July 6, 2007 6:22 AM PDT

Five outsourcing trends to watch

Which way is the wind blowing in the outsourcing market? What's looming on the horizon in the next five years?

Silicon.com has identified five areas to watch.

Consolidation
Competition for outsourcing contracts is more cutthroat than ever, with a huge expansion in the number of suppliers, so some significant consolidation is on the horizon.

Recent rumors of a merger between information technology heavyweights Infosys Technologies and Capgemini Group suggest that the stars are aligning for some significant marriages. Duncan Aitchison, managing director of business advisory company TPI, told Silicon.com that even if the rumored Infosys-Capgemini merger never materializes, it reflects current "market sentiment." What's more, other industry experts are predicting more merger-and-acquisition activity in this sector over the next year or two.

Globalization
There has long been talk of India losing its edge in the offshore-outsourcing market--including warnings of a shortage of skilled workers--but a bigger threat to India's dominance could lie closer to home. According to a study by analyst IDC, cities in China will overtake their Indian counterparts as top destinations for offshore global delivery by 2011.

While it remains unlikely that China will outstrip India in the outsourcing business overall, the trend is for increasing globalization of the market as more regions seek to cash in on the offshoring boom.

Beyond the so-called BRIC bloc of countries (Brazil, Russia, India, China--or BRICM, if one includes Mexico), developing nations such as Egypt and Poland are emerging as sources of offshore labor. The trend is not only for a "greater pattern of diversity" in the outsourcing sector, said TPI's Aitchison, but also for greater specialization as smaller players seek to distinguish themselves in an increasingly crowded marketplace.

Person-to-person offshoring
Offshoring is more commonly associated with large-scale business redeployments--the relocation of a back-office function, say, or a whole department. But research suggests that there's growing momentum for redeployments of a much smaller scale. According to a report by research company Evaluserve, offshoring has reached small businesses and even homes--a trend it dubs "person-to-person," or P2P, offshoring.

Examples of services outsourced in this way include online tutoring, Web and software development, and writing and translation services. Customers for these services can be small businesses or even individual consumers.

Evaluserve says revenue for this sector stood at more than $250 million between April 2006 and March 2007, and it predicts that the value of the P2P offshoring market will rise to more than $2 billion by 2015.

Green sourcing
Rising energy prices have put ecology issues firmly on CIOs' radar. But could pressure to demonstrate green credentials influence businesses' outsourcing decisions as well?

Silicon.com's CIO Jury--a pool of chief information officers and other corporate IT professionals who are polled on various technology issues--recently revealed that environmental factors play a key role in the selection of technology suppliers and partners.

Virtual worlds
The rise of virtual worlds such as Second Life is making it easier for companies to justify hiring offshore workers for tasks that may include building virtual offices or even working as virtual-world "meeters and greeters."

The market for outsourced virtual-world services is still very new, but businesses increasingly are taking an interest in the likes of Second Life, so momentum is likely to build.

Last month, news emerged of a partnership between a Chinese online-entertainment company and Entropia Universe, a virtual world with a science fiction theme, to create a virtual economy that could provide as many as 10,000 jobs.

Over the longer term, customer contact jobs, including those for help desk and call center services--could migrate into virtual worlds, where customers can be both informed and entertained.

Natasha Lomas of Silicon.com reported from London.

See more CNET content tagged:
offshoring, outsourcing, globalization, Infosys Technologies Ltd., virtual worlds

4 comments

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Outsourcing offshore bad idea!
When I call my satellite company, car loan company, etc. I now get someone who I cannot understand nor can they understand me and it is more frustrating than ever! Someone from overseas who #1-doesn't care, #2-cannot understand me when I ask a question or doesn't listen....guess what, I stop doing business with that company! I am an American, I speak English, I don't want to talk to a foreigner about my local AMERICAN service! Bring it back to America where the service might be a tad better!
Posted by morningowl (17 comments )
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OUtsourcing bad idea?
I worked in the US at a call center in one of the country's largest banks and believe me the best people there were all people with accents that 'morningowl' doesn't get.

But then, one can't expect much from someone who hides under a pseudonym and then can't even spell it correctly.

If you really want to do something about bringing jobs back to this country, stop buying those low-cost Chinese goods you love at Wal-Mart, stop driving that Japanese car and pay your neighbor's kid enough to mow your lawn.

If you don't want to pay up, please do shut up. Thank you very much.
Posted by Ann Khan Gupta (1 comment )
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Specialization!
Any mature industry - gets commoditized, and hence consolidation is inevitable.

There is also a parallel trend to watch out for - Specialization - some special niche segments will become so special - that specialists will emerge just to service the niche segment.

No consolidation can even happen without this emergence of "specialists" who question the mammoth "consolidated" companies.

As an example, we at Aspire Systems feel "Outsourced Product Development" to be such a "specialization" niche. We feel that no amount of consolidation can stop from a few OPD firms emerging to become large IT outsourcing players in the next few years!
Posted by t_n_bhoovarahan (3 comments )
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Save it LL!
"Virtual worlds
The rise of virtual worlds such as Second Life is making it easier for companies to justify hiring offshore workers for tasks that may include building virtual offices or even working as virtual-world "meeters and greeters."


Is it bad enought Jeska Linden, Torley( a guy a playing a woman ), Amber Linden, Etc..... Have no idea what they are doing in the social community aspect of the game? Now you are starting to harp on how great it is to hire outside people to do the jobs of your own staff that can`t figure out how to send reminder pop message with (LOL in it ( oh how professional the linden staff is these day )spam though out the game time, posting the late meeting times and or incorrect meeeting times. Then turning around and blaming the 1000`s of mentors, and greeter for the community Linden mistakes? Please say it for the toliet!
Posted by play7 (926 comments )
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