Slow move towards sea level

In Europe and in the Netherlands, IT outsourcing did not capture too much attention in recent years. The exception to this is the UK. However, the picture is changing. In the Netherlands recently there has been a wide media coverage and a debate has started on the possible effects of offshore outsourcing on the IT sector and the IT labor force. Trade unions moderately picked up the subject. However, the government and IT associations are holding back on the lingering issues. At least publicly.

Media coverage has been focusing on issues such as risks, cultural differences, management topics, advantages and disadvantages associated with offshore outsourcing. The good news is that more and more Dutch organisations learn about offshore outsourcing and the possible destinations.

Nevertheless, companies are quite hesitant to start outsourcing offshore. Most organisations do not have offshore (anyshore) outsourcing experience. The few projects, which were outsourced mainly to India, were usually small and short. The reasons why companies are uncertain to move work offshore include;

captive business models,

traditional decision making structures,

risk aversion

negative local and global publicity of offshore outsourcing

In the case of India and recent elections there, the negative or zero impact of offshore IT outsourcing on the social and economic structure, living standards and income generation had also received media coverage.

Organisations are also hesitant because of the often negative sentiment associated with offshore outsourcing and the, similarly negative, effect offshore activities might have on their own corporate image and publicity.

It seems however that the near shore model is more acceptable to Dutch companies than moving offshore to another continent. Recently, Romania has received strong media coverage and a handful of companies have also been outsourcing ICT projects to Romania.

Arguments not to move work offshore also include the fear of losing control, cultural differences, language barriers and possibly declining service level.

Outlook

Forrester: by 2015 about 9000 ICT jobs will be lost in the Netherlands because of offshore outsourcing. (Presently the Dutch ICT sector employs about 250.000 people. Forrester estimates that 1.5 million jobs will be lost in Europe by 2015 because of offshore outsourcing.)

IDC: in the coming years 25% of the Dutch companies will move work offshore.

After years of continuous decline, in 2004 again negative records were broken in the number of students enrolled for higher ICT education. The young Dutch generation has lost interest in ICT and does not see long term perspectives in the ICT sector. This, together with the estimated effect of offshore outsourcing might cause a serious breakdown in innovation, productivity and competitiveness. The long term lack of well educated, young and innovative IT workforce will subsequently reinforce offshore outsourcing and the willingness to move higher added value jobs and processes offshore.

There is a clear global shift in offshore outsourcing. A few years ago IT labor force shortage was the main moving force behind offshore outsourcing next to lower costs. Today cost containment, quality and process improvements are the main motives. Earlier mainly low added value, labor intensive jobs went to low cost countries. Offshore service providers have been gradually moving up on the value chain, professionalising their services and process discipline, integrating all into a global delivery model (GDM).

Conclusion

Due to strong media coverage, and global acceptance, Dutch companies learn more and more about offshore outsourcing. Adopting offshore practices is however a slow moving process. For service providers the major challenge in the Netherlands is to formulate a value proposition which properly addresses the questions, reservations and doubts Dutch companies have regarding offshore outsourcing. Service providers also have to be prepared to go through a steep and eventually long learning curve together with their Dutch partner.