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Gartner: Offshore outsourcing unstoppable, despite backlash

Gartner analysts say that offshore outsourcing isn't merely trendy, it's mega-trendy. But could onshore unrest be the price U.S. businesses pay for sending jobs overseas?

LOS ANGELES –- "Irreversible mega-trend."

Add it to the lengthy lexicon of analyst terms.

This is how Gartner Inc. describes the offshore outsourcing of IT services. It's big, and there's no turning back. Everybody is either doing it, planning to do it, or should be doing it. In fact, at the Gartner Outsourcing Summit 2003, analysts predicted that shipping work offshore will be discussed in more than eight of every 10 U.S. executive boardrooms by next year, and more than 40% of U.S. firms will be sourcing IT services through a global delivery model within that same time frame.

Big business

Offshore providers are getting more competitive with the more established firms –- and are eating into their business. This increasingly competitive atmosphere is changing the very structure of the global services marketplace, according to Partha Iyengar, a research vice president in Stamford, Conn.-based Gartner's software research group.

"This will see the emergence of a new order of 'top-tier' global IT service providers, some of whom will be the current global leaders and some [of whom] will be from the ranks of the tier 1 Indian service providers," he said.

"Offshore [outsourcing] has become mainstream and critical to everyone's arsenal," said Nandan Nilekani, CEO and co-founder of Infosys Technologies Ltd., in Bangalore, India. Speaking to those attending a CEO panel on India's role in offshore trends, Nilekani said, "[Right now] India has the best price performance and the numbers to drive scale."

India. In the late 1960s, the Beatles sojourned there to find peace and a raised sense of awareness. These days, it's where American firms go to find cost savings and a raised sense of profitability. While the Fab Four came away from the experience with the White Album, business executives hope to bring home numbers in black.

The promise of savings means billions of dollars to the nation of 1.027 billion people. Another study, conducted last week by New York-based Brean Murray & Co. Inc., claimed that India's IT offshore-outsourcing business could quintuple to $50 billion by 2008.

Risky business

But sending jobs overseas sometimes comes at a price. Brean Murray also cautioned that opposition in the U.S. could be a speedbump on the road to that $50 billion figure.

Gartner analysts said that they're increasingly addressing fears about backlash among their clients. Frances Karamouzis, research director for Gartner's sourcing research group, said that enterprises need to understand the risks of offshore outsourcing if they want their strategies to be successful.

"Enterprises must understand the differences between domestic and offshore sourcing and use [a] risk-assessment framework to understand the risks of each stage of an offshore relationship," she said.

Business as usual?

American workers and their elected representatives don't like to see jobs shipped offshore, especially in the context of a lousy economy. But this risk of American ire should be temporary -- and should smell strongly of deja vu, according to the CEOs of some of India's leading service provider companies.

"Services globalization is like the manufacturing globalization 15 or 20 years ago," said Vivek Paul, CEO of Bangalore, India-based Wipro Technologies Ltd., the country's third-largest services firm. He likened the situation to the fears back in the 1980s, when Japanese tycoons were buying up real estate in the U.S. at a rate that had some Americans worried that Tokyo would soon be Uncle Sam's landlord.

It didn't quite end up like that, Paul said, noting that "we've seen this movie before."

Paul said that any time there is a change, there is bound to be backlash, but ultimately what the customer wants -- quality, value and fulfilled expectations –- is most important.

"If you see an uptick in the economy, all this [backlash] will go away," he said.

Still other Indian firms are wondering "what backlash?" "Most of our clients are moving ahead aggressively, despite any backlash," said Kumar Mahadeva, founder and CEO of Cognizant Technology Solutions Ltd., based in Teaneck, N.J., but with 70% of its staff working in Pune, India. "The demand is so strong."


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