Offshore outsourcing market moves towards maturity

Customers are demanding better value for their IT services spend, leading to an expansion in offshore outsourcing.

Senior Ovum analyst Phil Codling maintained that offshore outsourcing is growing because customers are demanding more for less money.

"There is still very much a customer mindset out there demanding more value for IT," he said.

"In that context, we are seeing outsourcing, in the broadest sense of someone else taking responsibility for IT services, fuelling more offshore business."

Although offshore outsourcing accounts for only three per cent of the annual UK IT services market, Indian companies like Tata, Wipro and Infosys now earn over £50m in annual revenue combined.

But this revenue is still not enough to affect Ovum's top 25 ITS industry ranking, which puts IBM at number one, followed by EDS, Microsoft and CSC.

Speaking at a conference entitled 'Offshore, Nearshore, Onshore: The Challenge Facing UK Plc' Codling said that, without offshoring options, some smaller UK players would find it hard to compete in a climate where users demand more value for less money.

By partnering with or acquiring small eastern European or Indian outsourcers for long-term application development work, services companies can offer UK customers competitive industry specialised packages, according to the analyst.

This bodes well for customer choice, but not so well for UK services companies. Ovum advises such firms to address their offshore capabilities before the trend towards market consolidation, which increased by 61 per cent from last year, swallows them up.

Vicki Pryce, chief economic adviser at the DTI, suggested that the range and complexity of resources now offered offshore is shifting from call centre and back-office functions, to more knowledge-based tasks such as IT development, support and research, analysis and design.

"We have a strong knowledge-based sector, but we need to move [the skills base] up-market all the time," said Pryce. "We need to look for greater value-add as a comparative advantage."