Wake up: Cloud will change International IT Outsourcing

I have spent the past few weeks talking about the cloud and the implications for the outsourcing market. Many IT suppliers want to ignore the cloud and see it as just hot air, but if you look back over my past few blog entries on utility computing, Software as a Service, and remote infrastructure management you can see distinct businesses evolving that are all related to the cloud concept. This stuff is real. In short, the cloud is going to fundamentally change the international IT outsourcing marketplace. But the market is not standing still: New regions offering hi-tech services are developing rapidly and offering either lower rates than everyone’s favourite India, or clusters of firms with a particular specialism, such as the open source technology experts in Brazil, film post-production in New Zealand, or animation in Bangladesh. The USA remains the dominant target market for most offshore IT suppliers, but it no longer enjoys the reverence of earlier years. All sensible service suppliers are spreading the risk of a future downturn in the USA by exploring new customer markets in South America, Asia, the Middle East, and in their own domestic market. The combined nations of the European Union are now outsourcing more IT and business processes than the USA, emphasizing the need to look beyond the USA for customers. Public sector experience is becoming increasingly important as huge deficit-reduction measures in Europe and the USA force a rethink of how government services are delivered – often requiring an innovative approach to technology use. Offshore outsourcing exploded in popularity following the millennium. Take a look at these figures on how much the IT industry now contributes to the entire economy of India – nearly 6 per cent of GDP. In the Philippines it’s around twice that (if you include BPO) and Brazil has a long established IT industry directly employing over a million, with a cleantech revolution in progress there that is far ahead of what we are seeing in Europe or the US. But what are the major suppliers doing to react to this new market environment? From what I can see after speaking to most of the big players, I can’t see a lot of change. In fact, I have a fear that many are just breathing a sigh of relief that the global economy is entering a period of growth once more, after the fear that we could have slipped into a decade-long depression. When I attended the NASSCOM annual conference in India last February, I asked IT suppliers from India and several other countries for their views on what’s changing. Most talked about the fact that the period of hardship had allowed them to ‘innovate’ and respond to reduced circumstances. Then every firm told me about the thousands of people they are planning to hire in 2010, emphasising that the hard times are over. So has nothing changed? Are the IT suppliers just going to hire in their thousands again and watch the attrition rates soar as competition for talent takes off. Or has the IT sourcing market fundamentally changed? Why are many suppliers not even talking seriously about cleantech, public sector, or new markets? And more importantly, why are so many IT suppliers in denial about the effect the cloud could have on their business model? Here’s a thought for some of them. Remember when your bread and butter business was systems integration and the customisation of big CRM or ERP installations? Within a decade absolutely no firm anywhere is going to be managing their technology in that way - because of the cloud. So what’s your future cash cow? *Keep up to speed with Mark's IT outsourcing blogs

Wake up: Cloud will change International IT Outsourcing

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Wake up: Cloud will change International IT Outsourcing

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