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Companies More Comfortable with Outsourcing

Companies are getting more comfortable about the security aspects of outsourcing, according to VanDyke Software's most recent survey of 350 enterprise IT managers and network administrators.

This year, 36 percent of respondents felt that outsourcing technology jobs offshore had a positive impact on their network security, compared with 21 percent in 2010. Some 36 percent felt it had a negative impact, down from 48 percent in the previous year's survey. Another 28 percent saw no impact.

"Many of those who felt there was a negative impact described a feeling of uncertainty or concern about the potential network security risk involved in outsourcing technology jobs offshore," said Steve Birnkrant, CEO of Amplitude Research, which conducted the survey. "In contrast, many of those who felt there was a positive impact explained that outsourcing technology jobs offshore has worked well for their organization and/or there were cost savings."

When asked specifically this year which offshore locations are used by their organization, nearly eight-in-ten of the survey respondents named India. Some 40 percent mentioned China, and 26 percent mentioned Mexico. In addition, notable proportions mentioned the Philippines (18 percent), Malaysia (15 percent), and Russia (13 percent).

When asked which types of IT services they outsource, the most common response was IT user support (62 percent), followed by application development/programming (52 percent), and then database administration (42 percent), application management (36 percent), data storage/backup (35 percent), system administration (35 percent), and network monitoring (33 percent). Nearly eight in ten outsource multiple types of IT services.

Spending on IT Outsourcing Flattens Out

During the recession, spending on outsourcing as a percentage of total IT spending rose as IT executives wrestled with hiring freezes and the need for flexibility. This year, the data suggests the rise in outsourcing is taking a break as IT budgets regain their equilibrium.

The Computer Economics IT Outsourcing Statistics 2011/2012 study found that among organizations that outsource IT work, the percentage of their total IT spending going to service providers rose from 6.1 percent in 2009 to 7.1 percent in 2010 and then leveled out, showing no year-over-year growth in 2011.

While a robust recovery might prompt organizations to seek outside help, at least on a temporary basis, the recovery in IT spending is not yet strong enough to accelerate spending on outsourcing services. It is also no longer weak enough to prompt companies to slash internal expenses in favor of external service providers.

The study also found that the use of software-as-a-service continues to gain strength, making application hosting one of the fastest-growing areas for outsourcing. While the amount of the typical portfolio being hosted by outside parties remains low, application hosting is the most frequently outsourced service in the study.

The three most strongly adopted outsourcing services are Web/e-commerce systems, application development, and application maintenance. These functions rank high in both the number of organizations that outsource them and the amount of work typically outsourced.

The IT function with the greatest potential for reducing costs through outsourcing is help desk. Fifty-one percent of organizations that outsource this function find that they have lower costs than when they performed the function in-house.

The function that holds the greatest potential for improving service through outsourcing is IT security, followed by disaster recovery, according to Computer Economics. Only 6 percent and 8 percent of IT organizations, respectively, find outsourcing these functions makes service worse.

Use of Contract Workers, Outsourcing on the Rise

CIOs are increasingly using flexible labor, with 84 percent looking to increase or maintain levels of flexibility, according to the 2011 Harvey Nash / PA Consulting Group CIO Survey. Contract, temporary, and offshore workers account for up to one-quarter of the workforce for 76 percent of CIOs. One-third of CIOs said outsourced activity will account for up to one-quarter of their annual budgets.

CIOs are also turning away from large-scale suppliers and increasingly partnering with multiple niche suppliers who can provide specialist skills to drive innovation around mobile, cloud, and web computing. Fewer than half said they lack technical skills in their internal teams, with business analyses and business-facing architecture being the most in-demand skills for internal teams.

"Technology leaders have to deal with the two main priorities from the CEO: driving innovation, particularly in the mobile applications area, while continuing to manage costs," said Albert Ellis, CEO of Harvey Nash. "The result is an increased dependence on a flexible, multi-sourced environment which has impacted on the CIOs and the skills they need in their teams. Not only must technology functions be business facing, rather than technical, leadership is required from both the CIO and CEO to meet the challenge of the new mobile and socially networked world."

Thousands of New Jobs Forecast for Indian Outsourcers

The Indian outsourcing industry expects to add 240,000 workers this year, bringing direct employment in the sector to nearly 2.5 million, according to NASSCOM, the industry's trade group. And as the global outsourcing industry evolves and the acceptance of cloud computing grows, NASSCOM expects employment to expand into new areas.

"Indian IT service offerings have evolved from application development and maintenance to emerge as full-service players providing testing services, infrastructure services, consulting, and system integration," NASSCOM officials wrote in their annual strategic report.

The outsourcing industry now accounts for 6.4 percent of India's Gross Domestic Product, up from 1.2 percent in 1998. This year, it is forecast to generate US $88.1 billion in revenue, all but US $12 billion contributed by IT software and services.

United States companies in 2010 accounted for 61.5 percent of the business. Banking, financial services, and insurance companies remained steady customers, with retail, healthcare, media, and utilities procuring an increasing amount of outsourced services. The IT services segment was the fastest-growing, expanding by 22.7 percent over the previous year.

As of 2010, NASSCOM estimated that India held 55 percent of the IT and business process outsourcing market. The group credits India's large pool of skilled employees, service delivery infrastrructure, and supporting government policies.

This year, the Indian outsourcing industry is expected to benefit from a 4 percent forecast increase in global IT spending and the embrace of private and public cloud computing and mobile computing on a variety of devices and with a range of new apps. Emerging markets are expected to contribute half of all new spending. 

Employment Up in Indian Outsourcing Industry

India's IT and business process outsourcing industry revenues are expected to grow by 19 percent in 2011, adding 240,000 employees to reach direct employment of 2.54 million, according to the National Association of Software & Services Companies (NASSCOM).

Looking ahead, software and services export revenues are expected to grow by 16-18 percent and domestic revenues by 15-17 percent.

While exports continued to be the mainstay of the industry with revenue of USD 59 billion, the domestic market demonstrated steady growth of 16 percent to aggregate INR 787 billion.

NASSCO President Som Mittal attributes the grow to “pent-up demand for IT-BPO services, return of discretionary spending, new business models that encouraged first time buyers, and re-invented value proposition for existing ones."

NASSCOM estimates that India commands 55 percent of the IT-BPO market. In terms of international business, the IT Services segment was the fastest growing, with a 22.7 percent annual increase. Indian IT service offerings have evolved from application development and maintenance to providing testing and infrastructure services, consulting, and system integration.

Engineering design and products development segments generated revenues of USD 11.3 billion, a 13.4 percent increase, driven by increasing use of electronics, technology convergence, and the need for localized products. The engineering services landscape in India has evolved significantly reflecting maturity, diversification, and enhanced verticalisation to partner with global corporations, NASSCOM said.

Increased technology adoption across Government, Corporates and SMBs for providing citizen services, enhanced internal controls and customer service led to an increase in outsourcing within the domestic market.

NASSCOM is the premier trade body and the chamber of commerce of the IT-BPO industries in India. It is a global trade body with more than 1,200 members, which include both Indian and multinational companies that have a presence in India. NASSCOM's member and associate member companies are broadly in the business of software development, software services, software products, consulting services, BPO services, e-commerce and web services, engineering services offshoring and animation and gaming. 

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