Offshoring interest shifts from India to Americas

India is still the heavy hitter, but Latin American companies are gaining appeal among midmarket organizations looking to outsource offshore.

With the U.S. economy in a rut, the value of the rupee rising and wages increasing, midmarket CIOs have good reason to look beyond India and instead evaluate opportunities in places such as Canada and South America as offshoring alternatives, analysts say.

Not that India can be dismissed, but the country is no longer as synonymous with offshoring as it once was. Particularly when the options have growing promise.

India can be a confusing, intimidating spot for midmarket CIOs to outsource work to, said Ian Marriott, a research vice president at Gartner Inc. in Stamford, Conn. Midmarket companies may want to steer away from the "big guys," powerhouse firms with billions of dollars in revenue and more than 100,000 employees, Instead, Marriott suggested, CIOs can look for a company that is "going to retain an interest in you for the long term." That may be in India, but it may just as well be closer to home, he said.

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The best-known providers (usually the biggest ones) are the ones midmarket CIOs may be most familiar with and, hence, consider first. But they may also be "just too big to maintain an interest [in midmarket companies]," Marriott said. "A lot of the decisions [the large outsourcing companies] are making now is 'What are the type of deals we want to sign up?'" Upshot: They may not want your business if it's considered too small.

While a big provider makes sense if what you want is basic commodity outsourcing services, a smaller company may be more flexible if you're looking for something more customized. There are plenty of those in South America or even other Asian countries such as China and Vietnam, both of which are experiencing a rise in outsourcing interest.

"Culturally, particularly Mexico, the clients feel they understand [and] are a little more attuned to the business markets in North American than India," said Paul Schmidt, partner and managing director at outsourcing consulting firm TPI in The Woodlands, Texas.

"A lot of it is travel time, NAFTA, the free trade," he said. "And the whole visa issue is much easier if you're in Mexico."

Schmidt said companies based in Brazil and Chile are also worth a look. A Gartner list of top outsourcing countries released last December also identified Argentina, Canada, Costa Rica and Uruguay as countries to look at in the Americas.

The Gartner report also found, however, that the lack of government support in some of these countries is restricting offshore development. Only Mexico rated "very good" in this area, followed by Canada and Uruguay. Canada and Mexico rated higher than Brazil in the quality of the labor pool. In terms of infrastructure, Argentina was the only country to rate lower than "good." Canada earned excellent marks in most categories, except in the big rate limiter: cost.

There's also EMEA

While the Americas are seeing a surge in contracts, it is still outpaced by Europe, the Middle East and Africa (EMEA), according to TPI. For the first year on record, EMEA outpaced the Americas both in total contract value and in the number of contracts awarded. EMEA countries now account for more than half the global outsourcing contract value tracked by TPI.

And outsourcing companies in those countries could see even more business coming their way as India becomes glutted with contracts and the poor U.S. economy forces IT departments to hold a tight budget line and even consider outsourcing domestically.

 Culturally, particularly Mexico, the clients feel they understand, are a little more attuned to the business markets in North American than India.
Paul Schmidt
partner and managing directorTPI

Wages at Indian outsourcing firms continue a steady 15% annual rise, Marriott said. Pay in some jobs is going up even faster than that. The major outsourcing firms there have improved business processes elsewhere, tempering the actual cost increase to countries, according to Gartner research.

Of course, offshoring to anywhere is rarely a quick financial fix.

But Andrew Bartels, a vice president at Forrester Research Inc., said the pained U.S. economy could at least speed up some midmarket offshoring efforts that were already under way. It could also get previously in-house IT departments into the conversation of whether or not offshoring is viable for the business.

Midsized companies have an especially hard time finding someone to oversee outsourcing operations, Schmidt said. Clients at TPI often ask about preparing to manage offshore relationships.

"It's very challenging to do offshoring effectively," Bartels said. "You really have to have people who can go to the offshore vendor, do site inspections, check up on work."

Combine all the barriers and offshoring IT work -- even as it becomes more viable closer to home -- is not something every CIO will feel smoothly about.

"The important thing for companies to think about is even if they're not looking to go to many different countries and many different providers, they've got to have a methodology and they've got to have an approach for how to make that decisions," Marriott said. "If you have to look too hard, maybe it's the wrong move for them."

 

Let us know what you think about the story; email: Zach Church, News Writer

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