Leadership investigate

Offshoring jumps as cash-strapped companies step up outsourcing

The global economic crisis is sparking a boom in IT offshoring as India's major IT suppliers grew four times faster than their competitors in 2011.

India's largest IT suppliers grew four times faster than their international competitors in 2011, as companies in struggling European economies stepped up their IT offshoring.

In 2011 revenues at the top five India-based IT service providers grew at 23.8 per cent, compared to 7.7 per cent growth in the global IT services market, according to a report by analyst house Gartner.

The top five Indian suppliers made particularly strong in-roads in Europe, where their growth rate almost doubled to 25.9 per cent in 2011.

”This reaffirms Gartner's theory that the troubled economic environment will be the catalyst to faster adoption of offshore services,” Arup Roy, principal research analyst at Gartner, said in the report.

”We are seeing European companies, particularly on the Continent, openly embrace offshore services engagements — and the Indian providers have been the beneficiaries.”

Despite the strong EU growth Indian suppliers' European market share is still lower than in the US, and almost 70 per cent of their European revenues come from the UK.

India's major tech suppliers typically grow faster than the wider IT services market, and the country's top 10 providers are expanding at an increasing rate, with growth of 21.8 per cent in 2011 compared to 19.9 per cent in 2010.

The global economic crisis is not only fuelling an uptick in IT offshoring, but also increases the chances that companies will outsource entire IT departments as Gartner recently warned.

The sustained growth of India's IT suppliers is gradually eroding the market share of major international IT vendors, according to the report.

“The top five Indian service providers have continuously chipped away market share from the large multinational corporation providers,” Roy said in the report.

“In the past five years, they have been increasingly winning large outsourcing deals with a total contract value of more than $100m.”

India's top five remain focused on winning business from Fortune 1000 companies, Roy said, and in recent years have expanded their offerings from a limited pool of low-cost services to a much wider portfolio including infrastructure services, business process outsourcing (BPO) services, cloud and analytics services.

Last year saw TCS, the biggest Indian IT supplier, become one of the top 20 largest IT suppliers in the world. The company stands at number 16 in the global rankings, with a revenue of $9.31bn in 2011 and 1.1 per cent of global market share.

The fastest growing India-based IT services company in 2011 was Cognizant, which grew revenues by 33.3 per cent to $5.875bn, making it the third largest India-based IT service provider and putting it at 27 in the global rankings. Cognizant is headquarted in the US but Gartner defines India-based IT services companies as those that deliver more than 90 per cent of their services from India.

IBM remains the world's largest IT service provider, earning just over $60bn in services revenue in 2011, up 6.6 per cent from 2010. However, its 7.1 per cent share of the global services market was down 0.1 per cent on the previous year.

About

Nick Heath is chief reporter for TechRepublic UK. He writes about the technology that IT-decision makers need to know about, and the latest happenings in the European tech scene.

29 comments
rock_007
rock_007

IT offshoring is becoming popular as number of IT Service Providing Units have increased there are web development company in mumbai, and offshoring units in mumbai and across India providing these services. And its good to see that Indian IT Service providing units are growing market share not only in India but also abroad

labelle42
labelle42

As a person who has lost a job to outsourcing, I have an insider tip to share. After providing excellent tech support, my customer told me how she had to "request" an American tech three times to get the original phone tech, who was hard to understand and not helpful, to transfer her call to me. She informed me how she does this all the time to help save American jobs. I thanked her. This may not work every time, but it is certainly worth trying. (Waves Old Glory.)

StevenDDeacon
StevenDDeacon

IBM will lead the way as it prepares to outsource 78,000 positions, mostly in IBM Global Services, over-seas through 2015. Most of these jobs will be out-sourced to India. The Government of India and Companies in India are preparing for the influx of new job openings by expanding its college and university curriculum(s) and certification programs to meet the demand. So much for IBM's Academic Initiative for colleges and universities here in the United States.

Hans Schmidt
Hans Schmidt

Your comments describe exactly what I encountered several times in this situation. I would be reluctant tom purchase anything from a company using off shore "customer service".

mike_patburgess
mike_patburgess

Everyone misses the point, well maybe. Yep you get bad service. Yep you get a person who cannot understand. Yep you have a person who does not deviate from a canned script. Yep, the list goes on and on. The point is that the person or shareholders that run the company do not have to pay YOU to provide support and that means that there is more money in their pocket and much less in yours. There is nothing that you can do about it except to not buy their products. I have spoken to a number of people who have started to shop around for products and services which are handled in the west and not off shore. We refuse to pay a company who does not have a vested interest in the success of their home country.

i
i

I have my own opinions on this based on studies performed, academic papers and personal experience. I doubt that you will ever see a large organization that engages in offshoring that says it was a waste of money. That would mean that executive level members would have to know the difference between good technicians and poor technicians according to some formal project lifecycle / development lifecycle methodology - it would also mean that executive level members would have to admit that they had wasted a significant amount of resources and made an err in judgement. If enough money is thrown at any technical problem, something will get resolved. What I find is that many of the business rules that are internal to the organization and critical to many of the legacy systems are a significant issue for offshore resources. They require time, patience, and communication to understand why an "evil" may be necessary. Yes there is sometimes a language barrier, but I more often encounter a "path of least resistance" attitude that leads to poor quality. As with most outsourcing in general, you get a seasoned person for every several green beans. With off-shoring, I often find it difficult to find the seasoned person that understands that it is not OK to test in production. I agree with the comments above, if more attention were given to the quality of work and amount of re-work performed, we would see that this is not always a good fit. In my opinion, offshoring works for mundane tasks that can be supplemented with a "manual" (like re-setting passwords) and for very specialized vendor applications that tend not to have too many bolt-on's (ERP packages) where the same issues tend to exist and are specific to the app.

vitec
vitec

the only thing these big companies care about is how much they can put in there bonuses, they could careless about what it does to the company over the long hall, or its employees let a lone the customer!

mdbizzarri
mdbizzarri

I have worked with a lot of off shoring techs from India, and most of them are very understandable when they speak. My issue is they can not comprehend what is being said to them, in a technical sense. Such as: Me: "Do a query and press commit." Shrinivas: "What will that do?" Me: "We want to search for null values" Shrinivas: "Ok, what do you want me to do?" Me: "Type select * from FAX_STATUS that = 'null'" Shriivas: "Ok, why?" Sound of me banging my head on desk. This is very common with off-shoring, in my experience. The techs that spent time in the US or elsewhere have learned how to communicate much better, and to analyze what is being said, but they are a rare breed. While I can understand on paper that off shoring will save money, it will also increase the time to get anything done significantly. If I was to guess, I would say it takes 3 to 4 times the amount of time to accomplish anything with off shore techs. I know from experience that if I am ever able to get rid of outsource companies, I will. I bet if management collaborated with the guys on the ground, they would see that projects would get done sooner with on shoring than with off shoring. I am surprised that some company has not given a project to their team and an off shore team and let them go head to head to see which one gets done faster, and meets more of the business needs.

manuelramoscaro
manuelramoscaro

Everything is offshore, every factory are cheaper and better outside, but this is good on short time but on medium and long time without factories and services (jobs) on first world.... who's will consume the good and services that are generated outside... it's like have a trofic disorder waiting on the other side of corner... or maybe this is the real origin of actual crisis...

torstenwedel
torstenwedel

I see this all the time, around me on a daily basis things are getting worth. CEOs who only see red or black numbers threatening Division managers with forced layoffs, and forcing entire departments to force their workers to do double work as numbers get less and less. The strange thing is that no matter if the economy is bad or not they will always us the economy to offshore to make more money for their shareholders.

Richaz
Richaz

All I hear about at work is Gartner says blah blah and we get articles sent out that have no content but a lot more blah blah. I cant find his cube anywhere in the building but he knows everything and whats best for all of us in our IT environment.

jonrosen
jonrosen

I've seen companies doing this, and without fail, I see the increase of bad customer service. First of all coming from people who can barely speak the language people are calling in with. Second, More often than not, the level 1 guys (the most off-shored), barely know what they're doing and have a script that the never deviate from, and is rarely of any help. It's things like this that cost major corps huge sums of money. They 'save' by offshoring, but then have to pay out gross amounts because they cannot meet the SLA's that they guarantee, because the offshored talent is all but useless.

viveka
viveka

Just last week, there was an article by this newsletter that off-shoring has peaked. Now this? Also, Cognizant shared dipped by about 20% on a guidance that revenues in the financial sectors wll not see much growth. Lets get some quality please!

dronawat
dronawat

www.ruralamericaonshore.com has a good white paper on total cost of outsourcing. Labor arbitrage is still a big advantage offshore, but costs will rise. As people look for low priced labor, moving from vendor to vendor and country to country that does come at a cost. Each type of outsourcing has it advantages and disadvantages: 1. US Urban Outsourcing - expensive but local talent 2. Offshoring - Cheapest, but time difference 3. Nearshoring - Cheaper, but limited talent and language issues 4. USA Rural Outsourcing - Cheaper than Urban but expensive that Offshoring

HypnoToad72
HypnoToad72

if everything is being offshored? To keep Fannie and Freddie rolling in dough?

tinaschifano
tinaschifano

One of my Indian counterparts recently told me that costs were rising in India and that the Philippines was where a lot of the Call Center operations would be going. India would probably be more like a level 2 support now that the workforce is more highly trained.

sissy sue
sissy sue

It gives them an excuse to use a hatchet to trim the productive staff that actually does the work that upper management can't do. All in the name of preserving the bottom line and management bonuses.

mikec540
mikec540

And then there are companies like Xerox which last year sold an entire product development team (hundreds of engineers) to an Indian company with a contract to buy back the exact same engineers to continue developing/supporting the products that the group originally developed. A few engineers bailed immediately. Then the Indian company let a few more go because "they didn't need their skills". Then (a lot) more engineers bailed to save themselves. Finally earlier this year, Xerox reneged on the contracts with the Indian company and now whole teams of engineers have been given deadlines (i.e. either find other projects in the Indian company or be laid off). Now that's idiocy. Using offshore talent to support a call center is one thing. Moving responsibility for continued development of a multi-Billion dollar product line (at one time fully half of all Xerox revenues and profits) off shore is complete lunacy when you continue to try to sell those products. Xerox made this move to reduce development costs, save retirement and benefits costs, and ultimately earn their CEO, CFO, etc big bonuses for "smart asset management". A "smart" strategy that is going to bite them square in the butt before too long. And that my friends is why I've been dumping my Xerox stock as fast as I can...

sajeevvarghese
sajeevvarghese

Sorry. You are wrong. Fortunately, the outsourcing managers dont think so. India is an English speaking nation, thought the accent is slight British/English. Though the Indian politicians try to make other languages as "National language" to win Indian votes, English is the most spoken language in India and is the primary teaching medium in India. Indian universities are renowned through out the world and there are many international students in India. Indian IIT grads are recruited by foreign companies from college campuses. Stating that "They cant speak the language" is too outdated. "They have a script" - this is normal for all level 1 support weather its in India or US or anywhere else in the world. FYI - GE used to "Punish" bad performing managers years ago and depute them to India as a punishment for a term of 3 years. After 3 years, those managers never wanted to come back to US. Guess why ;) Also, most L1 support in India is done by Bachelor and Masters degree holders. Once they gain technical knowledge, the move to l2. They dont sit on the L1 chair for 20 years and retire. Its a highly intellectually competitive environment in India. The outsourcing managers dont just blindly outsource. They have seen and carefully chosen to outsource. You know Chinese products are crap. Yet 99% of the products sold in the US is from China and i bet you have them in your home too. The same applies here too.

gevander
gevander

The position I had in 2010 (IBM Level 1 Service Desk at Honeywell) was outsourced to India. As other commenters have said: They can barely function at Level 1 and without a script to follow they get lost (despite advanced technical training which some possess, their (caste-based) culture still demands they "stay within the box" in everything they do. They cannot perform "proper" Level 2 - troubleshooting and resolving 75% or better of everything not solved at Level 1 - partially because their Level 1 cannot perform "proper" Level 1 (60%+ SLA for First Call Resolution). Other outsourcing areas that are starting to see jumps in business, besides the Phillipines, are: Brazil, Ireland. I agree with @Hans Schmidt and his assessment of the Phillipines vs India for Level 1 support. IBM has outsource contracts in India, Phillipines and Brazil. FYI: At least one Indian company has started outsourcing some of its work to Atlanta, GA.

Hans Schmidt
Hans Schmidt

Within the last year or two I had an encounter with with a "call center" lady from the Philippines. She was much, much better than the Indians I've encountered in language skills and common sense.

HypnoToad72
HypnoToad72

Just want until their developing status halts and goes downward...

RichieRich64
RichieRich64

Sajeev, A lot of these situations can be perceived both ways, like the glass is either half empty or half full. Everything you say about English language study in India is of-course true. I've often wondered also, if the adherence to protocol and rules is one of areas where the British and Indian's find a comfortable fit. I'm wondering also if some of the difficulties with a lot of the call-centres in places such as Mumbai, might be attributed to younger kids (19-24 with degrees fresh out of university) being in these Level 1 positions, and the job positions being churned fairly quickly. I get the feeling they are all keen to move up the ladder. Quickly. I've noticed a lot of the Level 1 operators tend be impatient and impulsive nowadays. A lot like young 20 something kids everywhere really. A great number of them want to control the dialogue, and often talk over you. In a lot of these cases if the operator isn't trained to be empathetic to the caller, the caller will blame language as the problem. This can create further problems and negative business outcomes in a lot of these situations if the dialogue isn't balanced. Some of the Level 2 operators I've talked to were much more conversational, empathetic, persuasive, and easier to talk to without responding emotionally. . But what I perceived was that often these Level 2 managers are a bit older (25-35?). In Indonesia, most of the Level 1 operators I have spoken to were are a little older (25-35). Indonesia also has some long standing cultural associations with both Hispanic and American culture. Such that some US businesses may well find Indonesia a better cultural fit ..

Hans Schmidt
Hans Schmidt

Sorry, you are wrong! The Indians I've encountered (in the call center setting) may speak English, but they don't understand American idiom and their accent is so atrocious, they cannot be understood. "They can't speak the language" is a pretty accurate description of the actual situation, "where the rubber meets the road" I would prefer to speak with a native English speaker, with a high school education and some technical knowledge, than a PhD who I can't understand and knows zip about the the subject in question. And really, the Chinese have come a long way recently. I recently purchased a product that was well made and well designed. (Similar to American products sold for years.) I suspected it might be Chinese, simply because of the price. Eventually I found the small tag that said "Made in China" I had no problem at all with the product. They are learning fast...

sissy sue
sissy sue

Although it is true that most Indians can speak English, it is not their native tongue. This is plainly obvious to someone who DOES speak English as his native language. What you often get from Indians is pigeon English -- a bad substitute for the real thing. It shows in application interfaces where Indian developers label objects using English in a way that a native speaker of English would never, never do. It's artificial and unnatural, and plainly illustrates that the developer does not have a good grasp of the language. Let managers who want to stay in India stay there. If that is where they are happier, that's where they belong. We don't necessarily want them back. 99% of the products sold in the US might come from China, but that is not the choice of the American people. That is what has been foisted upon us by the corporations that have destroyed OUR manufacturing base in the name of greed and profits.

john-paul.sivori
john-paul.sivori

India's cheaper than Eastern Europe, which is cheaper than Ireland etc. While I don't entirely agree that the quality of Indian call centres is at the level of European or US call centres, I have no doubt it soon will be. When that happens (and we are already seeing this) Indian CC operatives will want commensurate salary increases for their increased expertise. India will no longer appear as attractive to the CFO. sajeevvarghese mentions China and manufacturing : that's a good example of what I mean - manufacturing costs in China have gone up as savvy workers demand more recompense for higher value good they now produce . So Chinese companies first ventured deep into the countryside to recruit cheaper employees and now many companies subcontract a lot of their work to other cheaper outfits in emerging economies like Vietnam and Indonesia. We may see Indian companies do likewise and the emergence of call centres in Southern Africa as a result.

Professor8
Professor8

"99% of the [retail] products sold in the US might come from [Red China], but that is not the choice of the American people." I don't remember the store managers asking me whether it was OK to remove from their shelves the higher quality, reasonably prices US products. I do recall asking the store managers to restore them to the shelves and telling them that I was going elsewhere in search of these products. And I kept doing so until the products I wanted could not be found. OK, in a couple cases, before I knew any better, I bought a few things at cheapo-mart, and quickly learned that they were what we used to call unmarketable -- they did not serve the advertised purpose, or soon malfunctioned or disintegrated, and I'm ashamed to say it took me a couple years to catch on that that was the case with everything I'd purchased there. So "we" did not vote for "cheap" over good. We didn't a chance to do so, and our votes against "cheap" were ignored. Similarly, the executives and managers did not ask me about discriminating against US and UK and European software developers in favor of cheap, young, pliant 3rd world labor with questionable ethics. (OTOH, I have a relative, a chief software product dev exec, who was told by the CEO they were off-shoring his whole operation. He told all of his developers and resigned. Shortly after that I stopped hearing about the firm in the financial/business news, though they'd been fairly prominent and successful before then.) That said, I have worked with people from Germany and France and Japan and Taiwan the Republic of China and Red China and Poland and the UK who were quite good, and known a few quite bright, personable folks whose parents were born in India. This isn't about nationality; it's about competence and honesty and industry.

Hans Schmidt
Hans Schmidt

You are so right, in every way. I was a steelworker from 1959 to 1973 and I saw the beginning of the end. I didn't realize it at the time but our wonderous politicians opened the door to foreign imports. No one seems to understand that the USA needs to be able to stand on it's own feet. If we got into a serious war these days, we'd need to contract with the Chinese to build jeeps and tanks. Gone are our steel works, our shipyards and heavy industry The 1% are interested in manipulating the global economy. To hell with the rest of us. Where does it stop?

cliff
cliff

"99% of the products sold in the US might come from China, but that is not the choice of the American people. That is what has been foisted upon us by the corporations that have destroyed OUR manufacturing base in the name of greed and profits." That's not "entirely" true. I remember when cheap (affordably priced?) products washed up on our shores and consumers jumped on them like starving wolves. We had our opportunity to cast our vote, and we voted "cheap."