As it is the Indian Rupee has fallen by 30% vs the US Dollar in the last one year[The Indian Rupee is the worst performing G20 currency today];so cost is not that big an issue .China for one can't compete with India on Unit Labor costs today.
This is why I push back on the definition of "failure" because 20-25% isn't renewed, but not necessarily failed. This doesn't mean people are happy with it, but there are no better alternatives than outsourcing at this point.
@Mitch-The slowdown in INdian IT Outsourcing has less to do with cost and more to do with the fact that Companies have no project visibility today.Most of the top 5 Indian IT firms[TCS,Infosys,Cognizant,HCL and Wipro] have no clue how the market is going to look like one year from today.Will it be up? Will it be down? No clue.
Kim, to be clear, the growth of offshoring is slowing. That means the substantial body of work that is already there stays there. New work is being transferred. There are destination, other than India such as Philippines, China, South America, but India is still viewed as the overall lowest cost destination for IT.
Mary, most contracts run to term, but build increasing level of frustration for the buyer. As the contract nears its end, the cost to terminate the contract typically substantially drops. There are instances of people exiting contracts early. Having said all that, 80% of all outsourcing contracts are renewed.
@Peter: You'd mentioned that sometimes customers find themselves stuck with rigid contract terms. If that happens and the contract runs for too long, do companies often have to just pay off the outsourcer?
Mary, most outsourcers are concerned about the potential of next generation technologies to disrupt their businesses and are working to bring their own cloud services to the market. Interestingly, at this time, most of the market is dominated by specialist firms, pure cloud firms, that are able to operate outside of traditional legacy.
There is very little work for these employees(who are on the bench today).eventually the biggest outsourcers are going to have to let go of staff.Luckily so far,the smaller Firms are still hiring;so lot of employees still have the choice of moving.I don't know if that will still be the case 6 months from now.
Mary, regulations change by industry and by the area in which you are contracting. Broadly, if you are a commercial enterprise, you need to be in compliance with your audit and policies. If you are moving a large amount of work, then you may have 60-day notification to the people involved. There may be sales tax issues as you are turning an internal cost into an external procurement. If you are in healthcare industry or government entity, you will have specialized regulations such as HIPAA.
Kim, simple processes and workloads can be competitively bid in online functions. These tend to break down when we move to larger and more complicated problems. In summary, the competitive side will serve to commodtize those functions that can be successfully sourced this way. Lowest price will benefit the consumer.
Mitch, you ask a great question. The primary challenge in purchasing cloud is one of getting architecture right. The purchasing tends to be from a priceless which has limited ability to negotiate from. The challenge of architecture is which workload should be transferred into the cloud, how to take full advantage, and how to deal with the compliance and security issues.
Mary - Yes, if you're outsourcing IT then the remaining IT shop needs to focus more on managing the external relationship than on the technology itself. Or that's what I think -- I'm not the expert. Peter is.
I'd like to start with a question for Peter (which he can answer when he arrives in the chat): What skills are required in IT departments for companies that outsource IT? IOW, what should the remaining corporate IT folks specialize in?
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