Service providers that are slow, unable or unwilling to invest in the shift to the cloud will risk hampering offshore services revenue growth, according to a report from IT research firm Gartner.
The study, "Will Cloud Services Make or Break Your Offshore Provider?", also noted the increased use of industrialized services will reduce the volume of traditional and customized services, and the impact on offshore providers would be counterbalanced by revenue from investments in cloud-based services.
The proposed changes in the issuing of H-1B visas (U.S. work permits) could also have a significant effect on offshore service providers that depend heavily on these work visas. This could increase the need to both invest in local hires within the providers' major target markets and increase investments in cloud-based service offerings.
"The initial resistance to public cloud has begun to subside and customers are beginning to realize its efficiencies as the solutions mature," Ian Marriott, research vice president at Gartner, said in a statement. "Cloud-based services will not replace offshore services, but will complement them. In addition, cloud services will not 'make or break' all offshore providers."
Gartner predicted continued strong growth in public cloud services, with user spending on public cloud services expected to grow 18 percent in 2013 to total $131 billion. By 2015, the public cloud services market is predicted to exceed $180 billion. In parallel, offshore service providers feel the increased pressure to adapt to changing market demands, and those that are unable to evolve from traditional delivery models could be displaced.
"There will always be a need for 'pure-play' providers that operate a labor-intensive delivery approach," Marriott said. "But, for broad-based offshore providers that operate in multiple geographies, industries and service lines, and who seek to compete for significant 'wallet share' in major accounts, strategic investments in cloud-based services are mandatory."
Gartner analysts have witnessed the considerably slower growth rates of the top 10 India-based providers in the past five years (from 21.8 percent growth in 2011 down to 12.7 percent in 2012). Over time, all leading offshore providers will use their investment in industrialized services and automation to break their labor-intensive linear growth path.
The report also noted that while increased investments in cloud-based services will differentiate the leading offshore providers from labor-intensive "pure-play" offshore providers, they will need to maintain a balanced portfolio of managed services and other traditional delivery approaches, in addition to horizontal- and vertically-based cloud offerings.