within the global process architectures. And that’s an evolution that many of the Indian Software Outsourcing Companies would arrive at.