India’s outsourcing sector to grow

Offshore revenues account for $19.5 bil of the $ 570 bil market for IT-services. At present India accounts for $ 11 bil of the total global outsourcing of IT-services but inthe future one in ten jobs in the IT-services space will move from the developed nations to the devloping economies like India and China. By 2005 India?s share will grow to 49% of the total global outsourcing pie.

Though India is still maintains its headstart in the outsourcing game and will be able to retain its lead for the next 18 months it must take due notice of its greatest adversary China.

IDC on offshore outsourcing

Lower operation costs will continue to drive the offshore component of their businesses, which is set to rise from 5% in 2003 to 23% in 2007.

Services tasks that may be affected by offshore outsourcing include maintenance and support, implementation and operations–activities that IDC views as requiring low skills and that involve repeatability. Hardcore business work such as planning, IT education and training will remain relatively resilient against the offshore trend.

McKinsey: Offshoring software development numbers

Widely cited figures predict that by 2015, roughly 3.3 million US business-processing jobs will have moved abroad. As of July 2003, around 400,000 jobs already had. Other research suggests that the number of US service jobs lost to offshoring will accelerate at a rate of 30 to 40 percent annually during the next five years.2 Vast wage differentials are prompting companies to move their labor-intensive service jobs to countries with low labor costs: for instance, software developers, who cost $60 an hour in the United States, the world’s biggest offshorer, cost only $6 an hour in India, the biggest market for offshored services

IDC: IBM is the leader in outsourcing

In a recently published report, IDC said Big Blue claimed about 22% of the global IT outsourcing market in 2002, with $15.3 billion in outsourcing services revenues. IBM seized a quarter of all U.S. outsourcing sales last year, mainly through its Global Services unit, the report said. Electronic Data Systems, Computer Sciences and Fujitsu nabbed the next top spots in IDC’s global rankings, with $11.1 billion, $3.8 billion and $3.3 billion in outsourcing revenues, respectively. Together the four companies command close to half of worldwide IT outsourcing revenue, IDC said.

Gartner: Offshore outsourcing will gain

Gartner predicts that the market for business process outsourcing (BPO) gone offshore will hit $1.8bn (?1.10bn) in 2003, up from $1.3bn in 2002. Still, the offshore BPO market will make up just 1.5 percent of the total BPO market this year, Gartner said. India is the top country for delivery of offshore BPO services among large companies, Gartner said. India’s revenue from BPO will grow from slightly less than $1bn in 2002 to $1.2bn in 2003 and will represent 66 percent of the offshore BPO market, according to the research firm.

Outsourcing Is Over-Hyped

The promise of Business Process Outsourcing (BPO) as a one-stop, lower-cost answer for complex core business processes is a myth, analyst firm Forrester Research said in a report issued Tuesday.

No single vendor is equipped to handle the range of end-to-end complexities that accompany the largest BPO requests, including human resources, finance and administration, Forrester said.

While many firms do report significant initial cost savings from outsourcing initiatives, those savings ultimately may not match vendor projections or offset additional problems that result from vendor performance, Forrester said.

That hasn’t kept BPO vendors from making those big promises, both in terms of their capabilities and cost-savings derived from outsourcing, according to Forrester analyst John McCarthy.

“Although some firms show BPO savings, vendors overstate their current offerings,” McCarthy said in a statement.

McCarthy’s research, based on surveys with 82 senior executives from both business and IT showed that despite the problems, more than half of those surveyed anticipated spending at least $1 million on outsourced processes in 2004. Forrester suggested that those expenditures might best be made in more focused fashion, particularly as the market grows more segmented.

As a result of increased BPO expenditures, accompanied by better business understanding of what can and can’t be expected of vendors, Forrester projected the overall BPO market to swell to $146 billion by 2008, but to fragment into specialty segments as it does so.

The Forrester report, “BPO’s Fragmented Future,” picked four segments as best candidates for successful and effective outsourcing, and market growth, based on areas of proven vendor strength:

* Straightforward bulk transactions, including credit card and stock transaction processing will continue to be the largest and best-mastered of BPO segments, accounting for $57 billion of annual BPO market space by 2008. Forrester pegged ACS, Fidelity Investments, Unisys and State Street as the segment’s key players.

* Only slightly behind at $57 billion, though requiring high level of understanding from vendor employees, was broad shared services outsourcing. Including finance, administration, HR and indirect procurement, the segment was expected to see further vendor subdivision, with major systems integrators dominating finance and accounting, while specialty players such as ACS and Mellon HR Solutions would concentrate on human resources outsourcing.

* Policy administration, claims, loan applications and other high volume vertical processes were projected to become a $6 billion sector by 2008, with Accenture and CSC fighting to hold market share against offshore outsource vendors, Forrester said.

* More complex and specialized vertical applications such as monitoring chemical control processes and environmental data reporting were targeted to reach $5 billion in annual sales by 2006, but increasing customer confidence was expected to kick the segment into overdrive, with Forrester projecting a vertical app BPO market of $24 billion by 2008. Key player predictions included nods at Ingenero and RMSI.

R&D the next to be outsourced

The next wave of outsourcing will be research and development (R&D) functions, according to the latest Santa Clara University Business Index released Thursday.

The monthly business indicator tracks business conditions and jobs by polling executives and managers in a wide range of companies. While R&D hasn’t been moving offshore at the rate of manufacturing and customer support, SCU finance professor Robert Henderschott told says a trend is developing.

“There are quite a few companies in our survey — over one-fifth — putting their toe in the water,” he said.