The factors that will affect outsourcing range from currency fluctuations to talent attrition and wage inflation on the Indian sub continent. This in-depth study predicts the market drivers for next year including remote infrastructure management, call centres and transformation.
It's been a dynamic year in the information technology outsourcing industry. The Indian rupee rose to record levels while the US dollar declined against most major currencies, impacting global IT service providers and customers alike. Merger and acquisition activity went into high gear (with the exception of poor Affiliated Computer Services, which tried-and failed- for the second time to go private).
The consolidation activity was most notable for the in-roads Indian providers made into the US market by buying local providers. And Mumbai-based Tata Consultancy Services announced a US$1.2 billion IT service deal with The Nielsen Company, technically the biggest offshore contract to date, hinting at the increasing maturation of the outsourcing market.
Buyers of IT services also began to look beyond India to balance their offshore outsourcing portfolio, from Shanghai to São Paulo and more than a few spots in between.
According to the predictions IT outsourcing analysts are making, the headline for 2008 in the IT service market could be "the more things change, the more they stay the same." Experts expect the rupee to continue its rise, keeping global IT service providers and customers on edge. Industry consolidation will continue. The offshore outsourcing market will continue to develop, in India and beyond.
But don't expect everything to remain status quo in 2008. This could be the year call centers shape up, IT service providers figure out a way to provide more of the innovation their clients crave, and outsourcing customers finally get smart. Read on for more trends to keep an eye on in the new year, and add your own forecasts.
1. That darn dollar
The India rupee has risen more than 11% in value against the US dollar so far this year. In the absence of government intervention, it has nowhere to go but up. The continued decline of the dollar could be difficult for service providers to absorb.
During 2007, Infosys reported a currency impact of 2.8% on Q3 profitability, Wipro contemplated six-day workweeks, and EDS and Mphasis considered billing clients in rupees, while customers kept a close watch for other symptoms of currency stress. If the currency gap widens next year, expect Indian outsourcing providers (and multinationals with a big presence on the subcontinent) to start indexing their prices to local salaries, promoting other offshore locations like China and Latin America, delay hiring of new staff and build currency hedges into contracts, says offshore outsourcing consultancy neoIT.
Oh, and Canada? With the Canadian dollar getting stronger, the US neighbour to the north's days as an attractive nearshore outsourcing destination are numbered.