Outsourcing bonanza '06: trends you need to know about

In the outsourcing world, 2006 was a year of change and acceptance. Change in that China and other countries are starting to take some business away from perennial offshoring giant, India, and acceptance in that it's no longer taboo in most circles to talk about outsourcing plans in public. In other words, for better or worse it has become a part of corporate culture. For this report we take a look at some of the driving forces in the outsourcing realm this year. Certainly some of these issues will continue to loom large in 2007 such as H1-B levels, China's rise and outsourced security concerns.

Security problemsThe marriage of security and outsourcing is always a problem, especially if the contract involves offshoring work. This year outsourcing giant, India, took steps to ensure offshored work was secure. The country's National Association of Software and Services Companies set up a watchdog organisation that it says will monitor data security and privacy practices in the country's IT services, call center and business process outsourcing industries. The initiatives were taken in the wake of allegations in the United States and United Kingdom that Indian call centre workers have stolen and sold data processed by Indian outsourcing companies. The issue of security isn't limited to India. Earlier this year, a Government Accountability Office study said US government agencies that use outsourced information services firms for everything from law enforcement to counterterrorism data-gathering do not protect the privacy of the citizen data they use.

China's riseWith everyone from IBM to Unisys directing billions of dollars its way, China certainly got a lion share of investment this year from some of the largest outsourcing players in the world. And even India's outsourcing giants -- Tata, Infosys and WiPro -- have a growing presence in the country. To back that up, a study released by Analysys International earlier this year said China's software outsourcing services market reached $US323 million in the first quarter of 2006, up almost 44 per cent compared with the first quarter of 2005. Still security concerns dog the country's industry fledgling business.

India's growthCan anything slow the offshoring/outsourcing machine that is India? It doesn't seem likely. Despite any inroads China may be making, India's outsourcing numbers keep getting larger. The country's software and services voice, National Association of Software and Service Companies says the country's BPO services will grow 35 per cent - 40 per cent in fiscal year 2007 to achieve between $US8 billion and 8.5 billion vs. $6.3 billion in the previous fiscal year. According to Nasscom estimates, the total revenue for the entire IT sector, domestic and exports, by the end of the current fiscal is estimated to be about $36 billion to $38 billion. And this month Infosys will become the first Indian company to be included in Nasdaq's prestigious list of top-100 companies.

India's turmoilEverything isn't rosy in the 'Truth Alone Triumphs' country however. India isn't immune to the violence and turmoil that exists in the rest of the world. Some of its internal strife spilled into the outsourcing arena this year with bombings, a strike and online threats. Not to mention the ongoing staff shortage. When you're No. 1 the target on your back is a lot bigger.

BlundersWhether or not it's a company's decision to bring work back in-house or a contractual failure, the dumping of an outsourcing contract is never very pretty. A Deloitte study last year said nearly 75 per cent of the 25 large companies surveyed have had negative experiences with their mega-outsourcing projects. It's a wonder more don't flame out.

H-1B visa trialsThe year began with promises that the H1-B levels would be raised by the year-end. But that push got lost in the politics of Washington, DC. The Democratic congress will likely take it up again early next year but most experts agree its scale could be significantly reduced.

Small business outsourcingPerhaps it's a natural outgrowth of the industry's larger outsourcing trend but this year SMB seemed to take a harder look at outsourcing as a way to run their companies. It's a huge opportunity for outsourcers as these small firms begin to recognize that they can achieve the same benefits that large organisations enjoy when they hand over non-core IT functions to outside service providers.

"There is a small but growing legion of SMBs that are considering outsourcing," a research director at Gartner, Robert Brown, said. He notes that the base is small: Companies with 100-499 employees now account for just 7.8 per cent of the $50.5 billion business-process outsourcing market, but that number is expected to grow to more than 8 per cent of a $78.8 billion market by 2009, according to Gartner. Other experts say the growth of specialized service providers including ISPs and local managed service providers for desktop management and other IT functions. These include offerings from the large outsourcers including service desks, desktop management and specialized network offerings. Examples include EDS Agile, HP SMB Services and IBM Express Advantage.

Managed servicesPerhaps epitomised by IBM's Global Services business, managed services have grown by leaps and bounds this year, a market segment that will be worth more than $US630 billion by the end of 2006. But experts say as these services grow users need to be ever-more diligent about contracts and what they expect from their vendors.