A new report found that 31% of IT services in the U.S were outsourced in 2017. The outlook for IT outsourcing is mixed, though, as Brexit seems set to shake up traditional notions of outsourcing and across the pond, Trump’s legislative changes pose their own challenges for an industry that has matured over the last 30 years. Despite this, though, outsourcing remains a value proposition that is attractive to most businesses. The format of that outsourcing is changing, however, and there are a number of opportunities for the industry as a result.
The Current State Of Global Outsourcing
In the UK and Europe, the specter of Brexit looms large in the minds of many, but it is likely to mean a growth in outsourcing, according to Keshav Murugesh, CEO at WNS. He says: “Breaking away from the EU will likely make it more expensive for UK companies to afford to recruit top quality staff – whether that’s through British talent becoming more expensive or the need to sponsor the working permits of EU citizens – so outsourcing will become a very viable option.”
Murugesh adds that, for a while now, outsourcing might have been synonymous with cost-cutting, but as British companies look to use the best talent from foreign shores, it is going to be a lifeline for business leaders wanting to maintain their access to a broad pool of flexible and highly skilled talent at a time when it is most needed. “And the thing about outsourcing companies is, they’re built to be comfortable with change. They don’t get fazed by it and remain robust, agile and buoyant no matter what situation is passed their way,” he says.
“Once the dust settles on the decision, there’s going to be increased competition over contracts and trade agreements. Companies across the UK and Europe will have to drive more efficiencies and compete to secure contracts within new territories. While there is uncertainty about what Brexit means for them in the short run, they remain comfortable about their businesses long term and their plans for outsourcing.”
In U.S terms, Brian Hannon, Voxpro Chief Commercial Officer, says the days of 1,000 people in an offshore building, answering basic tier 1 calls for $2 an hour are over. “Or at least they are now in the minority. Outsourcing has transformed from a pure cost-saving function into a value-added way to improve quality and reduce complexity across an organization,” Hannon says.
Jose Laureano, Senior Application Programmer of Schellman & Company, LLC., says:
“The acceleration of the [U.S] economy and the growth of investment capital in the IT sector will create a gap of resource availability in 2018. In order to achieve their goals, companies will augment their outsourcing strategy.”
He says that the deciding factors will not focus on the financials – whether it is cost-effective to outsource versus onshore – but rather as a strategy to meet deadlines. This might drive an increase in the price tag of outsourcing.
Immigration policy in the U.S is another challenge and, Laureano says, has not responded to the demand of the IT sector. “We can see this in the H1B program. For the last three years, the program has received 225% excess applications based on the 65,000 per year quota. This has created tension within the tech industry in the form of delayed advancement of new products and business opportunities,” he says.
The Obama administration started a push to increase IT and Science curricula into the basic education levels. The results of this effort will not impact the marketplace until 2030. “Until then there will be a continuous recycling of local resources, where IT personnel will just change jobs instead of new local resources being added to the local availability pool,” Laureano says.
“Enterprises that have invested in an outsource strategy will continue to use the strategy as cost saving in case of a slowdown in the economy. In this scenario, onshore resource engagement will decrease 2-1 versus offshore engagement. Based on these indicators we can expect outsourcing to grow between 25% to 45% in 2018,” he says.
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