By David Ganesh Offshore delivery of IT services has been the catalyst for a major shift in the buying and hiring behavior of organizations around the world. In Europe, the use of offshore services has grown three-fold since 2004. Analysts predict that this growth will continue at a rate of around 30 percent per year.

Over the past 30 years, there has been clear evidence that the services delivered from lower-cost locations — India in particular — have progressed up the value chain and that the offshore value proposition is moving from cost reduction to transformation. An important part of that growth has been the global convergence of IT service providers, as Western-based vendors expand geographically to encompass offshore capabilities, and offshore vendors expand outside of India to offer a broader spectrum of services and a true global delivery model.

It is increasingly becoming the norm for CXOs to consider global sourcing as part of their strategies. This guide is designed to help CXOs evaluate the benefits and challenges of global delivery and the necessary change management measures that are critical to delivering the benefits.

The offshoring landscape in Europe

Within Europe, the U.K. has consistently led the growth of offshoring services with over 80 percent of regional demand. The U.K.’s position here is in part explained by language, cultural factors and stricter HR laws in mainland Europe. However, recent indications are that major continental organizations are now committing themselves to a global delivery model. Applications development and maintenance have traditionally been the principal services supplied from offshore, but remote infrastructure manage¬ment and business process outsourcing are growing quickly.

This growth is changing the rationale for offshoring. While some companies are still only looking for pure labor arbitrage, many others are looking for additional value, such as improvements in process, innovation, better alignment between IT and the business, and enabling a better structure for business growth and standardization. Increasingly, end-user organizations want best-of-breed rather than single providers, with most now using between two and five global service providers.

The growth of offshoring is also having an impact on the IT industry and the geographic spread of delivery locations. The productivity of programmers in any location has been ensured by advances in software engineering, such as service-oriented architecture and productivity improvement tools. Although India has challenges — escalating labor costs and high attrition, for example — its supply market maturity, cost, quality and abundant technically-skilled English-speaking talent make it the destination of choice. True global delivery, however, is becoming increasingly important.

Global convergence of IT services delivery

CSC’s recent acquisition of the Indian firm Covansys is an example of how IT services vendors around the world are converjng to create a global market.

Global Tier 1 providers like CSC are expanding their geographic reach, but so are offshore providers. Many offshore vendors are broadening both the range of services they offer and their geographic coverage. They are moving into Europe and North America, looking to increase their work forces, along with building consulting capabilities, improving their industry vertical focus and developing teams that can pursue large deals.

Traditional Western-based providers, with decades of industry experience, are investing heavily in offshore delivery capability; their geographic front-end coverage is greater than that of the offshore pure-play vendors. They are expanding predominantly in India, through organic and inorganic growth. By bringing offshore delivery centers “inside” their organizations, they can match the India-centric engagement model while retaining their longstanding brand loyalty.

In addition to expanding the technology offerings and global footprint of both companies in mergers like the one between CSC and Covansys, conver¬gence brings several benefits to clients. One is to make offshoring “safe” for organizations that are still undecided as to how to source their IT services. Forrester Research classifies these organizations as either Bystanders, who are not spending any of their IT budget offshore, or

Experimenters, who are spending one to five percent of their IT budgets offshore. Together, they make up about 70 percent of Fortune 1000 companies.

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