Stephanie Moore, Vice President of Giga's technology consultancy, comments: "Companies should not rush into offshore or nearshore outsourcing relationships without first understanding how to approach the endeavour."
Recent research by Moore identifies key drivers that influence the development of global or offshore outsourcing, including cost cutting, quality control and time-to-market benefits. These drivers will increase competition – but also put pressure on a number of players.
"India's offshore industry will undergo a crisis during the next two years as IGS, Accenture and other global players attain quality/cost ratios similar to those achieved by TCS, Wipro, et al," claims Giga Research Fellow Will Cappelli.
He continues: "Business process outsourcing is no salvation here, because the global players will, of course, deliver that too. At the same time, as these ratios become the norm throughout the industry, the case for maintaining in-house IT operations becomes ever more tenuous."
Some other outsourcing trends Giga expects to see in 2003 include:
US-based outsourcing firms such as IBM, CSC and EDS will undercut Indian vendors' offshore prices.
Companies too dependent on one country's labour pool (India) will increasingly look to diversify their risk.
Mexico will emerge as a strong nearshore outsourcing alternative for North American companies.
The large top-tier outsourcing firms will continue to thrive and many will match or exceed industry growth rates, while the smaller, newer Indian vendors will struggle to survive.
Another trend seen of late is use of the term "co-sourcing" instead of outsourcing. But don't be fooled, said Giga Industry Analyst Robert McNeill.
"Although the term co-sourcing has seen increasing use there appears to be no significant difference between outsourcing and co-sourcing. The principal reason the term is being used is that it resonates well with end users who want to partner with service providers but have become indifferent to outsourcing, or end users who find it hard to internally sell outsourcing." More important is to focus on constructing the most appropriate deal with the vendor, he added.