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Offshoring has long way to go

A new report from Forrester shows that offshore outsourcing is in the hands of the few and the conflicted.

Reluctant -- or outright opposed -- to using offshore providers? According to Forrester Research Inc., you're not alone.

To-do list for offshore providers

Work on vertical skills, a relative weakness. Leading offshore providers must improve their vertical industry knowledge and their relationship management skills -- which currently lag behind those of major IT firms.

Pay attention to customers on the sidelines. Major offshore providers have grown by enlisting new, large enterprise clients. But offshore providers must transcend this base. A truly effective midmarket offshore model has yet to appear.

Prove the case for cost savings. Many customers report significant savings from offshore outsourcing. But many are disappointed with the current pace of the savings. Greater predictability of results remains a challenge.

Source: Forrester Research Inc.

A new report from the Cambridge-Mass.-based research firm shows that 56% of U.S. companies do not use offshore providers and don't plan to in the next 12 months.

The finding provides an interesting gloss on the drumbeat of data showing that offshore outsourcing -- hot button topic or no -- continues to grow.

But for now, most of that growth is being driven by a relatively small group, according to this latest report. Of the 113 IT leaders responding to the survey, 14% said their companies used offshore providers "whenever and wherever they could." Another 14% said they were committed to offshoring but still "ramping up."

Gung-ho or just getting their feet wet, the 28% of U.S. companies that do use offshore providers are a conflicted bunch. One might assume that businesses that use offshore providers would expect their onshore outsourcing partners to do the same. However, the survey found that 36% do not. Another 7% would seek to prevent their domestic providers from using offshore labor.

"These companies are saying, I'm going to offshore when I want to offshore, and by the way, outsourcing partner, don't offshore without my knowledge," said Forrester analyst William Martorelli, who co-authored the report with Olivia Ester.

"What you see is that the worlds of outsourcing and offshoring have been largely separate, even though they are growing more alike, and company motives for outsourcing and offshoring are different."

Forrester has predicted that 830,000 U.S. service-sector jobs will move abroad by the end of 2005 and an additional 3.4 million jobs -- from accounting to telemarketing and chief technology officers -- will be shipped offshore in the next decade.

Offshore labor choices

So how are the 28% using offshore labor? Right now, mostly on isolated application development projects, the survey found. But respondents said the purview of work is expanding to more "mission-critical" applications development and maintenance. Nearly 25% of the companies are using offshore labor for help desk support and another 19% are considering it. Only 7% use offshore labor for infrastructure management and monitoring, but respondents cites these two areas as ripe for export in the future.

More on offshore providers
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Offshore outsourcing: A look at the security risks

The message was mixed on economic value, as well.

When asked to compare offshore services companies with large U.S. services firms like Accenture, BearingPoint Inc., Electronic Data Systems (EDS) or IBM, companies that use offshore providers said "their value for money is clearly better," according to the survey. But offshore providers said they still have a long way to go when it comes to particular industry expertise, domain or business process knowledge and relating to business executives. Nearly half or more of the respondents said offshore providers are either much worse or somewhat worse in these areas, giving U.S service firms a distinct advantage.

Bottom line? One-third report they realized the savings they expected; one-third said they can't yet say if they will reap the expected costs savings and nearly one-fifth said their savings are less than anticipated.


Let us know what you think about the story; email: Linda Tucci, Senior News Writer

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