Economic pressures in the UK and US are increasing the rate at which companies are offshoring their IT services, most notably to India.

Research firm Gartner reports that “organisations are refocusing on IT cost reduction and taking steps to accelerate the use of offshore labour. Buyers of IT services will shift from cost containment goals to a greater focus on cost reduction and productivity increases in their sourcing decisions. India will continue to be the most-sophisticated country option to source offshore IT services in the near term.”

Reducing the cost of labour was the main motivation driving an increasing proportion of work to offshore locations, according to senior research analyst Arup Roy.

“In most sectors, the watchword is “caution” - IT budgets have not yet been cut, and offshore services options are being considered or accelerated as a prudent step to contain labour costs,” he said.

The report acknowledged that India was in some ways becoming a becoming a victim of its own success, with higher wages and a strengthening rupee against the dollar making it less attractive as an offshoring destination. However some providers were compensating for this by cutting costs of their own.

“While the recent appreciation of the Indian rupee and rising wage rates have made some of the long-held benefits of India’s offshore services’ cost competitiveness less predictable, the more sophisticated providers have made critical process investments, thus minimising the impact of wage increases alone in their final price of services to buyers,” the report said.

Other providers are marketing their services more aggressively. One of the big players, Tata Consultancy Services (TCS), faced with a share price plummet of nine percent, is footing the cost of transition for large outsourcing contracts in the hopes of boosting future earnings.

Whether India has been good to IT depends on which analyst you talk to, but IT has certainly been good to India.

Indian IT company Satyam Computer Services Ltd recently bankrolled India’s first free public ambulance service, the Emergency Management and Research Institute (EMRI).

The new government-backed ambulance service, which answers to the number 108, has so far saved over 26,000 lives with its fleet of 600 ambulances, expected to increase to 10,000 by 2010.

The innovative project has cleverly accounted for local sensibilities: ambulance drivers are to be called ‘pilots’ because of the higher status this title offers, decreasing the likelihood of drink-driving and soliciting of tips that might otherwise be socially acceptable for a mere ‘driver’. The vehicles also incorporate a bench for up to four family members, along with cool water and air-conditioning to keep them comfortable.

Further reading:

Is offshoring still good value? Doubt has arisen as to the efficacy of outsourcing low-end business processes to unfamiliar locations

How Capgemini embraced India Capgemini reversed its fortunes with a dramatic shift to a global delivery model.

IT and the East Two highly respected Gartner analyts map the impact of China and India.

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