The Expanding Opportunity For Offshore services

Some mailed me asking me to justify my belief in the growth of the Indian offshore players. One of the reasons that my upload is very sporadic and limited in the past few days is owing to my travel to Vietnam. Unlike most others, I had been to practically all corners of the world that matters in the world of IT services and offshoring and coupled with the responsibility that I carry as part of a leading offshore player, I get the chance to develop a unique perspective. I do know considerable number of people who matter in the industry and I constantly exchange notes - that includes CIO’s, technology partners, analysts etc. Business processes and traditionally outsourced - but not offshored - IT services will be the main driversof offshoring growth in the near future. While the global market for offshored IT services and business processes has nearly tripled in the last four years, the service providers have so far captured only 10 percent of a $300 billion opportunity. Over the next five years, the market will grow by an additional $80 billion. The drivers of future growth are likely to shift somewhat in IT-outsourcing services but will remain largely the same in business processes. A Mckinsey analysis suggests that, during the next five years, more traditionally outsourced - though not offshored - IT services, such as hardware and software maintenance, network administration, and help desk services, will account for 47 percent of the addressable market for offshored IT services. The global market for business process offshoring has grown by 49 percent a year since 2001 and appears likely to continue outpacing the market for offshored IT services. While the global addressable market for offshoring is a stunning $300 billion, the pace of adoption will be shaped by the interplay of three forces:
- supply (the capacity and quality of offshore locations),
- demand (the rate at which companies adopt offshoring),
- and the actions of industry players.
A model built to study this interplay and to evaluate various scenarios for different industries shows that approximately 35 percent of the work that could potentially be offshored, worth $110 billion and divided equally between IT services and business processes, actually will be offshored by 2010. Mckinsey believes that India's offshoring industry, which has captured two-thirds of the current global market for offshored IT services and almost half of the global market for offshored business processes, can maintain its leadership position.