
IT outsourcing analysts have made big predictions for 2008 in the IT service market.
Experts expect the Indian rupee to continue its rise, keeping global IT service providers and customers on edge. Industry consolidation will continue. And as I’ve blogged recently, the offshore outsourcing market will continue to develop in India and beyond.
But will IT service providers figure out a way to provide more of the innovation their clients crave? Here are some top IT predictions from CIO magazine. (Click here if you’d like to peruse its pages—it’s a great resource!)
The Dollar
The continued decline of the dollar could be difficult for service providers to absorb. If the currency gap widens next year, expect Indian outsourcing providers to start indexing their prices to local salaries, promoting other offshore locations like China and Latin America, delay hiring of new staff, and building currency hedges into contracts.
Consolidation
The industry’s leading providers will gobble up smaller competitors in 2008. Tier-2 providers like ACS, Perot Systems and others have struggled, and as a result will become acquisition targets for larger providers or private equity firms. U.S.-based providers may be more likely to acquire midsize providers than their offshore brethren. Indian IT service providers, however, will continue to set up local delivery service centers in the U.S., Europe and Latin America. Likewise, American and European service providers will continue expanding their offshore presence to remain price competitive.
Politics
Large companies will most likely avoid announcing substantial agreements or employee reductions during 2008. The result could be a backlog of unsigned agreements pushing into 2009, which could put customers in the driver’s seat during negotiations during this election year.
Looking Beyond India
While India will remain the market leader in offshore IT services, clients are looking outside the subcontinent for alternatives. Thus, 2008 will be the biggest year to date of expansion of IT service delivery capabilities beyond India. As I’ve said before, think Latin America, Central and Eastern Europe, China, and to a lesser degree, the Middle East and Africa.
Flight from the Big Cities
In India and beyond, outsourcing hot spots have become oversaturated, so many providers and customers are looking to set up shop elsewhere. A shortage of talent is emerging in the top cities across India, local universities are no longer providing an adequate number of qualified candidates, and recent tier-1 city grads are increasingly wary of starting at the bottom on the graveyard shift because they’ve got other options. That’s creating movement into smaller, less saturated cities.
The same story is occurring in dozens of outsourcing hot spots around the world.
As a result some IT service providers are jumping to second-tier cities in an attempt to sidestep the rush to set up shop in a major metropolis.
Transformation
Customers want more than cost savings. They want access to great talent, vertical expertise, process maturity, flexibility, the great and powerful “value add.” IT buyers want an outsourcing provider who can actually enhance the client’s revenues and not just their own.
That means IT service buyers can expect to spend more on outsourcing services in 2008 while deciphering which market changes warrant the upcharges and which don’t.
Call Center Culture
Clients are demanding improvement in the call center turnover rate. One industry provider reports that it loses half its staff during the first 100 days of work. Providers are beginning to respond to the sweatshop mentality of call centers, by creating more “client-centric” solutions, such as unique scripts and efforts to connect employees to the client’s corporate culture.
Green IT
The “Green” IT service trend will take root and become measurable and attainable in 2008, as outsourcing providers desire to decrease their carbon footprints by creating greener data centers, investing in environmentally friendlier buildings and campuses, and developing eco-friendly processes and policies.
Outsourcing Buyers Get Smart
In 2008, many outsourcing customers will be entering third and fourth generation outsourcing contracts—either renewing, rebidding or restructuring their deals. Many of those IT organizations are making smarter decisions, negotiating better terms, demanding better business-driven metrics and getting better at outsourcing lifecycle management.
I predict there will be plenty of new entrants to the outsourcing market this year to challenge the veterans and create their own innovative structures.