The rising popularity of offshore outsourcing will continue to push down the prices of IT services for the next several years, a welcome development for IT buyers but a challenge for IT service providers, according to a new IDC study announced Monday.
Offshore outsourcing services are provided from a different country in which the client is based. These services provided from abroad often cost less than similar services provided domestically. India has emerged as the world's largest provider of offshore outsourcing services, and the U.S. as the largest consumer.
Currently, 42 percent of all active outsourcing engagements have an offshore component, and offshore outsourcing will "continue to spread to new segments and deepen its hold on the industry," IDC said Monday, citing results from a recent survey it conducted in conjunction with Houston-based outsourcing advisory firm TPI. The survey findings apply mostly to the U.S., Europe and Japan.
Other factors that led to price reductions on IT services last year included the rough economy and an increase in competition, said IDC, based in Framingham, Mass. While the economy has been improving, it is not expected to offset, in coming years, the affects offshore outsourcing is having on IT services prices.
The increasing availability and reliability of offshore outsourcing services is giving IT buyers new options and strengthening their negotiating positions with IT service providers, said Traci Gere, an IDC analyst.
However, IT buyers need to realize that managing an offshore engagement can be complicated, due to, for example, distance and time differences, so it's essential to employ good communication and project-management skills, she said.
Offshore engagements also contain a higher risk factor, which must be considered when outsourcing tasks and processes that are central to the daily functioning of a business, Gere said.
Meanwhile, vendors must respond by building up a portfolio of offshore services, either developed in-house or provided with partners, in order to meet rising demand, Gere said.