TPI also found that companies choosing to offshore their IT and
business processes to low-cost locations, such as India and China,
are increasingly doing so through wholly-owned subsidiaries, known
as "captives", rather than external service providers.
This, says TPI, is a sign of increasing maturity in the
market.
According to Managing Director Duncan Aitchison:
“The growth of captives stems from companies
now being more aware of how to conduct an offshore operation and
less reliant on external service providers. Buyers are increasingly
employing hybrid models that mix some outsourcing with some
‘do-it-yourself’ offshoring, and where external providers are
engaged, it is for more complex reasons than simple cost
reduction.”
To assess the growth of offshore captives, TPI compared employee
numbers at the top 20 pure captive operations in India with the
total number working there in IT and business process
management.
Their analysis reveals that the total headcount of the top 20
captives has increased by almost three quarters in the last year
from 54,666 in 2003-04 to 95,225 in 2004-05. By comparison, the
total number working in India in IT and business process management
has increased by just a quarter over the same period. Fifteen of
the FTSE 100 now have captive operations in India.
The survey of 100 senior UK outsourcing executives, carried out
by research firm Simpson Carpenter, also found that many companies
are readjusting the activities they base offshore.
According to TPI, companies are increasingly taking a global
view of sourcing – separating processes out and deciding whether
each one would be best based offshore, nearshore or onshore. For
example, 50% of survey respondents expect to bring certain elements
of their services back onshore in the next five years as part of a
global sourcing strategy.
“Again, this trend reflects a maturing market,” said Aitchison.
“In the early days of offshore outsourcing they often simply took
their UK set-up and replicated it at lower cost in India. They are
now more likely to utilise ‘global service delivery’ – that is to
employ a mixture of locations for different functions.”
While India is still the hot favourite as an offshore
destination – being used by 75% of the survey respondents – the
survey found that there is close competition for second place,
between Central and Eastern Europe (28%) and China (25%).
Despite being less widely used than India, Central and Eastern
Europe is seen as equally appealing an outsourcing location, with
both destinations rated attractive by 59% of respondents. It
appears likely therefore that Central and Eastern Europe will make
up ground on India’s lead over the next few years, said TPI.
China, meanwhile, is viewed as an attractive location by 41% of
respondents. It is an immature outsourcing market and lacks English
language skills. However, according to TPI, many large companies
are establishing captive operations there, attracted by government
support and a huge potential domestic market.
The survey findings also disputed the view that failure rates in
outsourcing are high.
According to TPI, only 4% of UK outsourcing buyers are
dissatisfied with their outsourcing arrangements, while 42% are
“very satisfied”. Contrary to widespread expectations, 48% even
believe outsourcing has improved customer satisfaction.
Sixty-four percent reported that their organisation’s
contingency planning has improved as a result of their outsourcing,
while 80% say outsourcing has improved corporate governance by
clarifying responsibilities.
“These results confirm our experience that outsourcing, when
approached properly, is far more successful than the widely-quoted
failure rates of 25%-50% suggest,” said Aitchison.
