IT outsourcing has evolved greatly over the past 20 years. What began with small IT call centers in India and Bangladesh is now a multi-trillion dollar industry in 2016.As 2017 approaches, companies are finding it harder to meet the challenges of a globalized world economy relying on their internal resources alone and often have to look beyond their own borders for more cost effective and capable sources. As outsourcing contracts are expected to increase dramatically in the upcoming year, these three trends are shaping the way companies outsource their software projects:
Dedicated Team and Quality Centered Approach
As Rachel Beisel’s blog post explains, although cost reduction remains a major factor in business decisions, American companies are choosing vendors more carefully than previous years. While many enterprise companies are renewing their outsourcing agreements, it appears as though there is a shift occurring away from the “fixed-price” model towards employing local specialists and outcome-based, agile contracts. Enterprises are looking for highly skilled teams that are able to work in the Agile framework as an extension of their own development teams. The shift away from cheap contracts is expected to continue and trending towards employees that can easily integrate into already established development teams with advanced programming and creative skills. As technology advances faster, outsourcing projects will have to move faster as well. Mayar Brown partner Brad Peterson explains: “Companies who decide on a digital strategy will execute quickly in 2016 to avoid seeing a technology shift or a competitor jumping ahead. We see increasing numbers of clients deploying substantial negotiating teams working on an agile basis to close smart deals fast.” To understand how agile works in a nearshoring environment please see Mario Merino’s blog post here.
The Superstar Based Economy
As technology becomes more automated, the scarcest and most valuable resource is becoming highly talented, innovative people. The bestselling book The Second Machine Age explains:
“The winners are no longer those able to compete solely based on cheap labor or ordinary capital, both of which are being squeezed by automation. Fortune will instead favor a third group: those who can innovate and create new products, services, and business models. So in the future, ideas will be the real scarce inputs in the world – scarcer than both labor and capital – and the few who provide good ideas will reap huge rewards.”
Outsourcing provides the chance for American corporations to find highly innovative, talented people that may not be available or affordable in the US. With less focus on cost-savings, many outsourced service providers are evolving into innovation centers. The best companies are using these innovators to capture marketplace advantages like improving software quality and enhancing user experience to achieve a competitive advantage they could not achieve with only onshore resources.
Latin America as an Emerging Hot Spot
India and China still dominate the global outsourcing market, but companies are increasingly investing in emerging economies. Skill shortages are no longer a problem outside of Asia, especially in Latin America. KPMG’s report “Exploring Global Frontiers” explains that the Americas are able to provide a large, highly educated and talented pool of IT professionals that are capable of providing more scalability than European Cities. Many Latin American countries have a largely untapped market of readily available workers. In fact, due to the increasing capabilities of the web and network infrastructure in Latin America, many companies are opening entire data centers there. To see why Latin America and, especially Costa Rica, provide the best option for your outsourcing needs please see Mario Merino’s blog post here.
We can expect outsourcing, especially in the IT sector, to continue to increase in 2016-2017. The trends suggest that cost reduction is no longer the overwhelming motive for outsourcing and, rather, limitations of the U.S. talent pool and the availability of skilled tech workers at home are an increasing problem. Most companies appear to be seeking the best blend of cost-effective, but talented developers. Contact us to find out how Gorilla Logic can help you find the best mix for your needs.
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Jay WallingfordA hands-on technology executive with more than 25 years of software development, architecture and technical leadership experience, Jay has run development in a number of startups in Boulder, CO including Chief Technology Officer at Leopard (acquired by Ogilvy Mather), VP of Engineering at Symplified (acquired by RSA/EMC), VP of Engineering at TapInfluence and Director of Development at Crosswalk. Before that Jay ran and worked in technology services companies including Aarondak and Bolder Heuristics both in Boulder. Jay started his career in a computer aided design firm Intergraph where he worked on 3-D and assembly modeling software. Jay holds a BS in Mathematics/Computer Science and has done post graduate work in Radiation Medicine and Computer Science from the University of Kentucky.
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