Growth, Controversy and Resistance Mark Outsourcing in 2006

Last year was profitable for Indian outsourcing, with giants TCS, Wipro and Infosys all reporting high-profile deals and double-digit profit growth. Despite controversy and resistance by consumers, the industry continues its growth, although some of the changes in 2006 may indicate outsourcing is coming into its maturity.

Some of the major trends in 2006 included:

Although India has dominated since the inception of outsourcing, there is increasing globalization, with call centers opening in China, Malaysia, the Philippines, Central and Eastern Europe, Brazil, Mexico, and other locations. India's outsourcing revenues have dropped from 80 percent of the market, to about 59 percent. The outsourcing companies in India are themselves opening divisions in other countries, with less meaning given to country boundaries as the business evolves.

China may become the India or Silicon Valley of the future, as it had significant outsourcing growth in 2006. The country is suited to the challenge in terms of cost, low wages, resources and educated workers and is the most equipped to challenge India's dominance. China represents a challenge to dominant U.S. companies with their rapid advances in the technology industry. A December 12th article in Information Week reported on China's challenge to India's outsourcing dominance, as the Chinese government has earmarked ten cities "for development as major outsourcing centers in a bid to capture a greater share of the tech work that western multinationals are farming out to India and other low-cost destinations."

Even with controversy, industry growth continues. A disturbing side of the India call-center business was uncovered in stings by U.K. reporters, including the fact that criminal rings sold data from millions of customers that was accessed from Indian call centers. This resulted in many of the companies pulling out of the India industry last year, including HSBC, who had planned to open a 2,000 seat facility in Kolkata in 2006.

Multi-outsourcing was the trend last year, with many businesses outsourcing different technological needs to different companies instead of bundling all their outsourcing needs into one deal with a bigger company. Amid continued growth, fewer high-profile deals occurred. A billion dollar deal was awarded to India's Tech Mahindra to provide British Telecom (who has a 35-percent stake in Tech Mahindra) and its business customers with tech support. The two companies have a 20-year working relationship.

"2006 also saw the rise in dual shoring arrangements as more and more organizations come to understand that cheaper and more plentiful skilled offshore labor is not necessarily a complete replacement for in-house resources," said Artifact Software CEO Mark Wesker. "Instead, organizations are having to adapt business processes to have onshore and offshore resources working more collaboratively and collectively to achieve business objectives. Throwing business processes over the wall to seemingly cheaper outsourced resources, without a dual shore strategy, often results in a failure to achieve the cost savings and time to market objectives that motivated the decision to offshore in the first place."

2006 also saw fewer contract problems, labor problems and delivery failures, but consumer reports indicate that consumers still have a negative view of the outsourcing industry and the resulting job losses.

The industry is expected to grow and the trend toward globalization and high-skill jobs moving offshore is predicted to continue in 2007.

Artifact Software provides the market leading software development management system Lighthouse, which enables companies to effectively manage, monitor and measure software development, whether outsourcing, off-shoring or managing distributed teams, and gives an organization total visibility and control over the software development process.

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