Global delivery

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• Global IT Delivery, October 2006
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Hypes come and go, but outsourcing is likely only to increase in popularity. The cost-savings and access to otherwise unavailable skills and resources are making it ever more attractive. Indeed, on the face of it, “outsourcing to India” should be a ‘no brainer’ because of the cost savings available: although, as analyst Rachael Stormonth of Nelson Hall points out, “There’s no such thing as one easy number”, a figure often given is a 40% saving by outsourcing services to India. So persuasive are these savings that many services companies have had to open their own ‘farshore’ offices to compete.

Yet farshoring is frequently not an option for certain organisations because of compliance requirements, legislation that forbids it such as the EU’s data protection laws, their own desire to have someone accountable close by, security considerations, or simply the difficulties of working with people in significantly different time zones.

To overcome these problems, farshorers have started to provide outsourced services through offices either in or near the client’s home country (“onshoring” or “nearshoring”), but in significantly cheaper locations. While nearshoring is not itself a new phenomenon, the improvements to communications infrastructures in Europe over the last decade have made inter-office communication far easier. Breaking a job into parts that can be serviced in different countries while still providing cost savings is now a far more viable prospect.

This “blended” model, also known as “right shoring” or “best shoring”, is being adopted by global services companies, as well as by companies traditionally associated only with farshoring. The India-based Infosys, for example, has opened offices in locations such as Brno in the Czech Republic, and Swindon and Milton Keynes in the UK.

Says Sudhir Chaturvedi, associate VP, EMEA, for Infosys, “It enables us to be close to key clients, clients that require things to be done at high speed or who are new to offshoring and are looking to see if a job can be done outside the office.”

Wipro, which began life purely as an Indian farshoring company, has opened offices in the UK and around the world to provide nearshoring facilities to global clients. Kees Ten Nijenhuis, head of Europe for Wipro, says client demand has been the key motivator for this change. He highlights other softer benefits to nearshoring, such as face-to-face contact, which some customers require. “You don’t have to speak face-to-face: if the contract is worth $2 million, the CIO doesn’t care if he speaks to you on the phone or not. But if it’s worth $100 million, he’ll want to see you on a daily basis.”

This blended approach seems to be persuading potential clients that outsourcing of services could be viable options after all. Euan Davis, a Forrester Research analyst, says that a recent survey conducted among organisations showed that while half the companies surveyed were still unwilling to outsource, half were now considering the possibility or already doing it.

Picking nearshoring locations is often both a matter of client location and cost savings, with services companies frequently picking sites that are close to existing clients or to service a new contract. They will often pick regions that prove to have a smaller cost base because of low property prices or salaries and government or EU subsidies, but which have access to good transport and communications infrastructures. These cost savings can then be passed on to clients: EDS director Ian Poree says “a good rule of thumb is to expect 20% savings from nearshoring”.

In the UK, Northern Ireland and Wales have both put considerable effort into attracting and retaining new business through their respective business development agencies. EDS, Fujitsu and LogicaCMG, for example, all have South Wales nearshoring offices.

Regions of England also compete for nearshoring centres. Nelson Hall’s Stormonth highlights Liberator’s Barrow-in-Furness offices, which provide document processing services to London boroughs. “There’s both a cost advantage and skills,” she says. “The London boroughs find it very hard to get people in London because of the nature of the work.” Barrow-in-Furness has the people and the skills.

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