“2006 Global IT Outsourcing Study” published by DiamondCluster International (Nasdaq: DTPI) has created an uproar to everyone related in the outsourcing industry. This study indicates that the boom of outsourcing is over and naturally, this is big news for the Indian media. After all, India is the main beneficiary of IT outsourcing in the world. According to the report, many of the US companies that outsourced their works feel disillusioned now with the quality of their outsourcing partners. They are also disillusioned with the fact that their expectation of reducing cost by 40%-50% is not happening either. So, some US companies are having a second thought that about the benefit of outsourcing. 75% of the companies who took part in the survey of this study stated that they outsourced their works to India.
The problems:
After going through the study, I felt that some serious problems are arising for US companies in outsourcing. Here are some of the major problems:
- Outsourcing is not reducing cost in the level US buyers hoped it would.
- Finding the right partner in India is a major challenge.
- Some Indian companies are failing to live up to expectation and are not delivering quality service.
- Some Indian companies promised a lot but failed to deliver what they promised.
- Management of Outsourcing is becoming a complicated problem for US companies.
- Indian IT job market is getting oversaturated and thus salary of IT workers is increasing rapidly in India and thus outsourcing is becoming expensive.
- Canada is emerging as an attractive destination to US companies because of proximity in geographical location, common language and culture.
- China is also becoming a competitor of India in this field and some US companies are seriously considering China as an outsourcing destination because of the size of Chinese own domestic market.
Because of these problems, some US companies are getting reluctant to increase their outsourcing activities. So the growth in outsourcing to India is there but is perhaps slowing down from now.
Long Live Outsourcing:
The bubble outsourcing is gradually getting bust as according to the study, outsourcing will grow slowly from now on. Indian companies and IT industry leaders would surely take this study very seriously. The main worry should be the rise of China in outsourcing. US companies are now getting interested to find outsourcing partners from China for two reasons:
- Salary of Indian It workers is increasing rapidly and that is why China is emerging to be an alternative destination.
- China's domestic IT market is a huge one and growing and it is much larger than Indian domestic IT market. So, if you can have a outsourcing partner from China, you can enter the Chinese market more easily.
What should India do:
For the last one month, some serious matters are coming in front of us about the outsourcing industry. Rising salary of the Indian tech workers is a major cause of concern for the Indian outsourcing industry. Secondly, the BPO fraud suffered by HSBC because of the theft of one Indian worker caused much negative publicity in the western media about outsourcing to India. Finally, this study of DiamondCluster International is perhaps an even bigger problem. What should India do? Here are some suggestions:
- NASSCOM should carry out its own research about the global outsourcing industry. If needed NASSCOM should seek the help of academicians, IT professionals and businessmen of Indian origin in USA about this.
- Most probably, India is going to face shortage of skilled IT workers sooner than thought. Indian government should invest very heavily on the education sector for producing more skilled IT graduates within a short time.
- NASSCOM and Indian government should join hands to monitor the IT companies who do not provide quality services. If needed they should support weaker companies to improve their quality.
Do you have any other suggestion?
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» IT Outsourcing Slowing from Curious Cat Management Improvement Blog
Outsourcing bubble getting Busted: What should India do? - commenting on the 2006 Global IT Outsourcing Study Essentially the study says the outsourcing IT will continue to grow though more slowly than it has. It also states the benefits of outsourcin... [Read More]
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