The Hindu Business Line : Outsourcers in demand: Study

Service providers with offshore capabilities are much sought after by manufacturers due to the increased adoption and willingness to outsource IT and other support services.

The ARC advisory group, in a just released research report, has found that the worldwide market for offshoring services in the manufacturing sector is expected to grow at a compounded annual growth rate of over 22 per cent over the next five years. The market crossed $5.6 billion and is poised to exceed $15.2 billion in 2010.

According to ARC Analyst, Mr Libi Bhaskaran, manufacturing verticals are beginning to follow other industry verticals in evaluating the value proposition of outsourcing IT services. Finance, banking, retail and Government sectors have realised the benefits of outsourcing and offshoring and manufacturers are increasingly turning to selective outsourcing.

In an e-mail response to queries from Business Line, Mr Bhaskaran said: "Indian suppliers are being seen as leaders worldwide with seven of the top 10 from India. Offshoring and increased outsourcing spend, service based architectures, and SaaS (Software as a service), where global players will leverage India base, have emerged as key trends."

Other trends

In yet another striking trend, Mr Bhaskaran maintained that the employee retention cost in India is set to rise.The research researches 17 offshore countries and more than 1,000 companies worldwide and highlights the growth of manufacturing sector and product engineering services.

The manufacturing industry, according to ARC, is investing in technology solutions to derive more business value from IT investments. Beyond the primary objective of cost reduction or labour arbitrage, the focus is on leveraging the talent pool of service providers with domain and technology expertise for services up the value chain.

The movement of service providers to India and other regions — China, Eastern Europe, and Latin America — are examples of collaborative manufacturing strategies using least cost global resources to create effective value chains in the flat world.

As manufacturing shifts to developing areas, the trend to outsource IT and non-core functions is poised for growth, the report finds.