Financial Fraud Scandals May Curb Offshore Services Among Large firms
According to a new Computer Economics report, large companies remain stagnant on offshore services in 2009. This could be due to financial scandals like the one that rocked Satyam in India, say analysts. However, small and mid-size firms are utilizing outsourcing to a larger extent - offshoring among these firms have gone up approximately 10 percent in the period 2008-2009, reports eweek.com.
Director of research for Computer Economics, John Longwell said in a statement, the number of small companies using offshore service providers has increased surprisingly. Meanwhile, bigger firms are downsizing on IT spending and this is catapulting offshore service providers down market. Additionally, outsourcers appear to be doing better with smaller IT firms.
In a recent survey, 14% of companies polled opted for offshore outsourcing, while that figures has climbed to 24 % this year. According to a news release on the report, most of the offshore outsourcing to date is still from big companies - firms reeling in more than a billion dollars in annual revenue. Among this group, there was virtually no change in the overall percentage of companies utilizing offshore providers. In the category of big organizations that outsource work, approximately 46% are utilizing offshore service providers in 2009, as opposed to 48% in 2008.
The report by Computer Economics is titled IT Outsourcing Statistics 2009/2010: Outsourcing Trends and Cost Experiences for 11 Key IT Functions. The report includes a section on application development, the biggest area in IT. The report states that although the number of outsourcing requests are on the rise, this is not an indication that the market for offshoring are on the increase. As with technology vendors, offshore service providers are impacted by the decrease in IT spending. The slowdown in capital spending on the part of IT firms has affected application development the most. Application development is the most widely outsourced IT function.
The report attributes one of the factors that may be affecting the decline of offshore growth for big companies to be financial fraud scandals that hit large Indian companies like Satyam in 2008 and carried over to 2009.
Nonetheless, the growth among small and mid-size firms in offshoring is not sidelined by these scandals. India is not the only offshore outsourcing destination, several countries like China are also major players in the offshoring game. This also includes Eastern European courtiers as well. Additionally, a hybrid market that includes firms based in the U.S. having offshore operations also exist. This trend continues to have gained additional attention from firms like IBM that downsized their workforce considerably in 2009 - much of this work is now offshored.