Offshoring Business Trends For 2007

Almost every TIECON KL participant that I bumped into asked me what could be happening to offshoring in the coming year. I was in and out of KL twice this week. While some were concerned about the much talked about economy slowdown in the US, my feeling is that it is normal and not seeing specific indicators to suggest a slowdown(atleast in offshoring services). Just listen to the IT majors quarterly calls and the forecasts – nothing of this kind is expected to hit them. A recent JPMorgan sector report talked about growth of global service companies that they are tracking at 6% Y/Y in 3QCY06 & noted the acceleration after muted growth for the past 3 quarters. The report also noted that the US IT spending grew by a decent 6.6% Y/Y in 3Q2006.

I shall try to summarize the various things that I see happening in 2007 in global offshoring. This is not an exhaustive list covering all tech trends(saving it for a different occasion). The Key trends 2007 for global offshoring:

1. There is a wave of capital chasing new ideas centering in offshoring and several small and medium enterprises, are actively pursued by various class of investors. We shall see the hithertho conservative players investing significantly in various things and mature into significant players in grabbing offshore deals.
2. Single vendor sourcing (for offshoring) may become quite limited and multivendor sourcing may become the norm, The mix may see a shift – Tier 1 offshore vendors and LOB/Horizontal Tier II vendors may become the combined winners in this mix.
3. The sourcing conundrum may become more complex – the crunch in resourcing and the resultant margin effects shall be felt more in the coming year
4. While opportunities in demand side may abound, supply could become a bigger bottleneck
5. The captive model for offshoring may see a significant change – the business model of the captives from being a cost center in some cases may change to be treated as full fledged business units including some spin-off possibilities.
6. Flush with cash/ access to cash, and spurred by constant pressure to grow faster, all firms irrespective of their tier status would announce overseas acquisitions in 2007. Global players shall increase their offshore sale aided by big ticket acquisitions.
7. Amongst the hot areas for growth include infrastructure management, offshore product development, healthcare, retail&logistics. FA0 & HRO would scale up significantly. The cliched term -KPO may drive increasing levels of business.
8. India shall continue to be the undisputed leader in offshoring for ITO/BPO. Other asian/eastern european countries significantly lag behind in this game. Phillipines shows promise to be No.2 behind India in BPO.
9. Service organizations may see more and more restructuring to align along tech practices/geography and verticals.
10. Large accounts/deal chase teams of offshore firms staffed by executives of global majors may be strengthened further – we may see large infrastructure wins recorded by offshore majors. Mega BPO deals may get announced. Europe shall also begin to offshore more volumes, while US shall remain the single largest market and a hot one at that.
11. Offshore majors would work on coming out with a viable approach towards offerings centered on disruptive technologies like SaaS. Global majors may work hard to demonstrate better value add to their customers leveraging their offshore presence.
12. New breed of offshoring players with different business models shall spring up.