March 09, 2008
Half of US firms outsource to Asia and Latin America; Western Europe prefers the East
The top outsourcing destinations where the surveyed businesses have actual operations are led by India (60%), Southeast Asia (50%), and China (46%). Eastern Europe's outsourcing share could grow to 30% by 2010.
According to a 2008 survey by BDO Seidman on the technology outlook provided by 100 chief financial officers at leading technology companies in the US, about 49% of US firms outsource part of their manufacturing or service processes to firms outside the country. In Silicon Valley alone, 64% of firms have outsourced parts of their operations outside the US.
The top outsourcing destinations for US companies are led by India (60%), Southeast Asia (50%), and China (46%). The smaller slices of the outsourcing pie are shared by Western Europe (21%) and Latin America (19%).
On the other hand, Western European companies prefer to “near-shore” to Eastern Europe. Estimated at $2 billion, the outsourcing industry in the region is but a small portion of the global outsourcing industry. However, analysts at Gartner Dataquest foresee that Eastern Europe’s share will balloon to 30% by 2010.
Beyond outsourcing, the most off-shored businesses are in manufacturing (74%) and IT services and programming (51%). Surprisingly, call centers form only 35% of the outsourcing business.
While outsourcing allows companies to generate better revenues by cutting operational costs, there are some issues that they have to contend with. The political upheavals and financial health of the outsourcing destinations are among the top concerns that they have to consider in setting-up parts of their businesses outside the US. The CIOs cited currency risk (26%) and uncertain political/business climates (25%) as their top concerns for international expansion, followed by training (17%), intellectual property risks (14%), and tax regulations (12%).
So what do these figures mean for outsourcing vendors?
The survey reveals a lot about the nature of the tech sector as a highly international industry. While most of today’s manufacturing is outsourced to China, software development and programming are being done from India to Southeast Asia to Europe, and to a lesser extent, Latin America.
With the internationalization of manufacturing and IT comes the need to set standards that vendors must follow to meet the requirements of business partners, clients and customers. We are not only talking about making sure that toys made somewhere else do not have traces of lead or controlled chemicals. We are talking about following standards set forth for all facets of business operations, as well as the processes involved in application development. ISO and CMM organizations will never have business this good due to the requirements and standards that vendors should meet in order to provide not only quality, but also credible, services.
The need to upgrade skills has never been more pronounced. This is especially true for individual workers wishing to get into the most lucrative outsourced services, for the IT consulting firms who benchmark the skills of their employees with the requirements of their clients, for the labor ministries that need to lower the unemployment rates within their territories.
At the national and macro-economic levels, there is an increasing pressure for governments of emerging markets or developing economies to get their acts together. Fiscal health, strong governance, and a conducive business climate are among the criteria that cross-border firms consider in setting up shops outside their main territories.
Email This Article
