Once upon a time, the thought of shipping complex and strategic IT projects to faraway lands was unthinkable. Language barriers, time differences, and the lack of knowledge of a specific vertical industry provided formidable obstacles to the offshore outsourcing model. But the sluggish economy and the aftermath of the Sept. 11 terrorist attacks are giving companies reasons to reconsider previously held notions.

Cost savings, increased IT development resources, and distributed workloads look to be tipping the scales in favor of the offshore outsourcing model. "Companies this year are looking for ways to do more but with smaller budgets," says Forrester Research analyst Christine Overby. Choosing an offshore service provider can save companies an average of 25% off the cost of outsourcing to a domestic provider, she says.

When considering whether or not to outsource IT projects to companies in Europe or Asia, cost is the predominant factor, followed by technical capabilities, quality of service, and the service provider's reputation. Communication, hindered by time differences and language barriers, is the most common obstacle to shipping IT application development projects outside the United States.

Although the offshore outsourcing model is gaining acceptance in the business world, it still has far to go to be considered pervasive, even among the largest and most innovative companies, the InformationWeek 500. Only 37% of InformationWeek 500 sites develop or maintain their applications using offshore service providers.

It's not that InformationWeek 500 companies are reluctant to outsource--94% of them hire temporary or contract workers and 84% outsource application development and integration. Even application hosting, a segment of the IT market badly battered after the dot-com bust a year ago, increased among InformationWeek 500 companies, to 43% from 30% last year.

Companies that show a greater degree of innovation in their IT initiatives are more likely to ship work offshore. Among the 97 companies surveyed that have profitable E-business operations, 41% use offshore service providers to develop or maintain applications. Of the 86 companies surveyed that don't have profitable E-business operations, 33% use offshore outsourcing.

Although India is the premier destination today for offshore outsourcing, demand for offshore services will increase more rapidly than that country's ability to supply IT talent, Overby says. Other countries increasing their offshore resources are Brazil, China, Ireland, the Philippines, and Russia.

What issues are preventing your company from outsourcing abroad? Let us know at the address below.

Larry Greenemeier
Associate Editor
lgreenem@cmp.com

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