: Based on an intensive study conducted, Forrester has increased the near-term offshoring numbers by 2.4 lakh for 2005. On a cumulative basis, the earlier projection of about 5.9 lakh has now been raised to 8.3 lakh for 2005. On a cumulative basis, the number of jobs projected to move offshore is likely to rise to 5.4 lakh and 8.3 lakh respectively, up from 3.15 lakh at the end of 2003. Going by these revised projections, nearly 2.3 lakh and 2.9 lakh additional US service jobs will move offshore in 2004 and 2005.

Forrester expects that the political backlash in an election year in the US will never go so far as to result in an outright ban on offshoring. However, it feels geopolitical risk (such as escalation of tensions between India and Pakistan or souring of US-China relations) may affect the offshoring trend.

The positive triggers for this growth in 2004 and in 2005 (post US elections) and up to 2008 are expected to come from at least two areas:

Quite a few of them are likely to get hooked and over the next 18-24 months scale up towards greater commitment. This is also evident from two related trends:

One, the experimenters who are dabbling with offshore (typically Fortune 1000 companies) are the ones who are coming from different verticals such as retail, specialised manufacturing (such as product lifecycle management solutions) or healthcare.

Forrester calls it the second wave of outsourcing. Clearly, opportunities for offshoring are emerging outside the traditional verticals such as BFSI (banking, financial services and insurance), telecom, energy and utilities and airlines.

Two, over the past year, offshore vendors (particularly, the top Indian vendors) have been consciously enhancing the portfolio of service offerings to include package implementation, systems integration and remote infrastructure management.

This is expected to enhance the `share of the wallet' for Indian vendors, especially the top rung ones over the next few years.

While these two factors will definitely work on the positive side, there is a possibility of greater segmentation emerging in the software services industry over the next couple of years.

While the top rung companies will grow in line with or outperform the average industry growth, second and third-rung companies will have to carefully chart out their future course. Only a few of the second-rung players will be successful in replicating the strategy of the top-rung companies. Others will have to examine the possibility of a niche-based focus and work progressively in that direction.

The competition in offshoring will no longer be confined to the top 10 Indian vendors alone. MNC vendors such as IBM, Accenture or Cap Gemini have managed to considerably bolster their offshore capabilities and are already a force to reckon with. Secondly, both Indian and MNC vendors have recognised the importance of business process outsourcing (or BPO) and are stepping that up in a big way. IBM's acquisition of Daksh recently to acquire an Indian presence and the BPO subsidiaries set up by practically all Indian vendors show that greater integration of software services and BPO offerings may not be far away.

Obviously, the stage is set for the battle of attrition to begin between these two sets of players in the foreseeable future. Over the next year or two, both the Indian and MNC vendors will encounter several challenges.

As John McCarthy told eWorld at the Nasscom 2004 Summit in Febuary, "The challenge for IBM (or any MNC vendor) is going to be changing their culture around costs. The challenge for Wipro and Infosys (or other topline Indian vendor) is going to be how do we build the domain expertise into their culture.

So, both the parties need to make physical investments, process investments and cultural changes. And let me tell you, it is the cultural changes that are going to kill some of these guys. Not everybody is going to survive." As this battle takes shape, it will continue to provide ample fodder for the investment community and media in the coming months.

Picture by Parth Sanyal

maverick@thehindu.co.in

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page