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Offshore outsourcing opportunities for emerging
economies in the global IT market |
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Date: 15.05.2004
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In other context they had been called developing
countries, countries or economies in transition,
sometimes third world countries. Today, when new
opportunities open in the global IT services delivery
market they are often called low cost countries,
indicating their major advantage; LOW COSTS. Low labor-,
living-, and overhead costs. Many countries around the
globe fall into this, low cost, category; Russia,
Bulgaria, Romania, China, India, Vietnam, Sri Lanka,
Mexico, just to mention a few. However, we have to
realize that outsourcing and offshore outsourcing in
particular is a complex business where cost is only one
of the aspects (nowadays the major aspect) but these
countries we could rather call offshore Suppliers of
outsourced (IT) services. |
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The nature of offshore outsourcing |
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Today, a lot of high level debates are going on in
the USA and Europe about offshore outsourcing arguing if
it is really good for their economies and particularly
for the labor market. From the Supplier point of view
offshore outsourcing of IT services is an attractive
business model as it offers advantages to Buyers (in the
USA or in the European Union for instance) at times of
economic recession as well as when the economy is
booming. Cost has always been the major driving force of
offshore IT outsourcing. Today, when corporate IT
budgets are stagnating or shrinking, CIOs are pushing
the limits higher and higher while putting extreme
pressures on IT departments, costs and business value
are the most important elements in corporate strategy
formulation, regarding IT. However, a few years back at
the peak of the “new economy” boom an equally important
factor was the availability of highly educated,
experienced and cheap IT workforce. For Suppliers it is
vital to know both the Buyers’ decision making process
as well as the key advantages in offshore IT outsourcing
in order to formulate a winning value proposition. |
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What is outsourced offshore? |
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Nobody is surprised that well known sport goods, or
fashion companies relocated the majority of their
manufacturing plants to countries in Asia. But which
part of the whole process goes usually offshore? The
answer is: the labor intensive, low added value
processes where consumer/client interaction is not
necessary or minimal. When we look at IT offshore
outsourcing at large, the same principle applies.
However, as the outsourcing relationship matures and/or
the Supplier grows, more and more added value and
responsibilities are shifted offshore. Today, a few,
mainly Indian firms are growing rapidly, providing full
scale, diversified IT services to a global client base.
However, many of these Suppliers are global players
themselves. But how can we say that writing software
code, for instance, is a low added value job? Well, we
all know very well that creating software is a process,
with its own special features and key process areas
(software engineering, project management and quality
assurance). Analysis and software design is prerequisite
to coding. When design and analysis is done properly and
documented in details, indeed coding is a low added
value activity. However, in practice the person who
writes the code often also designs the software and
writes the specification. As a result, coding becomes a
very high added value activity, which is still labor
intensive. Consequently, the probability of success
depends on if both the Supplier and the Buyer have a
well defined process-discipline where tasks and
responsibilities are clearly separated and documented in
detail. Again, it is very important to emphasize that as
outsourcing relationships mature more and more value
added tasks are carried out offshore. |
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