Global outsourcing has become a strategic management option for successful organizations. It opens up the right combination of people, processes and technology to operate effectively in the Global market place without burdening time and budget factors. Notwithstanding the risks associated with outsourcing, the trend is expected to continue and grow. In IT outsourcing, though India has had a clear head start, the race seems to be hotting up as other countries are catching up by taking various measures. As part of gearing up to this threat, Synergy Infotech studied the comparative advantages of various offshoring locations. A summary of findings is presented below.

Parameters of IT outsourcing

From our experience, when a buyer considers outsourcing a part of all of their IT requirements, these are the factors they consider

Geographical location related
o Political stability and maturity
o Culture of people / management style
o Related tax structures
o Quality of the education system
o Intellectual property protection systems

Infrastructure Related
o Internet / communication infrastructure
o High availability
o Backup mechanisms and processes

Project Related
o Quality processes
o Project Management Skills
o Track record related technology and execution of similar projects
o Ability to put up, sustain and grow the team
o Clarity and synchronisation in Requirements and Acceptance criteria

Dominant Players, Strengths and Weaknesses

How do different countries measure up along the above dimensions? An analysis done by Synergy reveals the following-

China – A Potential Threat?

China has the ability to scale up and can appear to be more attractive in terms of costs.

• Large number of Chinese graduate students in the US
• Liberalization of laws and government policies
• An emerging middle class.
• Investment in technical education.
• Large supply of low cost labor.
• China's enviable economic growth.
• Offshore manufacturing already exists.
• Proximity and access to Japan / Korea markets. Japan and Korea, which are large markets, are culturally and physically close to China.

Weaknesses:

• Language and Culture: Though there is a focus on learning English, language and culture are large hurdles to cross.
• Project Management Skills is also a source of concern. Short-term solution includes having project managers from destinations like Hong Kong and Australia. This increases the costs and takes away the advantage of low costs.
• In spite of low costs at engineer levels in certain locations, the overall costs are not substantially lower than comparable destinations such as India.
• IP Protection.
• Lack of international experience in the software industry.

Israel – The Destination For Shrink-Wrapped Solutions

Israel has made a name for itself in terms of the caliber of its manpower. Israel is home to mostly IT consulting and services companies focusing on customized applications or shrink-wrapped software production, in contrast to India's large, project-oriented enterprises.

Strengths:

• Infrastructure/Communications is very good.
• English proficiency is very good. Because of lack of natural resources, the stress has been on knowledge building. Government initiatives towards R&D have helped to develop skilled labour.
• Cultural compatibility with global players is very good.
• Quality initiatives are being taken.

Weaknesses are few and possibly do not hinder Israel from reaching its potential of becoming a high profile destination of specialized outsourcing. Perceived weaknesses are:

• Geopolitical risk: This is possibly the only big risk, which Israel has to address.
• Cost disadvantage: Costs are definitely higher than that of India.
• Numbers game: In terms of sheer numbers, Israel cannot match India / China.

Russia – Can it convert some advantages?

Russia is an upcoming destination with skilled manpower. The Russian information technology industry saw rapid growth last year and Russia is well positioned to become a global player in IT.

Strengths:

• Geopolitically, it is in good position. There are projections for stability and economic growth.
• Cultural similarities with Western Europe.
• The high creative potential of Russian specialists, due to their established system of education in the fields of mathematics and basic sciences, as well as their solid work experience with complex projects and diverse technologies.
• Government supports IT.

Weaknesses:

• Lack of experience in management of offshore software development projects;
• Legal and regulatory hurdles in the areas of IP, export and import, taxation, labor law, business registration, reporting, and currency control in case of foreign-owned offshore software development facilities in Russia;
• Lack of quality-certified software companies and certification organizations;
• Less-developed telecommunications facilities, high bandwidth costs;
• Language barrier as English speaking population is less.

India at a glance

In spite of all the hype created by other players, the facts and figures indicate a continued domination of India in the outsourcing business. It is a clear leader and the reason can be that India does not have any critical blocks for companies to outsource work to India. In fact, it is in the overall value proposition that India scores over others. It appears that this will continue to be the case as:

• Indian companies are attempting to move up the value chain by working on products and IP. Indian centers of multinationals like Intel and TI have registered a good number of patents since the start of the respective operations. Companies are moving towards providing solutions and developing products, a paradigm shift in perspectives.
• The track record is too good for customers to ignore and for others to emulate in a short span of time.
• In spite of upward spiraling of costs of manpower and infrastructure, India still remains attractive cost-wise compared to other destinations.

Our conclusion is that India continues to be the preferred IT offshoring destination. The offshore industry’s maturity, scale and breadth of experience are clear advantages over comparable destinations. At the same time, India continues to offer attractive cost benefits compared to the developed countries.