IT function stands at the vanguard of the offshoring trend, as tasks such as form processing, application development and testing rapidly join classic call centre operations on the Indian subcontinent. The latter remains the world’s offshoring hotspot, boasting an industry now worth $23.6 billion annually. According to advisory group Gartner, European-based companies alone will help fuel further growth, spurring a 50% annual rise in offshore spending over the next two years.
Such enthusiasm for offshoring has chiefly been driven by the compelling operational cost savings – resulting predominantly from lower staffing costs – that the business model brings. It is for this reason that big brands including retailers Somerfield and Dixons Group, airline Qantas, Norwich Union, Whitbread, HSBC and the BBC, have this year accelerated their offshore operations, or taken their first steps into the market.
While the figures so far have been compelling, says Ian Marriot, analyst at Gartner, India is in danger of becoming a victim of its own success. India’s National Association of Software and Service Companies (Nasscom) underlined this growing concern in November 2006, when it warned that India’s seemingly bottomless pool of IT skills will be drained by 2010.
This issue is already fixed in the consciousness of business leaders, 60% of whom, according to the National Outsourcing Association (NOA), believe that the impending skills shortage in India will increase the costs of moving operations there.
In response, businesses are now considering alternative locations, with 75% of NOA respondents viewing China as the most likely alternative destination for their offshored operations. But China will face intense competition from locations closer to home. Not only have countries such as Russia and the Czech Republic started to push their abundance of cheap IT skills, other locations including Wales and Spain have been active in fighting the offshore trend too.
As companies start to incorporate such nearshore and onshore services, into their offshoring models, the latter will, in time, be transformed into a truly global phenomenon.