New Offshore Locations For IT Services Emerge As Global Delivery Models Evolve

IT services providers are investing in delivery centres in alternative locations around the world in order to meet the needs of multinational corporations, according to Gartner, Inc. Gartner believes that India’s dominant position as an offshore location is being diluted by effective alternative destinations as more and more countries are considered potential offshore or near-shore locations.

In addition to the 30 leading global locations identified by Gartner, analysts said that an additional 50 countries have either started initial activities to establish an environment attractive to companies considering investing in lower-cost countries, or become home to external service providers that are beginning to sell services abroad.

“Business opportunities are growing in emerging markets, and this is causing organisations to reassess their global delivery choices,” said Ian Marriott, research vice president at Gartner. “They are reconfiguring their sourcing strategies to support a broader geographic footprint as new locations emerge for offshore services.”

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Currently, 63 percent of buyers of IT services use Latin American locations, 55 percent use locations in EMEA and 63 percent use locations in Asia/Pacific. Table 1 shows the top three locations in each region. Western European buyers use predominantly India (35 percent), Poland (21 percent), Brazil (18 percent) and China (16 percent).

Marriott said that new and emerging locations such as Brazil, Poland and Malaysia provide valuable additions to providers’ delivery capabilities, though providers do not intend them to replace India. Traditional India-based providers are establishing global delivery models to deliver the right volume of resources, with the right skills, at the right place, in the right time zone, and at the right price to meet the needs of customers.

Gartner said that these additional locations will gain importance as customers seek benefits beyond cost reduction, and demand more focus on local-language skills, greater cultural compatibility with demand centres, and the benefits of proximity in terms of reduced travel times and same-working-day communications.

“Providers are beginning to de-focus further investments in India and will aim to create critical mass across a number of these centres,” said Marriott. “This will allow them to establish a global delivery network through a combination of common methodologies, tools, processes and procedures, to provide seamless and consistent delivery capabilities to their customers, wherever they are located.”
At the same time, the globalisation of business and business opportunities means that sourcing and operational leaders must carefully consider how their businesses will need to change to operate in different locations, and how these changes can be best supported.

To determine the effectiveness of a service provider’s global delivery model, Gartner uses 10 key criteria: (1) range of services; (2) quality and professionalism; (3) domain expertise; (4) responsiveness; (5) innovation; (6) pricing; (7) delivery process/methodology; (8) knowledge management; (9) contracting practices; (10) commercial flexibility and maturity.

“Despite the widespread use of offshore services, many organisations still struggle to make critical provider choices, and focus on cost as the dominant factor in globally delivered services,” said Marriott. “By focusing on 10 key criteria to evaluate and compare the effectiveness of the global delivery models of potential or incumbent providers they dramatically improve their chances of finding a provider that will meet their broader service needs.”