Offshore Wages: Less of a Worry in ’08 than in ’07
Interestingly, last year when one saw heightened discussions about increase in offshore wages, some rushed to predict a slowing down of offshoring. But only a fourth of the service providers cited an increase in wages as a serious concern for them. Salary appreciation emerged as just the fifth highest concern for the global sourcing industry in 2007, with only 24 percent respondents citing it as a top reason for worry.
In the 2007 and 2006 surveys, on the other hand, salary appreciation was a stronger reason for concern among service providers — in both the years 35 percent respondents cited it as a top worry.
ADM, Back-office Operations: Top the Charts
One of the first IT-services candidates to be offshored was Application Development and Maintenance (ADM). Now, after over a decade of offshoring, it still continues to top the chart as the most offshored IT service. Over 46 percent respondents to our survey said that they do outsourced ADM work, followed by 30 percent who specialized in outsourced managed services and 10 percent in engineering or R&D services. On the BPO front, 65.7 percent providers said that they specialize in back-office operations.
In general, bundled contracts are led by IT services with some BPO offerings, and not vice versa. At the same time, there can never be piles of IT and BPO services in a single integrated outsourcing contract; such deals are dominated by one of the two services. Interestingly, about 48.4 percent of global services providers polled offer both IT and BPO services; 21.6 percent provide only BPO services and 30 percent offer only IT services.
Delivery Locations: India Reigns Supreme
As IBM crossed $1 billion in revenue in India with almost one in every five employees of the technology giant being located in the country, the respondents to our survey also confirm that India has become the hub for global delivery. Just over 57 percent global Full-time Employees (FTEs) work in delivery centers in India. China, much publicized as the strongest competitor of India, on the other hand, came far below in the survey, with only about 3 percent of global FTEs located there.
It is interesting to note that the U.S.A. came in at second place in our survey, indicating that service providers continue to invest in onshore operations for their U.S. customers. While onsite delivery teams have been common for risk-averse customers and large outsourcing contracts, many firms are actively building delivery capability in the U.S.A. to provide an onshore option for business-critical applications and processes. However, there is a difference of almost 40 percentage points between the number of FTEs employed in India and the U.S.A.
When viewed in terms of the number of delivery centers, about 64 percent of respondents to our survey said that they have centers in the U.S.A., while only 58 percent said that they have centers in India. Moreover, though about 34 percent respondents have centers in the U.K. and Northern Ireland, the percentage of FTEs working in those centers remains low, at only 5 percent.
Geopolitical Instability: No One’s Worried (Yet!)
And what gave providers next to no reason to worry in 2007? Political instability. Just under two percent respondents cited this as a reason. Last two years as well, political instability was the least reason for worry for providers. But, seeing how swinging foreign currencies changed the outlook of providers last year, would it not take just one instance of political instability or a terror act in Latin America, Central Asia or South Asia (Benazir Bhutto was, after all, assassinated toward the end of last year) to turn dreams into nightmares?
Steady State for Bundled IT and BPO Services
While it is challenging to align people and capital to correlate IT and BPO operations, the demand for bundled IT and BPO services by customers of services has maintained a high, though steady, state in the past two years. Fifty four percent of respondents to the 2008 Global Services 100 survey said that they saw customers seeking more bundled IT and BPO services than in the past. This is just 4 percent higher than the percentage of providers who noticed the increase in demand for bundled offerings in our 2007 survey.
