Perhaps more telling than the rise of small and midsize
companies' use of outsourcing is that the levels for large companies remain
essentially the same, says a new report by Computer Economics.
Small and midsize companies' use of offshore outsourcing services grew 10
percent from 2008 to 2009.
"There is a surprisingly sharp increase in the
number of smaller companies using offshore service providers, but little or no
change among larger companies," said John Longwell, director of research
for Computer Economics, in a news release. "As larger customers cut back on
IT spending, offshore service providers appear to be moving down market. They
are doing a better job of connecting with smaller IT organizations."
In 2008, 14 percent of the 200 companies surveyed went offshore; In 2009, that
number has grown to 24 percent. From a news release on findings from the report:
"The bulk of offshore
outsourcing to date has been among large organizations, defined as those with
more than $1 billion in annual revenue, according to the study. These
organizations, however, showed almost no change in the overall percentage of organizations
using offshore service providers. Among large organizations that outsource some
work, about 46% are using offshore service providers this year compared to 48%
the previous year."
The report is titled "IT Outsourcing Statistics 2009/2010: Outsourcing
Trends and Cost Experiences for 11 Key IT Functions" including the largest
area--application development.
"While the frequency of offshore outsourcing may
be rising, this does not mean the actual size of the market for offshore
services is increasing. Along with technology vendors, offshore service
providers are experiencing the effects of the slowdown in IT spending. The most
widely outsourced function, application development, is being particularly
impacted by the slowdown in capital spending by IT organizations, according to
the study," says the report's abstract.
One of the areas that is possibly affecting the lack of offshore growth for
large organizations could be some of the financial fraud scandals that hit some
of the large Indian firms in 2008 and carried over in to 2009, namely the
company Satyam. Earlier this year, The New York Times profiled some of
these issues in its article "Troubles
of Satyam Could Benefit Rivals and 2 U.S. Companies:"
"The $50
billion-a-year offshore outsourcing business was growing at a 29 percent annual
rate until the credit crisis hit last fall, Mr. Bourgeois said. But he now
forecasts growth in 2009 to be about 10 percent.
"The impact on other
Indian outsourcing companies is unclear, but analysts say that, long term, the
fraud could have wide implications. The scandal at Satyam — a company listed on
the New York Stock Exchange and audited by an American accounting firm,
PricewaterhouseCoopers — raises doubts about other Indian companies.
"'This is a crisis of
trust,' said Frances Karamouzis, an analyst at Gartner. 'It’s not really Satyam
at stake; it’s the India Inc. brand.'”
Still, the growth for small and midsize companies in offshore
outsourcing is not to be overshadowed by the scandals. Offshore outsourcing is
not only in India, but
many other countries including China, and
many Eastern European countries. There is also a hybrid market in place that
includes U.S.-based companies that have offshore operations. That trend has
gained a lot of attention from companies such as IBM who had large layoffs in
2009, with much of the work being sent overseas.
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