Offshoring Makes Gains - InformationWeek

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IT Leadership // IT Strategy
01:50 PM

Offshoring Makes Gains

It appears that more U.S. and Western European businesses are taking advantage of low-cost outsourcing to India, and Indian tech vendors are reaping the benefits.

Wipro Ltd. said last week that revenue for its second quarter grew 26% to $568 million. In posting a double-digit sales gain, Wipro joined Indian firms Tata Consultancy Services Ltd. and Infosys Technologies Ltd., which also reported double-digit growth a week earlier.

By contrast, IBM Global Services last week said sales grew by just 3% in its third quarter. In August, EDS said its second-quarter revenue dropped 1%. The only major Western IT-services company that's even close to matching the growth seen by the offshore players is Accenture, with a 15% revenue gain in its most recent quarter.

The value of all major contracts for IT and business-process outsourcing signed in the third quarter fell to $13.5 billion, from $19 billion a year ago, says research firm Technology Partners International.

There were 57 new deals in the third quarter, compared with 49 a year ago. The value of the average deal in the third quarter was $236 million, compared with an average of $387 million a year ago.

More businesses are getting comfortable with moving key processes offshore. That's forcing U.S. IT-service providers to lower prices. All major providers are expanding offshore staff in low-cost countries, increasing the supply of offerings and driving down prices. Also, companies are becoming better at managing global services procurement.

"Offshore outsourcing will experience accelerated growth in the coming 18 months," says Paul Schmidt, a partner at Technology Partners, "particularly among client companies with three or more years experience under their belts."

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