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Is Offshore Outsourcing Disrupting Equilibrium in the Services Market?

  • 17 January, 2008 13:46

<p>NORTH SYDNEY, 16th January 2008. Australian organisations are being forced to reassess their sourcing strategies due to the increasing complexity of the competitive landscape, the need to lower costs and increase the bottom-line.</p>
<p>As IT budgets tighten, the value proposition of this model is most definitely breaking down the entry barriers even within the most conservative of organisations.</p>
<p>"Offshore sourcing is one of the factors driving down price levels for service offerings, which may cause a decrease in the market opportunity as the total value of service activities commissioned from external providers by organisations decrease. Offshore outsourcing will affect the cumulative external spending on services by companies and this may in turn affect the size of the future contestable services market," comments Aprajita Sharma, Research Manager Outsourcing and BPO.</p>
<p>"Assuming the current IT activity level stays constant, the size of the IT services market may decrease. With a supplier offering the same (or a suitable substitute) service at a lower price and given completely inelastic demand, there is a possibility that the amount spent by a firm on IT may decrease.</p>
<p>However, we believe that while the assumption of complete inelasticity of demand may hold true for a single company, it is not realistic for a market overall. Consequently, while a single company’s external services expenditure may decrease as a result of the offshore model, a decrease in the IT services market to the same extent is highly unlikely. Indeed, the services market overall is likely to adapt, for example, by transferring internal budgets to external budgets or increasing the level of activities as a result of the lower prices achieved from the offshore model," Sharma adds.</p>
<p>Global sourcing in the IT services sector in Australia has become a reality. IT work is increasingly performed in low-wage regions of the world with India being the preferred destination. The captive model of establishing their own service delivery centre in a low wage country is not a popular option for organisations in this market. The majority of companies are either engaging a multinational service provider like IBM, EDS or HP with significant offshore resources to do its IT work or hiring an offshore firm (such as HCL Technologies, TCS or Wipro) directly to supply IT services.</p>
<p>The net effect is the same as the company benefits from obtaining IT services at a significant discount from traditional, local sourcing methods. These benefits may be passed on to,
- customers in the form of lower prices or additional services
- shareholders in the form of higher profits
- employees in the form of higher wages and/or benefits, or
- a combination of the above.</p>
<p>To request a briefing about this topic, please contact Chris Haggerty on +61 2 9925 2244 or e-mail chaggerty@idc.com.</p>
<p>Ends</p>
<p>For more information or to arrange an interview with Aprajita Sharma, Research Manager Outsourcing and BPO, please contact Sally Taylor-Phillips, Marketing Communications Manager at IDC on +61 2 9925 2234 or e-mail staylorphillips@idc.com.</p>
<p>About IDC
IDC is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications, and consumer technology markets. IDC helps IT professionals, business executives, and the investment community make fact-based decisions on technology purchases and business strategy. More than 900 IDC analysts provide global, regional, and local expertise on technology and industry opportunities and trends in over 90 countries worldwide. For more than 43 years, IDC has provided strategic insights to help our clients achieve their key business objectives. IDC is a subsidiary of IDG, the world's leading technology media, research, and events company. You can learn more about IDC by visiting www.idc.com or www.idc.com.au</p>

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