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Degree of Australian backlash on offshore outsourcing surprising, says India-based Gartner analyst
SYDNEY, Australia, June 11 - Australia should not expect to become a mass supplier in offshore outsourcing and compete against low-cost and high-skilled nations like India, says Gartner analyst Partha Iyengar.
Australia needs a different approach to meet the challenges of global competition in the software development sector and should concentrate on winning offshore work for “higher-end, creative projects” from other Western economies, Mr Iyengar says.
He suggests Australia also considers: Building business continuity and secure facilities; Exploiting secure software development status with the United States; Developing vertical and niche software solutions; Building partnerships with global software and service leaders; and Deliver consulting and services to growing Asian economies
The value of software development going offshore will more than double from approximately $US19 billion today to $50 billion in the next three years, predicts Mr Iyengar, a presenter at Gartner’s Application Development, Integration & Web Services Summit next week.
“Offshore outsourcing is here to stay,” says Mr Iyengar, vice-president of Gartner India. “I do not believe this type of work will be wound back in Australia, or the United States and Western Europe, where the practice is more entrenched.”
Gartner market estimates refute arguments that offshore outsourcing has reached epidemic proportions. Today, its analysts estimate only 1.6 percent of the global $US580 billion outsourcing market goes offshore.
Mr Iyengar says the depth of the Australian backlash against offshore outsourcing to countries such as India and the Philippines has surprised him.
In India, he says, it is well known the issue quickly became a “political football for Telstra”.
“There was a 15-year history of offshore outsourcing by US companies before a debate about American jobs started in that country,” Mr Iyengar continues. “This practice has been in Australia for only two years, and already we are seeing a similar scale of reaction.
“In America, criticism has come against a background of the 9-11 disaster and a weak economy, so it is easier to understand their motivation. In Australia, it is harder to comprehend. The local economy has been strong and there is no evidence of any significant job losses because of offshore outsourcing.
“Australia may be more paranoid or more cautious. However, it is certainly healthy to have a debate about the security risks of offshore outsourcing. This is an issue that has gained traction in the United States.”
Gartner slices outsourcing models into four segments:
On-site - Keeping application development and testing in-house; On-shore - Sending work to an outside agency in the same country; Near-shore - Using lower-cost operators in countries of close proximity, such as American firms using Canadian or Mexican developers; and Offshore - Employing any company in the world that can produce the desired quality at the right price. India, the Philippines, South America and China are among the prime destinations for this type of engagement.
Mr Iyengar describes offshore outsourcing as a “mega-trend” with an increasing number of companies and government agencies in the US, Western Europe and Australia looking at overseas options.
He says some companies are engaging Indian companies for quick, low-cost, tactical work. Increasingly, however, organisations are adopting a long-term, strategic engagement, or adopting global plans that embrace a combination of models, such as offshore, near-shore and in-house development. He cites Telstra’s India-based engagements with Wipro, Infosys and IBM as a good example of an organisation that views the offshore concept as a strategic imperative.
Mr Iyengar also says he has revised his view of China’s capability in this arena following a recent tour of the country.
“Many industry observers say China is only 18 months behind India in its capacity to handle offshore outsourcing from English-speaking markets,” he says. “Having seen the communications and cultural challenges the Chinese face, I estimate that timeframe to be three to five years.
“Chinese companies are making progress in the Japanese and Korean markets, where they have stronger cultural and language affinities.”
The challenges confronting IT departments on how to handle the offshore outsourcing option will be explored by Mr Iyengar, together with Gartner analysts from around the world, at the Application Development, Integration & Web Services Summit to be held at the Sydney Convention & Exhibition Centre, Darling Harbour, Sydney, from June 16-17.
Analysts, including the US-based Jeff Schulman and Jess Thompson, will present on how to engineer IT architecture to create a real-time enterprise, plus much more.
To obtain free registration for the summit or organise interviews with any of the Gartner analysts, please contact Jo Lobban on 61 2 9459 4692 or email firstname.lastname@example.org
About Gartner Gartner, Inc. (NYSE: IT and ITB) is the leading provider of research and analysis on the global information technology industry. Gartner serves more than 10,000 clients, including chief information officers and other senior IT executives in corporations and government agencies, as well as technology companies and the investment community. The Company focuses on delivering objective, in-depth analysis and actionable advice to enable clients to make more informed business and technology decisions. The Company’s businesses consist of Gartner Intelligence, research and events for IT professionals; Gartner Executive Programs, membership programs and peer networking services; and Gartner Consulting, customized engagements with a specific emphasis on outsourcing and IT management. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, and has 3,700 associates, including more than 1,000 research analysts and consultants, in more than 75 locations worldwide. For more information, visit www.gartner.com