Offshoring transitions to ‘global sourcing’

MUMBAI , India – The offshore model was groundbreaking in its time, but it’s about to be transformed, according to IDC.

Global sourcing will be the new delivery model, said Bob Welch, IDC group vice-president and general manager of worldwide services. He was speaking at a session called “The coming reversal of offshore delivery: Are the critics right?” at the National Association of Software and Services Companies conference, NASSCOM 2007. NASSCOM is the Indian counterpart to ITAC or CATA in Canada.

IDC refers to this model as the digital services supply chain and believes it will integrate more technology and include new markets, such as small and medium-sized businesses, Welch said.

Offshoring was a good solution in its time, he said. It was disruptive and offered companies low-cost tactical solutions. It will continue to do that for the right problems – that is, for companies dealing with legacy environments, tactical solutions and project-based work, Welch said.

Single-source resourcing is risky – both for offshore and onshore solutions, he said.

Global sourcing, on the other hand, has a number of benefits, he said. It expands the market and enables new delivery models. CIOs, for example, are more open to software as a service than ever before, he said.

Areas such as Latin America are gearing up to become “the next India,” he said. But it has infrastructure, political and labour problems. It doesn’t have the engineering school base that drove India ‘s revolution. So Latin America will be a choice for companies that are looking primarily for low-cost solutions, Welch said.

Samantha Covell, vice-president of procurement at BT, agreed that change is coming. BT calls it the digital network economy and believes that “countries cannot benefit from isolationism.” Processes are no longer confined by geography.

Companies get into offshoring because they want to lower costs and gain access to a larger labour pool, she said. But as the relationship matures, customers want more from their outsourcing partners. They want to create a shared environment in which both companies either succeed or fail together.

Neeraj Gupta, executive vice-president of offshoring company Patni Computer Systems, said such relationships are the key.

“You can’t look at offshoring work as a work order – it’s much more complex than that,” she said.

Padma Ravichandar, a president and managing director at Perot Systems, another offshoring provider, agreed. The era of offshoring is going through a metamorphosis, she said.

As part of the conference, NASSCOM released a report which said forecast the Indian IT sector will grow 28 per cent this year to US$47.8 billion in annual revenue, with service and software exports contributing US$31.3 billion. The report also said increasing traction in offshore product development and engineering services is supplementing India’s efforts in IP creation. This segment is growing at 22-23 per cent and is expected to report US$4.9 billion in exports in 2007.

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