Offshore Outsourcing Models

The term "offshoring" conjures a vision of work flowing from large corporations to technology vendors halfway across the globe. Perhaps the burgeoning Indian IT and BPO industry that is notching upwards of $15 billion to $18 billion a year makes it sound like the work "just flows." The facts of outsourcing, however, are a bit different. Behind each program, initiative or project that is offshored lie complex decisions involving selecting the right models to suit a particular business need or scenario. I dedicated a section to the topic of offshoring models in my recently published book, Offshoring IT Services: A Framework for Managing Outsourced Projects. In this article, I abstract some of the key ideas from the book and my research regarding offshoring models.

Selecting an appropriate offshoring model is a crucial aspect of developing your company's outsourcing plan. The process involves several factors, including aspects of international business strategy, selecting the country, scanning the landscape and deciding on the outsourcing strategy. The three models most popular currently among business leaders are joint ventures, subsidiaries and outsourcing to a service provider.

Joint Venture Offshoring

In a joint venture (JV), an organization ties up with a local firm or company either by taking an equity stake or forming an independent company in which each company contributes resources. The goal is generally to work towards a "win-win" deal where both organizations hope to benefit from the other's strengths. By capitalizing on the strengths of a local player, the client organization can mitigate some of the risks of internalization; similarly, the local player can benefit from partnering with a strong player and the opportunity to scale up the value chain.

A joint venture contract may sometimes include build-operate-transfer (BOT) clauses to motivate both parties to work towards a clearly defined exit strategy. The BOT or its variation, build-own-operate-transfer (BOOT), may involve an option for the domestic company to sell its stake to the foreign company after a stipulated period or after agreed-upon milestones.

There are several advantages to a JV model, especially if the company is also looking to "learn" the intricacies of managing local business customs and mores from the domestic partner, which will pave the way for a subsidiary down the road. An excellent example of this strategic evolution from a joint venture to a fully owned subsidiary is that of EDS' entry into India. Though a few articles in the media portray EDS' strategy as a dramatic step, it is, in fact, the culmination of a gradual evolution that began with a joint venture-like relationship with vendors in India a decade ago.

Subsidiary/Captive Development Center Offshoring

Companies may decide to bypass the JV model altogether and go directly in for a subsidiary or local office if the management is comfortable in dealing with the nitty-gritty of internationalization and local market operations. Some of the popular terms used to describe the model include offshore development center (ODC), captive development center or in some cases simply branch or local office.

Subsidiaries operate as independent business units or branches, executing programs and projects for onsite teams. From this perspective, the mode of managing a subsidiary is similar to managing projects and programs in a global delivery center (GDC) model promoted by software service delivery and offshoring companies.

The key challenge in a subsidiary model, apart from internationalization and localization of business management, pertains to management of expatriate staff, line workers, technical experts and line managers from multicultural backgrounds.

The local office model is extremely popular among high-tech organizations that are comfortable in management of technology development and innovation and look to offshoring as an extension of their diversification strategies. Large software development companies including IBM, Microsoft and Oracle are already comfortable doing business in a global marketplace. Moving development or maintenance of some of the projects and work is a way to extend their geographic footprint. Similarly, software giants like Accenture, EDS and Deloitte Consulting, among others, have been at the forefront of bundling newer services for their clients; offshoring being the latest in their suite of services.

Service Provider Offshoring

The JV and subsidiary models of outsourcing may involve deep commitment on the part of a client organization, a move that management at traditional companies may sometimes be averse to. To counter the perceived risks of these models and to capitalize on the benefits of offshoring, companies resort to outsourcing projects, programs and individual work orders to offshore vendors. Interestingly, outsourcing to service providers is also the most visible offshore outsourcing model, and it encompasses a wide range of work, from small projects to multi-year contracts amounting to millions of dollars. Here are the most popular forms of outsourcing to offshore vendors.

Onsite Subcontracting with Offshoring

This is perhaps the simplest outsourcing model, where a firm places its skilled people "on site" at the client's location. The people thus placed become a virtual part of the client's team. The model is also called staff augmentation. Most offshore outsourcing firms trace their history back to their software services model and continue to offer onsite project support along with some staff augmentation. This model of outsourcing is typically adopted by smaller firms that have a relationship with the client organization and the means to hire and staff people.

Pure Offshore Projects

A pure-offshore project involves instances where the scope is well defined and the work is discrete enough to be done remotely with little supervision. Examples of this model include work farmed out by smaller organizations and individuals to freelancers around the world using online tools provided by vendors like Guru and RentACoder. This model of offshoring is less prevalent and generally seen only in a small scale development of software component or modules. The model is also being adopted by innovative organizations looking to capitalize on foreign talent that isn't very mobile. An example is the drug-research consortium that runs innocentive.com.

Offshoring Individual Projects

Organizations that have a well defined outsourcing program mitigate their risks of outsourcing by dividing the work into small, more manageable projects that they outsource to vendor organizations. Managers at client organizations who have well defined deliverables, programs or modules to be developed outsource them to vendors with whom they may have relationships.

Global Delivery Onsite/Offshore Model

This is the classic offshoring propagated by most software service providers, where they take on the project, module or program from a client organization, deploy a small team onsite that works with the client managers and teams and coordinates work with the offshore team that does the bulk of the work. This is a more mature stage of the "offshoring individual projects" approach.

In this model, multiple projects, and programs at the client organizations are outsourced to a vendor, which also takes on the end-to-end program management and delivery on behalf of the client. For the outsourcing vendor organization, it's a step up the value chain; for the client organization, it's a value-added service since their employees don't have to manage the nitty-gritty of individual projects. Rather, the outsourcing organization's employees focus on managing the relationship and program and ensure that the vendor delivers as agreed.

Multi-vendor Offshoring (Multisourcing)

In the discussion on offshoring models, we've assumed that the relationship is between a client and a single vendor. However, in reality, a client may have multiple vendors working on a project or initiative. Organizations attempt to de-risk their outsourcing strategies by empanelling a selected list of vendors ("preferred vendors") from which individual projects and managers opt to select and source work.

Offshoring can be a complex strategic decision. Since it's hard and expensive to change course midstream, organizations and business leaders need to spend considerable time strategizing and planning the model suitable for their specific business needs. The models highlighted in the discussion are some of the most common ones encountered. Clients in the west are learning about the pros and cons of the different models offered by players in the marketplace, in some cases specifying a hybrid model tailored to their businesses. Many large service providers also offer a mix-and-match portfolio of options to clients and sometimes draw a roadmap to migrate from one model to another as the client's understanding of the offshoring business matures.

from http://www.sourcingmag.com/content/c060913a.asp by Mohan Babu

Culture Matters: 6 Tips for Improving the Cross-Cultural Competency of Offshore Teams

When I present seminars on Indian business culture to American managers and technical professionals involved in offshoring or offshore outsourcing to India, someone inevitably asks, "So what are our offshore teams and counterparts in India being taught about American business culture?"

The answer is, "More than they used to, but seldom at a level deep enough to inculcate the attitudes, thought patterns and behavior norms that would ensure optimal effectiveness in working with Americans."

Training in "soft skills" is no longer as undervalued in India as it used to be. Growing numbers of Indian companies are coming to realize that the ability of their employees to communicate and interact more effectively is an important competitive factor. American companies in India are also showing more keenness to develop the business and leadership skills of their Indian employees and to move gradually from the cheap labor or staff augmentation model to one where the Indian operation is a value-adding center of excellence.

But how are offshore teams in India being trained to improve their cross-cultural competency?

Currently, the approach tends to be in-house programs developed by a local human resources staff that has often spent little if any time in the United States work environment or engaging local training providers who offer generic programs on a wide range of "soft skills" topics. According to a recent report from Bangalore, local cultural awareness program providers are often entrepreneurs with a background in the hospitality industry.

While these may be worthwhile first steps, their impact is often superficial. The content of such cultural training will tend to be weighted towards form more than substance -- more concerned with handshakes, business cards, dining etiquette and accent neutralization than the deeper core value differences that affect business culture and work relationships.

For American companies that want their offshoring or offshore outsourcing strategy in India to have the best chance of success, and Indian service providers that want to differentiate themselves from the competition through employees who are able to work well with American counterparts, I recommend the following six best-practice strategies for assuring that offshore teams will develop the required cross-cultural competency in American business culture:

--> Tip# 1. Get executives to value cross-cultural training.

Build commitment from the highest level possible in the company that training offshore teams in American business culture is a valued (and funded) strategy in support of productivity, and assign clear ownership and accountability for the execution of this strategy.

--> Tip# 2. Make the training a team effort.

Get involvement of specialized high-level outside expertise, the business units involved in the offshore relationship, and internal training and HR functions in developing the best possible model for delivering the training.

--> Tip# 3. Bring in outside experts.

For best results, use training content and delivery by specialists with direct experience and in-depth knowledge of both American and Indian culture, as well as expertise in the field of cross-cultural communication.

--> Tip# 4. Train on both shores.

In the case of American companies, provide coordinated training of the offshore Indian teams in American business culture and training of the onshore American teams in Indian business culture.

--> Tip# 5. Integrate training into new employee orientation.

For both American companies with operations in India and Indian providers of outsourcing services, integrate training in American business culture as part of the regular induction processes for new employees. This applies not only to those who may be going to the United States, but all those who will be working with American counterparts, whether face-to-face or virtually.

--> Tip# 6. Reinforce the training with mentoring.

Engage onshore and offshore business unit heads and project leaders in reinforcing the content of the training. This involves ongoing mentoring of the offshore teams in the elements of American business culture that need to be practiced for success in working with Americans.

According to Goran Strangmark, MphasiS senior VP and head of sales for North America, cross-cultural competency in American business culture may become an important quality differentiator for offshore global IT and BPO services working with or for American companies, justifying the investment in the development of this skill set.

"Market forces will tend to make Indian professionals and companies who adopt the practices of American business culture more successful, and they will outcompete their non-adopting competitors. But while we have seen successful examples of people doing it with very little guidance, this process can be a long struggle, and good training programs can certainly speed up progress and alleviate the pain."

from: http://www.sourcingmag.com/content/c060911a.asp by Karine Schomer

2010 07 07 14 02 Agile Development From Argentina Lessons Learned In Nearshore Outsourcing

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China’s Software Outsourcing Industry In Urgent Need Of Creating The Brand

With the rapid development of China’s IT industry, China’s software outsourcing industry has also all the way into the disease. But the industry has noted that, unlike India, software outsourcing country, the Chinese software outsourcing there are still many aspects need to work, one of the most critical is the urgent need to establish a well-known brand of China’s software outsourcing.

Recently by Microsoft at its headquarters in China’s “2008 China Business Exchange Day” activities, many domestic software outsourcing business representatives to face with the participants on the exchanges and discussions, and discussions with Microsoft for more in-depth cooperation in matters related to outsourcing. Soft international, senior vice president of Fanny Chan said that many multinational companies choose to outsource when the first thought was India, not China, one important reason for this is because there is no outsourcing of the brand. “In fact, we have done a lot of things, we do not know, as a nation in terms of China’s own brand of efficiency is not outsourcing. Chinese companies enter the international market, if you really want, then it will not work.”

CCID Consulting’s research data shows that in 2007 global software outsourcing market reached 56 billion U.S. dollars, an increase of 16.7%; in 2007 China’s software outsourcing market reached 2.01 billion U.S. dollars, an increase of 40.6%, indicating that China’s software outsourcing is higher than the rate of global software outsourcing development, software outsourcing has become China’s software companies achieve economies of scale and internationalization of the impetus and source of profits.

However, “China’s software industry, more scattered, the top 10 software companies accounted for only about 20% of the market share, while the U.S. the corresponding figure was 70%.” Microsoft China R & D Group, senior director of strategic cooperation, said Shen Yuan-qing. Meanwhile, India, the Chinese software outsourcing enterprises are still relatively small, the largest number of enterprises until the number of thousands of people, while the number of India’s leading companies have reached 7-8 million people.

However, China’s rapidly growing up in a number of software outsourcing by multinational enterprises are the trust and attention. Jin, vice president of the wave of the World Section small state said the company in 2004 signed a global strategic partnership with Microsoft. “We have received 25 million dollars in Microsoft’s investment, this investment is already 400% return on investment for Microsoft, which testifies to the strength of China’s outsourcing companies.”

However, the brand is increasingly becoming China outsourcing enterprises to further expand the size of the bottleneck. In the United States Worksoft New York Stock Exchange-listed company from 2005 started to accept orders for Microsoft’s headquarters in contracting, “but along the way, feeling very hard. Because it can only rely on the successful delivery of a month to win customer acceptance, not the brand effects. “Evans said the company responsible.

“At present, the Government has vigorously promoting outsourcing, has done a lot of infrastructure. From the whole industry perspective, the next step necessary to create a China outsourcing ecosystem, in order to promote further growth in the industry.” Fanny Chan said.

Meanwhile, Jin small states that China should make full use of its mobile, Internet users worldwide the industry’s leading edge in the domestic industry to learn from good experiences. “We should not only meet all to learn from others, while we may sum up some outstanding experiences, as well overseas. For example, if you want to put the data service center in India, it may be some multinational companies fear that if released in China, then perhaps it is our advantage.

From: http://www.topchinasuppliers.com/chinas-software-outsourcing-industry-in-urgent-need-of-creating-the-brand.html

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Under The Economic Crisis, China’s Software Outsourcing Industry, Where To Go From Here?

The global financial tsunami, so that the U.S. financial industry on Wall Street plunged into an unprecedented crisis, the five major investment banks collapse one after another, the financial sector have started layoffs and pay cuts. Is highly dependent on the U.S. and European financial services needs of the global offshore outsourcing industry, has also been a serious blow.

January 14, 2009, the world-renowned consulting firm McKinsey published data, the global offshore outsourcing of production in 2007 reached 60 billion U.S. dollars, while China accounted for only less than 10% of the overall market share.

In addition, in January 2008 to September, the financial sector for more than 20 million U.S. dollars worth of large outsourcing contracts increased from 130 down to about 100 copies, the total contract value fell from 18 billion U.S. dollars to 11 billion U.S. dollars.

As a global service outsourcing market participants, China’s software outsourcing industry has also suffered a serious blow. According to McKinsey, China’s 14 cities in 75 software and IT services company, as well as a number of Chinese government officials and China’s service outsourcing park manager interviews show that China’s service outsourcing industry growth rate is still not fast enough.

Impeding the development of China’s service outsourcing industry, the cause? In the context of the global financial crisis, the domestic service outsourcing industry, how should they respond? Under attack in the real economy, IT spending to reduce the software orders compression, yuan appreciation, software exports under pressure of the special period, give the plight of China’s software industry has brought about development opportunities and do?

At present, China’s service outsourcing industry, carriers formed a “three clusters” (the Bohai industrial clusters, industrial clusters Yangtze River Delta, Pearl River Delta industrial clusters), “East map” (the central and western areas and the eastern three clusters play their respective advantages and cooperate with ) pattern. As a key state-supported service outsourcing base cities, Chongqing, Chengdu, Xi’an, Wuhan has a strong policy support, a wealth of information technology professionals and competitive cost structure, is the development of service outsourcing industry, inland areas with the most potential and advantages lies. However, the global management consultant AT Kearney vice president Zhang heavenly view, the central and western development of software outsourcing software outsourcing business and the coastal cities compared to inland cities do not have the language advantage. Dalian has a large number of people proficient in Japanese, so you can focus on to the development of software outsourcing; Shenzhen Cantonese advantage because you can get from Hong Kong and Macao regions of secondary software outsourcing from Europe and the United States transfer of orders, while the central and western cities do not have these advantages. In this regard, the central and western cities on the one hand to strengthen the mastery of the 12 foreign language software, training of personnel and the introduction of work, while at the same external demand and domestic demand, orders will be combined to form a Midwestern characteristics of offshore outsourcing and onshore industrial structure of outsourcing go hand in hand.

In addition, there are also a number of key issues continue to hamper the industry and greater development. First of all, the industry remains highly fragmented pattern of submissions. China has not yet appeared to reach a certain scale (and service outsourcing revenues over one billion U.S. dollars) in business. The lack of industry with the world’s leading enterprise-scale comparable to large-scale enterprises can not effectively access to value, especially in large outsourcing and integration projects, or in need of scale in areas such as infrastructure outsourcing. This is exactly why China in the global service outsourcing areas of less well-known one of the main.

Second, compared to other, more well-known service outsourcing destinations, China is still a lack of a clear value proposition. IT decision-makers often referred to multinational companies in China do not understand the successful implementation of large-scale service outsourcing project successful precedent, and have always been more suitable for China as a global manufacturing center, rather than the emerging concept of service outsourcing powers. At the same time, for the potential risks of outsourcing in China there are also a considerable degree of misunderstanding, such as China’s IPR protection problems.

Third, the potential contracting companies do not generate enough demand to promote the growth of domestic service providers. McKinsey surveyed the software and service outsourcing enterprises, 51% pointed out that domestic customers would like to control the key business support functions within the enterprise the habit of thinking is that these companies do not outsource more business in the first place. As a result, the domestic market has not formed a strong domestic growth of service outsourcing enterprises pillar, or to international service providers, the great attraction.

Despite the financial crisis on the service outsourcing industry may be short-term negative impact, but China’s service outsourcing enterprises, the midst of the crisis bears more opportunities. It is understood that six major financial institutions in the United States in five intends to continue to maintain or expand within the next 6-12 months, service outsourcing and offshore programs.

The current financial crisis in many developed countries have a high-quality technology and client network information services company drop in asset prices, in order to have sufficient funds, while strategy can produce synergy of Chinese enterprises with more opportunities for potential acquisitions. Open global markets, as China’s software and service outsourcing enterprises is key to achieving growth targets, the Chinese market will expand and deepen the global business portfolio opportunities. China’s service providers with international service providers form a strategic alliance relationship to domestic customers by providing international partners to introduce new service capabilities.

Moreover, with the development of the global financial crisis, there will be familiar with the international market, customers, possess a wealth of industry experience, professionals will be looking for further career development opportunities, in addition to emerging economies such as China powers the prospect of excellent enterprises, if the Enterprises can create a suitable working environment – including a competitive salary, can be promoted to senior positions in the career development path and inclusive diversity, corporate culture, you can attract more outsourcing in developed countries experienced professionals to join China’s enterprises.

China is in the development of service outsourcing industry, a key crossroads, despite many challenges, but as long to grasp the opportunity, there is still opportunity to create brilliant.

from: http://maxi-pulsa.com/under-the-economic-crisis-chinas-software-outsourcing-industry-where-to-go-from-here/

Outsourcing to China

Following 20 years of economic development, China’s transportation, telecommunications, and network infrastructure has grown and improved rapidly, some reaching the international standards of developed countries. Compared with that of developed countries, China’s transportation, telecommunications, and network infrastructure are more cost effective, providing a solid foundation for the outsourcing business. China also has obvious advantages over other service providers, including high speed Internet and broadband access, stable and uninterrupted dual power supply in main software sites, and around 150 airports that connect most of the primary and secondary cities. The low cost of IT infrastructure hardware further strengthens China’s cost advantages. In terms of China’s software environment, it has a good cultural environment, many outsourcing parks that are ideally located, as well as many comprehensive support facilities providing convenience to service providers, all of which significantly attract local and international service providers.

China’s software outsourcing industry has become increasingly dispersed regionally. Due to the cost increase in primary cities such as Beijing, Shanghai, Guangzhou, and Shenzhen, service providers are moving their operations to 2 tier cities. At present, all major offshore software outsourcing service providers in China have established themselves in cities such as Nanjing, Xi’an, Chengdu, Chongqing, and Wuhan, which has somewhat alleviated the pressure of rising salaries. This tendency is likely to grow in the years ahead. At the moment, China’s software outsourcing market is still centered in Beijing, Shanghai, and Guangzhou; bridged by the international ports of Dalian and Shenzhen; and supported by Nanjing, Xi’an, Chengdu, and Wuhan.

The project management level and process management capabilities of China’s software outsourcing companies have also come a long way. Most software outsourcing companies have obtained related certifications. In 2006, about 80 software companies in China had a workforce of more than 1,000 employees each. The number of companies with software sales revenue of over RMB 1 billion has increased from 12 in 2002 to 35 in 2006 and the number of companies with software sales revenue of over RMB 100 million reached 396. As of 2006, 69 of the 152 key software enterprises in the State Programming and Layout had revenue of over RMB 100 million. By the end of 2006, 38 software companies in China were Capability Maturity Model (CMM) 5 certified, 23 companies were CMM4 certified, and over 200 were CMM3 certified. In addition, 2,136 companies have obtained service integration qualifications. Large Joint Ventures organized by Indian BPO and ITO providers in China have also accelerated the development of China’s BPO and ITO capabilities. More and more buyers are recognizing China’s strengths in its growing number of software outsourcing service providers, improved quality and customer satisfaction with its software outsourcing projects. Software outsourcing service providers in China have also improved their competitive edge through mergers and acquisitions (M&A). Since 2006, the industry has seen rapid growth in M&A, indicated in its change in market share. In 2005, the 10 biggest software outsourcing service providers in China had market shares of about 24.2% each, which by 2006 increased to 30.7%.Some large high performance software outsourcing service providers have adopted the strategy of “going global” and managed to cultivate international markets. Others established R&D, marketing, and service institutions abroad, trying to get close to outsourcing buyers’ markets and work out solutions that can meet both the business standards of service providers and special requirements of service buyers. For example, UFIDA established a branch in Tokyo, Japan in 2006. Langchao expanded its share in the embedded software development outsourcing market in Japan by merging with Japanese software company, By “going global,” China’s outsourcing companies are cultivating markets on a global scale. Its software outsourcing service chain is extending far and beyond, catering to more and more customers. Outsourcing to China brings more opportunities in the fast growing Chinese market. Technology services companies must pay careful attention to China’s regulations and changing technology standards and adapt their strategies accordingly. China will become the largest software outsourcing player, and it will be to your own peril to ignore this powerful and important market.

From: http://www.unisoftchina.com/outsourcing-to-china/

IT Outsourcing Firm VanceInfo Wins 2010 Deloitte China Risk Intelligence Award

VanceInfo Technologies Inc. (NYSE: VIT) ("VanceInfo"), an IT service provider and one of the leading offshore software development companies in China, today announced it was granted the 2010 Deloitte China Risk Intelligence Award by Deloitte Touche Tohmatsu CPA Ltd. ("Deloitte"). The award, granted in collaboration with School of Economics and Management at Tsinghua University, recognizes prominent Chinese mainland companies that have demonstrated competence in enterprise risk management. Twenty five enterprises out of more than 120 participating companies were selected for the awards.

Deloitte defines a risk intelligent enterprise as one that is able to intelligently manage a full spectrum of risks across all aspects, the practice of which helps improve operations and enhance transparency. The selection criteria, covering nine distinct characteristics of risk intelligent enterprises, center upon the innovativeness and achievements of risk management work.

"We are privileged to receive this recognition from Deloitte and Tsinghua University." commented Chris Chen, VanceInfo Chairman and CEO. "We have strived to build a solid risk management platform that protects not only our business from undue risk, but our clients and shareholders as well. We are focused on maintaining a high level of enterprise risk intelligence to ensure responsible and sustained growth in our dynamic IT services sector."

From: http://www.bobsguide.com/guide/news/2011/Jan/18/IT_Outsourcing_Firm_VanceInfo_Wins_2010_Deloitte_China_Risk_Intelligence_Award.html

China Becomes Japan's Biggest Software Outsourcing Base

China's growing software outsourcing trade with Japan is expected to rise even faster after Premier Wen Jiabao's "ice-melting" visit to Japan.

"China accounted for more than 60 percent of Japan's outsourced software trade in 2006 and has become the country's biggest software outsourcing base," said Mine Shentaro, of the Japan External Trade Organization based in Dalian, northeast China's Liaoning Province.

Dalian Hi-Think Computer Technologies (DHC) Co. Ltd is one of China's leading software outsourcing firms. Manager Liu Jun is proud of its big-name customers, including technology giants Hitachi, Sony, Mitsubishi and NEC.

"DHC started outsourcing computer software from Japan in 1996, a time when Sino-Japanese relations were at low ebb. Political hindrances have not impeded our business," said Liu.

DHC's business with Japan has grown 30 percent annually since 1996 and now employs 2,000 people. Last year, the company exported software worth 50 million U.S. dollars to Japan.

"More than 60 percent of China's software trade is Japan-oriented," said Jin Guowei, deputy director of Dalian Information Technology Bureau.

Dalian, a Japanese colony for 40 years before the end of World War II, became the outsourcing center of information technology to Japan due to its geographical proximity and its skilled labor force.

The city's software industry sales last year set a new record at 10 billion yuan (1.23 billion U.S. dollars), maintaining a 60 percent annual rise in the past six years.

Of the sales, processing outsourced software contributed 3.7 billion yuan (456 million U.S. dollars), of which at least 80 percent was for Japanese companies.

The city has 20,000 people working in the software-outsourcing sector and 70 percent of them speak Japanese.

According to a government plan for the development of software and information services, China aims to generate 168 billion U.S. dollars from the software sector and export 12.5 billion U.S. dollars worth of software services in 2010.

Jin is confident in the future. "With the improvement of bilateral ties, I believe the industry will become more prosperous."

"The friendship between China and Japan is an irreversible trend. Premier Wen Jiabao's visit to Japan is good for the two countries. I hope after the visit more Japanese can put away misgivings and start cooperating with Chinese firms in the software industry. It will be a win-win solution." said Jin.

"While European and American companies are choosing India as an outsourcing base, Japanese firms prefer China because we are close neighbors and have similar cultural backgrounds." said Noshiro Yasuo, president of Fujitsu System Engineeering Co., Ltd in northwest China's Xi'an.

"Premier Wen's visit to Japan will give us more confidence to expand our business in China," he added.

From: http://english.mofcom.gov.cn/aarticle/newsrelease/commonnews/200704/20070404564441.html

Service outsourcing industry robust in China, boosts employment

The global economic meltdown impacted many of the clients of BT Frontline, which provides outsourcing services for the IT systems of docks and logistics companies. But its General Manager, Lawrence Low, is still satisfied with the company's performance amid the financial crisis and confident about its future.

China's service outsourcing industry, mostly about software outsourcing, bounced back in the second half of the year from a hard time of three months caused by shrinking demand from the global market, according to Yu Hengzhuang, vice president of Dalian Software Park.

"We have gained access to high-end market and recently entered the Middle East market, which more than offset the impact of the global downturn," Low said.

"Our business not only survived, it grew and thrived," Low said with a smile, keeping the exact figures as business secret.

RAPIDLY DEVELOPING INDUSTRY

The software outsourcing park in Dalian, the industrial hub in China, attracted 63 new clients in 2009, bringing the overall number of businesses in the park to more than 400, and the park's total sales are expected to top 20 billion yuan, up 32.9 percent year on year.

The sales of Dalian's software outsourcing business grew from 200 million yuan (29.3 million U.S. dollars) to more than 30 billion yuan in the past 10 years. A total of 700 companies are in the industry, including 300 joint ventures and more than 40 Fortune 500 companies.

In the first ten months, the industry's sales in Dalian grew by33 percent to 33.7 billion yuan and its export grew by 34 percent to 1.1 billion U.S. dollars.

While Dalian has become a world famous hub of software outsourcing after Thomas Fridman compared it with Bangalore in India, another less known industrial hub with equally fast pace in east China's Jiangsu Province, is taking shape.

The contract value of Jiangsu's software outsourcing industry reached 3.28 billion U.S. dollars in the first 10 months of the year, a growth of 174 percent. The province has 2,470 companies in the industry, with 290,000 employees, according to statistics from the provincial department of commerce.

The provincial capital Nanjing's software outsourcing industry had a contract value of 2.1 billion U.S. dollars in the first 11 months of the year, growing by 239 percent.

"The income of China's software industry, which software outsourcing takes a major part, has been growing by 38 percent annually and its revenue is expected to top 1 trillion yuan in 2010," said Hu Kunshan, vice chairman of China Software Industry Association.

China's software industry earned 757.3 billion yuan in 2008, and the figure is expected to reach 900 billion yuan in 2009.

BOOSTING EMPLOYMENT

The rapid development of outsourcing industry bears great significance in sustaining economic growth, restructuring economy, stabilizing export and boosting employment, said Chinese Vice Premier Wang Qishan during a visit to Dalian in November.

More than 60,000 people are working in the software outsourcing industry in Dalian.

China's outsourcing industry recruited 690,000 new employees, 460,000 of whom were college graduates, in the first 11 months of 2009, according to statistics released on a national conference on commerce.

China's Ministry of Human Resources and Social Security expects the outsourcing industry to create 1.2 million new jobs in five years, including 1 million jobs for college graduates.

At the end of Sept. 2009, 1.42 million people were working in 8,060 outsourcing companies in China, said Qian Fangli, deputy head of the foreign investment department of the Ministry of Commerce.

The software outsourcing companies in China have enough programmers but lack mature project managers and decision makers, who are on the top of the talent pyramid, said Yu Hengzhuang, vice-president of Dalian Software Park.

The gap in talent pool limited the size of such companies to less than 300 people, which is a human resource threshold to carryout core projects with high added value. "That's why Chinese companies are now the lowest ring of the world software outsourcing chain," Yu added.

From http://english.peopledaily.com.cn/90001/90778/90860/6857605.html

Four Characteristics of the International Service Outsourcing Market

This article from http://news.at0086.com/China-Outsourcing-Services/Four-Characteristics-of-the-International-Service-Outsourcing-Market.html

As a product of increasingly refined social division of labor and IT technology development, the Service Outsourcing will become a new vital driving factor along with the tide of the new round industry shift. What kind of opportunities and challenges does the rapid developing service outsourcing will bring for the world-wide countries and enterprises in the new century, as well as the related large service outsourcing market?

China and India become the two biggest world outsourcing bases

The world’s developed countries and regions mainly serve for outsourcing exporting regions, and developing countries are the main service outsourcing recipient places, Asia undertakes most outsourcing business especially, which occupies 45% of the international outsourcing business. China, India, Ireland, the Philippines, Russia and some other countries are the main competitors of the international outsourcing markets. However, China and India have become the main attractions in the manufacturing and service trade outer pack of the developed countries, along with the increasingly development and perfect of the international service outsourcing.

Expansion of Service Outsourcing Area

Nowadays, along with the total amount increase in the world, the new service outsourcing area is being formed gradually, and the definition of the service outsourcing has a new extension, especially the improvement of service outsourcing requiring skill with the help of the development of information and network technology for the past few years. Now the coverage of the international service outsourcing has been changed from traditional information technology and operation flow outsourcing to many areas, such as the areas of finance, insurance, accounting, human resource management, media public administration and some others.

IT and Financial Service Outsourcing become the leading parts

Along with skill-intensive and knowledge-intensive oriented development of the service structure, the high and new technology related or dependent service outsourcing are developing rapidly, but the IT and Financial Service Outsourcing are still the leading parts. IT outsourcing service includes IT systemic and operation flow outsourcing service. Because of the increasingly complex internal integration and external combine of the financial circle, as well as the division of labor based on specialization and scale economy influence, there are more Financial Departments choose the international outsourcing, so that the Data Center, Underwriting and Claim Management, stock deal and financial analysis can be conducted in some appropriate low-cost centers.

Vertical Markets Earn Widespread Respect in the International Outsourcing Service

Generally speaking, the outsourcing service items have no connection with product classification, especially in the IT area. However, with the spirited competition among outsourcing markets, the Outsourcing Service Company has difficulty in displaying its features to win the beneficial location. Therefore, in the past several years, in virtue of the needed professional skills in the vertical markets, the efforts of cutting into the vertical markets to offer clients more professional service can be an efficient strategy.

The Brief Introduction of China's Software Outsourcing Procedure

Software industry, as a new industry in the mid-term of last century, has its inborn features and advantages to blend into the globalization tide.

Software industry, as a new industry in the mid-term of last century, has its inborn features and advantages to blend into the globalization tide. Software outsourcing industry has risen dramatically and is becoming a very important commercial mode in the modern society. If you want to find software outsourcing service in China, you have to know the following outsourcing service procedure.

Strategic decision- homemade or purchase

The clients firstly choose software product or component according to the company’s strategy and market demand. Once the decision has been made, the company will make a decision- to homemade or purchase.

To sign an outsourcing contract

Once the outsourcing mode has been fixed, the outsourcing management group and the vendor will negotiate on the contract style and contract content to reach an agreement. The clients will provide the vendor with SOW and describe the job task and requirement. The vendor will provide proposal for the clients. Finally, they sign the outsourcing contract

The enforcement of outsourcing service

After the signing of contract, it is far from the ending of outsourcing management group’s activities for the clients. The clients should monitor the process of the outsourcing service and provide change request according to the product demand to avoid the high risk event’s happening.

Acceptance check of product

The vendor should prepare the product which is going to be checked and hand the necessary material to the outsourcing management group in advance. Then, the outsourcing management group organizes the inspectors cautiously. The two sides fix the checking time, place, participant etc. The inspectors examine the product to ensure that the product is complete and correct. And the inspectors write down the checking results in the Outsourcing Contract Receiving Report.

Product delivery

When all the products have been checked as qualified products. The vender delivers the products to the outsourcing management group. And the responsible persons of both sides sign on the contract to confirm.

From: http://news.at0086.com/China-Outsourcing-Services/The-Brief-Introduction-of-China-s-Software-Outsourcing-Procedure.html

Startup In China

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Startup In China

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Chasing the China Oursourcing Market

From: http://www.businessweek.com/blogs/eyeonasia/archives/2006/06/chasing_the_china_outsourcing_market.html

Is China ever going to be a threat in software? Building a software industry that can rival India’s has been a goal of Chinese leaders for a long time. So far, of course, the Indians don’t have much reason to worry. There’s no Chinese company that can even approach what Indian outsourcing powerhouses Infosys, Satyam, TCS, and Wipro have accomplished. One company that believes China has what it takes to be a force in software outsourcing is Freeborders, a San Francisco-based company that has a development center in Shenzhen. The city across the border from Hong Kong is best known in IT circles as the home of telecom equipment makers Huawei and ZTE, but Freeborders has been trying to make it a Chinese answer to Bangalore. Yesterday, Freeborders announced that it is expanding its headcount in Shenzhen, from 700 now to 2,000 by the end of next year.

That’s still puny compared to the tens of thousands of engineers the Indian biggies employ, though. China-focused companies like Freeborders are probably betting that China’s big home market provides them with an edge. Freeborders cites research by Analysys International, a Beijing research house, saying China’s software outsourcing services market reached $323 million in Q1 2006, 44% higher than Q1 2005, and a prediction by International Data Corp. that China will account for 24% of IT spending in Asia-Pacific by 2010, “making it the largest IT services market in the region.” And the other day Brian blogged here about how IBM, EDS and the Indians are looking to places like China for business. that’s not a secret to the Indians. That’s why the big Indian companies are aggressively pushing into China. (For instance, see this story in BusinessWeek about Satyam, TCS and Infosys from a few months ago.)

The Chinese pattern in other industries has been to invite in foreigners, learn from them and then build up local companies to compete with them. Chances are, that’s the game plan for software services too. I’m not sure where that leaves a company like Freeborders, though. For all of its focus on China, it’s still an American company. There are others in outsourcing that have more Chinese roots that probably have the edge.

China Software Outsourcing Industry - www.solidiance.com

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China Software Outsourcing Industry - www.solidiance.com

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Outsourcing in China Today

Every week seems to bring news of another recall or safety issue involving a product manufactured in China (BusinessWeek, 8/17/07). But despite the highly publicized problems, U.S. companies will continue moving their production to China, says Peter Zapf, vice-president of community development for Global Sources (GSOL), a Hong Kong trade show producer and consultancy. The firm, founded 36 years ago, aims to assist business owners who want to find manufacturers and suppliers in Hong Kong, Taiwan, and mainland China. Zapf spoke recently to Smart Answers columnist Karen E. Klein. Edited excerpts of their conversation follow.

There's been so much negative publicity. Don't you think that importers are going to be scared off of manufacturing in China?

I think anybody that's looking to grow a long-term business has to look at China as a sourcing option, for two big reasons. One is the very competitive labor costs, and the other is the increasing number of new and innovative products that are coming out of that lower-cost labor market. In the past, 20 or 30 years ago, manufacturing was done in Japan, Taiwan, and Korea. In the future, who knows where it will move? But it's necessary for every company to evaluate the different sourcing options and understand the risks and benefits of each of them.

Frankly, China has lower labor costs, but it also has higher logistics costs, especially to manage a production line and have packaging done in English. Someone who wants to source in China needs to think about total landed cost, and whether they will get the product they need. It's not enough just to have something manufactured at low cost. It also has to meet all the company's specific product requirements and the country's regulatory requirements.

Your company does a lot of education for importers. How important is that now?

It's very important. We put on China sourcing fairs in Hong Kong at the AsiaWorld-Expo and in Shanghai and Dubai. The most popular of all our conference programs is "What new buyers need to know." It covers quality control processes, shipping logistics, payment and money transfer options, China business etiquette, cultural differences, and intellectual-property considerations. This is not to say you can't figure all this out for yourself, but it's tricky. And if you don't do it correctly, you may end up in the press.

And possibly not in a good way.

Absolutely.

Do you have small business owners and startup entrepreneurs attending these shows?

We have everyone from the top 200 global retailers down to eBay (EBAY) power sellers and everybody in between. There are tens of thousands of folks from almost every country in the world who are new to importing, and others who are already established and just want to hear about how other people do things, whether they're facing the same problems as everyone else, and how they can learn from other business owners.

Can you give us some highlights from the program?

Let's talk about logistics. Your first decision is whether to ship by air, which is expensive but fast, or by sea, which is slower but cheaper. The exception is if you have a shipment that's less than 2 cubic meters in size. In that case, the minimum fixed costs for ocean shipping are so high that it almost universally makes sense to air ship, unless your shipment is extremely heavy.

The next question is, should you take legal possession of your products at the factory, or at the port, or not until the goods get to your warehouse? If it is your supplier's responsibility to get your product to the port, the cost is higher than if you take possession at the factory and arrange transportation to the port yourself.

Of course, if you request "delivered duty paid," where the supplier manufactures the goods and gets them all the way to your warehouse for you, that's even less hassle for you, but the cost will be even higher. Often, many people find that China suppliers know the best way to get the goods to the ports. Then importers use third-party firms called "logistics service providers" to get the goods from the port, through customs, and eventually to their warehouses.

What about quality control? How do you put processes in place when your engineers and designers are so far removed from the manufacturing plant?

It's absolutely critical do to two things: get samples made up, with packaging, and review them thoroughly. Second, submit very precise and detailed requirements and instructions for manufacturing your product with the purchase order. The supplier may not have made this product for the U.S. market before, and it could be that the requirements for power cords are different than the supplier is used to. So the more specific you get, the better a job you're doing of avoiding problems late in the process. Because by the time you notice that a problem has occurred, it's too late. You're kind of in trouble!

What about inspections?

Many importers hire a third-party company to do inspections in China so that the mistakes are caught before the product arrives in the U.S. market. If you have the details written down up front, and there's an inspection that turns up a problem, you can show that you've clearly given instructions. Some of the recent problems that have occurred wouldn't have happened if some of these companies had more appropriate inspection processes in place. There's not enough of that happening.

What's different about Chinese business etiquette compared to American business etiquette?

The biggest point to realize is that Americans are very used to fixing a price, agreeing on it, and then that's the deal. Other cultures, including China, are coming from the perspective that when you agree to a price, that's the start of the negotiations. There may be requests for changes along the way, and Americans aren't used to that.

Again, one way to help manage that is to have everything clearly defined up front, in writing, as part of the purchase order. At that point, what may move is materials and deadlines, rather than price, which is still hard for American companies to accept. But I've had the opportunity to talk to a lot of the China suppliers, and I've heard the other side of the story, too. They complain about buyers who put 30% down when their company is in the middle of bankruptcy and then go out of business. So the supplier gets stuck with a huge inventory of manufactured goods that they can't sell. That'll bankrupt a supplier.

It sounds like importing is not for the faint of heart.

There are a lot of challenges on both sides. The key is to take things step by step. Start with having samples made. Then put in a small order. There are a lot of processes to learn, but none of them are rocket science. A lot of folks are doing it successfully, and it's accessible for folks with patience who are willing to learn. I think it's important for businesses to recognize what they're getting into, and to recognize that some product categories, like food and toys, require you to do more work than others. Folks in those categories will need to better understand the steps they need to take to avoid any particular problems, and use the recent incidents in the news as an example of how not to do it.

From: http://www.businessweek.com/smallbiz/content/oct2007/sb20071015_563438_page_2.htm

Is Outsourcing to China Over?

In business parks and along industrial corridors, mid-size U.S. contract manufacturers are successfully wooing new business by promising lower costs than the competition. The only thing surprising about their success is that the competition they're beating is China.

Matthew Davidson, CEO of Xten Industries in Kenosha, Wisconsin, ranked 3,134 on this year's Inc. 5000 and one of the manufacturers enjoying a flow of contracts coming back from China, says he knew it all along. "We were convinced to do this by management gurus and consultants," he says. "This has been the great boondoggle, that we must outsource to be competitive. Twenty percent of goods sent to China don't make sense."

Really? Manufacturing wages average 67 cents an hour in China, compared to $17.23 in the United States. One hundred Chinese cities have populations of more than one million people, compared to nine in the U.S. China's only labor union is controlled by the state and is largely considered useless. "China's labor force wants to work. They're happy working," says CEO Charles Colman, whose food service container company, San Jamar, sends 60 percent of its production overseas -- forty percent to China. A good slice of the 40 percent that stays in the U.S. goes to Xten. With China's sea of inexpensive non-union labor, why not outsource it all?

"That's hooey," says Davidson. Xten is an ISO 9000:2001 certified contract manufacturer of toilet paper dispensers, napkin dispensers, medical waste and other containers -- bulky, low value containers that, as it happens, are not ideal for offshore manufacturing. Some of Xten's customers learned this only after outsourcing their production, closing their U.S. plants, and watching their manufacturing cost rise instead of fall. "This whole move to China was driven by [large corporations]," Davidson says. "They can set up plants in China, have full control of their workforce, and take full advantage of labor and material cost."

Small and mid-size companies, however, cannot always justify the expense of shipping to China. The price for sending a 40-foot shipping container from Shanghai to the West Coast is $6,000. Only 2,000 toilet paper dispensers fit on a container. "Our products are mostly air," Davidson says. "They don't stack well." With China's export tax (up to 20 percent of the value of the goods) plus land transport in China and the U.S., the total shipping price tag runs closer to $8,000 -- four dollars each on a toilet paper dispenser that retails for less than fifteen dollars.

"If you're a Tyco and you know your annual usage of fire alarms, you can make a deal with the shipping company with a very attractive annual rate. They know your product is there every month, filling 50 percent of their ship." Smaller orders are the first to get bumped on an overbooked ship. To offset the unpredictability of shipping schedules, Xten is forced to buffer with extra inventory in both the U.S. and in China. "Tyco can keep a 10-day inventory instead of a 30-day inventory. The rest of us have to look at our costs very carefully."

Bill Strauss, Chief Economist at the Federal Reserve Bank of Chicago, agrees. "If you're going to be selling in a country, there are a lot of benefits in producing in that country."

Xten also has an unusual business approach. "We never say no," says Davidson. Today's companies, for example, require finished parts boxed and shipped direct to retail stores. "If a customer wants us to ship to three different outlets, we'll do it," Davidson says. "Factories are now distribution houses."

China's manufacturing strength lies in what Ted Fishman, author of China, Inc., calls "a cookie-cutter approach," leaving U.S. manufacturers like Austin-based Formaspace with a lucrative niche in customized products. Formaspace -- 1,314 on the Inc. 5000 -- builds custom heavy-duty furniture for laboratories, clean rooms, and industrial settings. Formaspace's products must meet critical application specifications for cleanliness and chemical and electrical resistance. "Mass customization is a source of strength for American manufacturing," says CEO Jeff Turk. Not only does Formaspace not outsource production to China, it exports its furniture to China. "Quality is a difficult thing to come by," Turk says. "Local companies often claim to meet standard engineering specifications they don't actually meet. It's easy to hide a quality flaw in furniture."

Formaspace did try to outsource parts of its IT work to China and Tawain, without success. Part of the problem, Turk found, was a cultural divide. "It's not in their culture to say no or to say something will be delayed, so they just say yes. When you have critical needs, you can't have that."

The weak dollar has helped both Xten and Formaspace. "With the weak dollar, the U.S. is actually a more attractive place to do business," says Strauss. Turk agrees: "America has a big For Sale sign on it, which is great for manufacturers in the U.S." In the end however, Xten's and Formaspace's core capabilities remain customer service and customization. "I've never believed in a permanent competitive advantage," says Turk. "You always have to provide the best product and the best cost."

This interesting article comes from http://www.inc.com/inc5000/2008/articles/insourcing.html

How to Outsource Your Manufacturing to China

When it comes to manufacturing, few regions can compete with China’s labor costs. Companies that rely on outsourced products, however, have lots of new hurdles to clear — just ask the firms that wound up selling lead-laced toys made in China. So, is setting up shop in China still worth the risk? Our sources say yes: Companies can maintain product quality and safety while reducing costs. Here’s what you’ll need to manage the process and keep your brand — and your customers — safe.

• Be prepared to pay obligatory legal fees and agent commissions, which can range from a few hundred dollars to tens of thousands, depending on the type of business you’re setting up.
• At least three months to set up a pilot program. After you’ve tested the results and confirmed the product is up to snuff, a project typically can move forward very quickly, perhaps within a matter of weeks.
• A Local Rep: You’ll need a person who lives and works in your targeted region to act as your negotiator and translator as you meet with Chinese executives and regulators.
• A Product-Testing Service: Every product shipment must be independently tested to ensure that it complies with your requirements. Failure to test each batch is asking for substandard products or an expensive recall.
• Cultural Flexibility: You can’t get along in China if you’re convinced that the way business is done in the West is the “right” way.

Understand That Traditional Rules of Business Don’t Apply

Goal: Eliminate dangerous misconceptions about doing business in China

When confronted with the skyscrapers of Shanghai, it’s easy to assume that doing business in China will be similar to doing business in New York City or London. Nothing could be further from the truth, according to Usha Haley, author of the best-selling book “The Chinese Tao of Business: the Logic of Successful Business Strategy” (Wiley, 2004). “Professionals from the U.S. think they’re dealing with a modern society, when in fact they’re dealing with a business culture with roots that are centuries deep,” Haley explains.

For example, because the Chinese have a cultural preference for family-run businesses, 90 percent of all privately owned firms in China employ fewer than eight people. As a result, the supply chain — even for a simple product like a child’s toy engine — can involve dozens of interlocking firms and a network of formal and informal relationships that would boggle the mind of the typical western executive.

Then there’s the omnipresent Chinese government. “The Communist Party is more powerful than it’s ever been, which has an enormous impact on everything, even the kind of information that you can gather while researching a potential partner,” Haley says. Sometimes that’s good — like when you’re trying to get China to enforce its copyright laws — but there are downsides, too. China’s government is full of locally and regionally deployed bureaucrats, many of whom may need to be convinced, cajoled, or bribed. “There are entire consultancies whose sole purpose is to help other companies avoid compliance with government regulation,” Haley warns. Because of this, it’s hard to know whether your business partners are operating legally or just getting around the regulations, so you'll need to independently test products to ensure that they meet specifications.

In order to outsource to China without running into product safety or quality problems, you’ll need to scrap your preconceptions of how business should be conducted. The rules are different, and you’re not going to understand the full range of those differences until you’ve been deployed in Chinese firms for years, maybe decades. “It can take a lot of time for western executives to learn how to work effectively in China, but the benefits are worth the extra effort,” says Frank Liang, general manager in Asia for the Greater China branch of semiconductor manufacturer Broadcom. For example, chip-design engineers who earn six-figure starting salaries in the United States earn less than a tenth that in China — a cost-savings that an electronics firm can pass along to price-conscious consumers.

From: http://www.bnet.com/article/how-to-outsource-your-manufacturing-to-china/204805

Outsourcing Trends to Watch in 2011 (Part III)

Last past from http://www.networkworld.com/news/2010/122010-11-outsourcing-trends-to-watch.html?page=2

9. Protectionism Will Continue...With Limited Effect

It's practically inevitable with continued high U.S. unemployment levels that the new year will bring with it more proposals by American politicians that appear to limit the use of offshoring.

But any proposed protectionist legislation will be marked mostly by sound and fury. "Most of these measures will fail to gain traction and pass into law, and those that do will be difficult to implement and audit," says Bendor-Samuel.

The attention that such measures, successful or not, draw could put pressure on offshore companies to increase their onshore capabilities, Bendor-Samuel says. But they hardly need more impetus to do that (see prediction #7 above). Concerns about a tax on offshore call centers specifically could be an incentive to reduce call volumes through the use of more self-service and automation tools, says Compass's Mathers. But they hardly need more incentive to take more labor costs out of the outsourcing equation (see prediction #TK below).

10. Providers Embrace Mass Automation...

"It continues to become harder to turn a good profit as a third party service provider," notes EquaTerra's Lepeak. Pressure to keep costs down and rive performance up, outsourcers will rely more heavily on automation, says Rutchik of Pace Harmon, from optical character recognition to whole lights-out, employee-free delivery centers.

Providers will increasingly be slinging such automation tools as well. "Applications that reduce the labor a client is required to perform the services will be offered at lower implementation and running costs than they have in the past," says EquaTerra's Brown. "This will continue to create demand for additional opportunities and reduce the staff necessary to support critical business applications."

11. ...And Mass (Offshore) Migration

The internal corporate IT job isn't the only one expected to go the way of the dodo in coming years. IT enterprise customers arent the only Expect more vendors to make like HP and attack labor costs through layoffs and offshoring in 2011. "[HP] has emerged leaner and dramatically more price competitive, " says Bendor Samuel. "This increased competitiveness has already set off a chain reaction as competitors increasingly recognize the new competitive realities and move, in turn, to cut cost and match price." The easiest way to do that it to move large swaths of delivery personnel to lower cost locations. "This mass migration of work is and will further stretch offshore delivery capabilities, resulting in decreasing quality and communication problems," Bendor-Samuel predicts.

Outsourcing Trends to Watch in 2011 (Part II)

Continue...http://www.networkworld.com/news/2010/122010-11-outsourcing-trends-to-watch.html?page=2

5. The End of Customization

"Clients will be increasingly open to changing their internal processes and accepting standard 'vanilla' services in 2011," predicts Bob Mathers, principal consultant for Compass Management Consulting. "Service providers will put renewed emphasis on internal initiatives to standardize their own offerings to leverage economies of scale and stabilize profit margins." It's the stuff of benchmarking dreams, but economic conditions may turn it into a reality. Stan Lepeak, managing director of global research for outsourcing consultancy EquaTerra, also predicts more process, technology, and location standardization including platform-based solutions.

6. Prices Get Firm

Remember when you could persuade (read: bully) your provider into lower pricing? Days of auld lang syne, my friends. "Outsourcing providers have filled up their prior excess capacity and will be driving to secure higher price points," says David Rutchik, partner with outsourcing consultancy Pace Harmon. "Pounding on the table for price reduction is unlikely to be effective this year."

Customers seeking savings will have to bone up on delivery models, deal structures, and value drivers instead. And vendors will have to woo clients with performance rather than a low bid, says Peter Bendor-Samuel, CEO of outsourcing consultancy Everest Group. "As a result, we will see select players grow disproportionately, taking clients away from others."

Cloud-computing prices could also become less--well, cloudy. Pricing models will mature, predicts Dave Brown, managing director of EquaTerra's IT advisory, and buyers will better understand the specific offerings.

7. M&A: East Meets West

A merger between a major Indian IT service provider and a U.S.-based outsourcer? It could happen next year, say some industry watchers, and an Indian company may be on the buying end. Western providers have adopted the process and cost initiatives first embraced by their Eastern counterparts. Indian providers are skilling up to try to win more consulting and integration work. "The cultures are moving closer together," says Fersht of HfS Research. "2011 will see the first mega-merger between a major Indian services provider and one of the Western incumbents."

"It has long been talked about," says Joseph King, Chief Marketing Officer at MindTree. "There is no longer [cost] that CIOs can squeeze from their India partners. So for differentiation, India providers will be forced to move up the value chain."

8. China, Brazil, and Egypt Take Center Stage

"Buyers are growing more interested in offshore services delivered from locations other than India," says EquaTerra's Lepeak. And service providers will continue to shift their delivery centers to markets such as China, Brazil, and Egypt, and not simply to address issues such as wage inflation or staff attrition. They want a piece of the business in hot emerging markets. "Strong sourcing market growth will be in geographies with strong economies, led by Brazil, China, India and the Middle East," says Bendor-Samuel of Everest. "Countries with strong economies represent big markets with big demand for transformational and discretionary spend activity."

Outsourcing Trends to Watch in 2011 (Part I)

I found this interesting article from http://www.networkworld.com/news/2010/122010-11-outsourcing-trends-to-watch.html?hpg1=bn

Outsourcing activity is expected to creep back in 2011, but things are hardly getting back to normal in the IT services space. The new year will be marked largely by upheaval--smaller contracts, cloud-related chaos, increased offshoring and decreased quality, for a start.

Read on for more. It's not all bad, we promise.

1. Progressive Outsourcing

The year will be marked by the inking of smaller IT services deals, many of them by first-time buyers who sat on the sidelines in 2010, say industry watchers. Providers, happy to have a foothold, will push such customers to expand the scope of their relationships over time--the old "penetrate and radiate" approach. Contract activity will "creep back throughout 2011, as the recover stutters and buyers pull the trigger on sourcing activity," says Phil Fersht, founder of outsourcing analyst firm HfS Research.

2. Diving for Dollars

Facing a slow economic recovery, IT leaders will continue to scour their existing outsourcing arrangements for savings. "There's a pot of gold in every contract, and in some cases we have found a pot worth millions," says Mark Ruckman, an independent outsourcing consulting working in conjunction with Sanda Partners. IT services customers may reconcile their invoices with their original contracts with an eye toward under-delivery or over-payment, for example, or replace contractors from large sourcing providers with IT professionals from local temp agencies.

3. Outsourcing, Meet Cloudsourcing

Even if some of the discussion of cloud-based offerings from IT service providers is largely hot air, it will continue to be a hot topic in the industry. "The emerging cloud sourcing market will cause the destruction of the outsourcing market as we know it today," predicts Ben Trowbridge, CEO of outsourcing consultancy Alsbridge. "The two markets will merge and cloud sourcing will drive the rebirth of outsourcing."

Cloud players like Amazon, Google, and Rackspace are hitting traditional service providers like IBM and HP where it hurts. "An executive of one of the current low cost leaders recently told me they're forecasting the need to be able to remain profitable while seeing the price of some of their services drop by 70 percent over the coming year," says Trowbridge.

Look for mergers and acquisitions as legacy providers fumble their way forward. Customers, too, will need help stitching together old and new. "IT is going to be coordinating an increasing portfolio of third -party applications hosted externally," says Brian Walker, managing director of EquaTerra's information technology advisory. "The theme in 2011: SaaS-to-SaaS integration."

4. Back-Door Deals Put CIOs at Risk

Many of the discussions and decisions about cloud-based offerings will be handled by business unit or function owners rather than IT, says Kamran Ozair, executive vice president and CTO at offshore outsourcer MindTree. That could pose problems down the road. "CIOs must get ahead of business users reasonable zeal for the power of focused SaaS applications that could back the enterprise into stealth architecture decisions that could be expensive to undo," says Trowbridge. "Business stakeholders want cloud, and they know smart CIOs can mitigate its risks," adds Fersht. "However, IT professionals must tool-up to deliver cloud to their business stakeholders, otherwise they risk a gap growing between business demand and IT supply."