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<< | \\ | >> GLOBAL TRENDS |  BENEFITS BARRIERS GUIDE SURVEY SOLUTIONS
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1) Introduction
Globalization is increasing cost pressures and productivity demands on corporations.Multi-national corporations were the first to utilize cost differentials across the globe by moving production plants to low wage countries, R&D to countries with high subsidies for such activities, sales and marketing to the "rich" countries, and their headquarters to tax havens. In the IT arena medium-sized firms followed suit by outsourcing mainly non-mission critical software projects offshore. Particularly India has seen a wave of mergers and acquisitions in an effort to consolidate resources to meet Western demands. Russia, with its scientific prowess and very able entrepreneurs, is rapidly evolving as a serious contender and viable alternative. The next wave in globalization is focused on the transplantation of entire IT departments offshore. Moving offshore is a complex undertaking and requires smart decision-making starting at top management level.
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2) The Macroeconomic EnvironmentThe IT outsourcing market is undergoing a radical transformation from specialized software development services to the more elaborate "transplantation" of entire IT infrastructures or company departments to offshore locations; a development that is expected to gain significant momentum in 2004. First world corporations are either establishing offshore subsidiaries under their own auspices, delegating business functions to offshore IT companies or by partnering with them through a variety of buy, build, or source models . The choice of any particular model is largely determined by companies internal restructuring constraints and medium to long-term outsourcing strategies. Even while the global IT industry is currently groping with the dynamics of this booming ITO market, the subsequent waves of change in the IT arena are taking shape in the form of outsourcing of business processes ("BPO"), and are thereafter anticipated as the commoditization of software products and ultimately the mechanization of IT processes. Both the software development- and ITO markets will shrink due to commoditization and mechanization and will erode a significant portion of low-skill IT jobs across the globe. | PAST | PRESENT | FUTURE |  Software Development mainly Application development and Maintenance (ADM) |
IT Infrastructure Outsourcing | 
Business Process Outsourcing 
Commoditization 
Mechanization |
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3) Outsourcing DestinationsIndia is currently the leading destination for offshore outsourcing, however, particularly countries such as Russia and China are becoming serious competitors in this market. | India | 51% | 
| | China | 8% | | Mexico | 7% | | Ireland | 7% | | Russia | 5% | | Malaysia | 5% | | Philippines | 5% | | Singapore | 5% |
Source: Computer world and InterUnity Group Inc., Concord | | |
| | Offshore Countries: Fact Sheet India is the most mature offshore and outsourcing market in the world. Russia is an upcoming provider of offshore outsourcing services with a huge number of highly educated and motivated IT engineers. | | India | Russia | | Total IT Revenue in 2002 | $16.5 billion | $245 million 1) | | Revenue IT enabled services in 2002 | $2.16 billion 2) | 3500 technical engineers on one million inhabitants | | Number of IT professionals | 415,000 | $8400 | | Average Annual Salary | $5800 | $6,000 to $10,000 3) | | English Proficiency | Good | Adequate | | Outsourcing Experience | India is the leading offshore and outsourcing country. A large, low-cost, English-speaking talent pool and the most mature market in the world | Russia is the upcoming outsourcing country, for second-generation outsourcing | | Infrastructure | Fiber-optic networks as well as satellite connections available | Fiber-optic networks | | Government Incentives | Strong, including tax holiday schemes, investment incentives, per head land subsidies | Lacking | | Quality Standards | Highest number of CMM-certified companies in the world—37 companies meet CMM minimum standards; 5,554 ISO 9001 certifications | Follow strict quality standards, e.g. ISO 9001 | | Main Locations | Bangalore, Hyderabad, Mumbai, New Dehli | Moscow, Novosibirsk, St. Petersburg | | International Companies | 206 of the Fortune 1000 are already present in India. | Boeing, Intel, Motorola, Microsoft and Sun Microsystems | | IT Organizations | National Association of Software and Services Companies (Nasscom) Software Technology Parks of India (STPI) | Software Development Association (Russoft) | | |
Sources 1) Russian-American IT Round Table 2) PriceWaterhouse Coopers 3) Forbes.com
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| | 4) Vertical Market Segmentation The largest global vertical markets - financial services, manufacturing, government and communications - will make up 67 % of worldwide business IT spending in the vertical markets in 2003 (Source: Gartner Dataquest) Outsourcing, both in IT and business processes arenas, will continue to post growth. In fact, Lu says, every one of the 16 vertical markets will boost its outsourcing spending year to year through 2006. By then, spending on outsourcing will be more than $41 billion, an increase of more than 7% over 2001 . (Source: InformationWeek, Jan 2003)  The IT outsourcing market differs significantly depending on the vertical industry, according to a new report from IDC. The new report presents the five-year forecast for the U.S. IT outsourcing market within 16 vertical markets.
The latest IDC forecast reveals that the fastest growth for IT outsourcing services will shift to Government, Financial Markets, Services, and Discrete Manufacturing. (Source: Aberdeen Group, Sept 2002) |
5) Growth Predictions for the Global Outsourcing Market
| Forecast in USD $bn | 2001 | 2005 | 2008 | | Total Business Process Outsourcing Market | 127 | 234 | 310 | | Percentage Offshored to Countries | 5% | 15% | 20% | | Offshored BPO Market | 6.4 | 35.1 | 62.0 | | India ITES Exports | 1.5 | 9.5 | 21 |
Source: Gartner Dataquest 
Predictions for the Business Process Outsourcing Market Business Process Outsourcing, or “BPO, is the delegation of one or more IT-intensive business processes to an external provider who, in turn, owns, administrates and manages the selected process(es), based upon defined and measurable performance metrics.”
| | Gartner estimates * 
* Excludes logistics and manufacturing outsourcing to show addressable market | IDC estimates ** 
** Includes transaction processing
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Business Re-engineering
Business Process Outsourcing (BPO)
Application Outsourcing
IT Infrastructure Outsourcing (ITO)
Global IT Delivery
Global Trends
Benefits of Outsourcing
Barriers of Offshore Cooperation
Brief Guide to Outsourcing
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"Gartner predicts that one in 10 US IT jobs will move offshore by next year."