Q. What are the market drivers that have led to the IT outsourcing boom?
Over the past decade, IT operational spending has been on the rise, accounting for an increasing share of overhead costs and dramatically affecting the bottom-line of medium to large companies. As IT budgets come under pressure and new technologies are introduced, IT-centric organizations are turning to service providers, both onshore and offshore. In some cases, needs are short-term and tactical. In other cases, needs are long-term and mission critical to the success of the enterprise.
Outsourcing enables an organization to augment in-house capabilities without making long-term commitments or large capital investments. In other cases, the decision to outsource is strategic and follows a careful analysis that indicates service levels can be improved or costs reduced, or both, by relying on a partner's expertise.
Whether tactical or strategic, the research shows that organizations most frequently engage in partial outsourcing to realize significant cost savings.
Q. What are the specific benefits of outsourcing?
IT executives need to continually evaluate the potential of outsourcing to help meet their organizations' tactical and strategic objectives.
The reasons for outsourcing, like the range of services that can be outsourced, are evolving. Organizations turn to outsourcing to:
- Reduce costs
- Improve operational flexibility
- Increase service levels
- Reduce management overhead
- Rapidly deploy new capabilities
Q. Is U.S. information technology outsourcing growing or on the decline?
2012 was a slow year for outsourcing; total global offshoring industry revenue grew between 20 and 30 percent, amounting to roughly USD 350-400 billion.
- 2013 IT outsourcing budgets rose approximately 23%.
- 66% of U.S. firms outsource all or a portion of their application development.
- 33% of firms have increased the percentage of work outsourced over the previous year in 2012.
- Mexico’s outsourcing industry is growing approximately 10% to 15% each year, amounting to roughly USD $13 billion in 2013.
Q. Why is nearshoring replacing offshoring?
Push factors are reasons why vendors/buyers look to diversify out of current geographies, while Pull factors are reasons why vendors/buyers look to the nearshore as a delivery platform.
Q. What IT positions and areas of expertise are U.S. companies looking to outsource?
U.S. managers and firms are facing challenges in hiring and retaining Java developers, mobile developers, .NET developers and software developers in general. In fact, hiring managers cited those positions about double or triple the frequency of other skill sets in the employment marketplace. This demand for skilled labor has increased the number of U.S. companies looking to outsourcing firms to fill the market gap. The unemployment rate among IT professionals in 2012 remained about half of the national average.
Q. How do I know if my company is a good candidate for nearshoring our IT processes?
Small to mid-sized IT services providers in Mexico are growing, as is the demand for IT services in the global small-to-medium enterprises (SMEs) market segment. Companies like NearShore will capture a greater market share of web application development and maintenance, testing and embedded software development services for this market segment. These firms typically employ between 50-500 people and are either domestic or U.S.-originated companies with delivery centers in Mexico.
On the buy side, SMEs also are increasingly looking to outsourcing as a strategy to lower costs and to increase competitiveness. Gartner predicted that 20 percent of businesses would own no IT assets by 2012, largely due to the need for cost efficiencies, flexibility, delivery and mobility.
The standardization and automation of IT systems means that they can be delivered more easily and cheaply by third parties. Likewise, as telecommunications channels become cheaper and more prevalent with new technologies such as video conferencing, day-to-day collaboration between onshore and nearshore has become easier for application development-related tasks.