ADM outsourcing market segment has shown a record growth for over a decade, driven primarily by the entry of Indian players leveraging offshore labor arbitrage. The promise of large savings from labor arbitrage prompted a significant number of large buyers to accelerate entry into the market.
According to Everest research, global application development and maintenance (ADM) outsourcing market is US$170 billion in 2007 and has the potential to reach $213 billion by 2010.
Change in growth dynamics
ADM segment has reached relative maturity and the growth dynamics of the ADM market are undergoing a significant change.
According to Ross Tisnovsky, Vice-President Research, Everest Research Institute, multiple headwinds are affecting the pace of growth in ADM market and large buyers are re evaluating their strategies. In most cases, the re evaluation is leading to consolidate a large number of opportunistic relationships into a single coherent portfolio.
Several headwinds slowing down the pace of growth are:
- Majority of large firms have already leveraged ADM outsourcing and offshoring
- Fast adoption of offshoring within existing large customers due to their “radiate-and-penetrate” efforts of the suppliers, leads to growth in more complicated ADM functions like solution design and architecture
- These functions needs specialized skill and deep domain expertise, which makes it more difficult for suppliers to build scale
- As the ADM market matures, many large firms consider the option of opening captive subsidiaries in offshore low-cost locations as an alternative to outsource to third-party service providers
Offshore supplier growth strategy
Sustaining the rapid growth under these conditions needs change in the strategy and go-to-market approach for offshore and traditional multinational suppliers. Suppliers have two options of either
- Tapping Small and Medium Business (SMB) segment of the market, or
- Mining existing large accounts and compete with other suppliers for a larger share of wallet.
Targeting SMB’s for ADM business has proved challenging for offshore suppliers. Offshore suppliers that tried this strategy have realized that SMBs have unique IT needs, with low IT budgets and small project sizes.
Expanding the wallet share in large customers is often the strategy of choice among suppliers and value-sharing is used as a wining strategy in fighting for wallet share.
Indian offshore suppliers are already delivering offshore IT services to big IT buyers like General Motors, GE, Bank of America, Deutsche Bank, Nissan, Qantas, Wal-Mart, Tesco, GlaxoSmithKline, and Pfizer. Also they are expanding their share of the wallet in these large firms.
