Five outsourcing trends to watch

Experts are tracking consolidation, globalization, and emergence of small-scale services, virtual worlds and even "green sourcing."

Which way is the wind blowing in the outsourcing market? What's looming on the horizon in the next five years?

Silicon.com has identified five areas to watch.

Consolidation
Competition for outsourcing contracts is more cutthroat than ever, with a huge expansion in the number of suppliers, so some significant consolidation is on the horizon.

Recent rumors of a merger between information technology heavyweights Infosys Technologies and Capgemini Group suggest that the stars are aligning for some significant marriages. Duncan Aitchison, managing director of business advisory company TPI, told Silicon.com that even if the rumored Infosys-Capgemini merger never materializes, it reflects current "market sentiment." What's more, other industry experts are predicting more merger-and-acquisition activity in this sector over the next year or two.

Globalization
There has long been talk of India losing its edge in the offshore-outsourcing market--including warnings of a shortage of skilled workers--but a bigger threat to India's dominance could lie closer to home. According to a study by analyst IDC, cities in China will overtake their Indian counterparts as top destinations for offshore global delivery by 2011.

While it remains unlikely that China will outstrip India in the outsourcing business overall, the trend is for increasing globalization of the market as more regions seek to cash in on the offshoring boom.

Beyond the so-called BRIC bloc of countries (Brazil, Russia, India, China--or BRICM, if one includes Mexico), developing nations such as Egypt and Poland are emerging as sources of offshore labor. The trend is not only for a "greater pattern of diversity" in the outsourcing sector, said TPI's Aitchison, but also for greater specialization as smaller players seek to distinguish themselves in an increasingly crowded marketplace.

Person-to-person offshoring
Offshoring is more commonly associated with large-scale business redeployments--the relocation of a back-office function, say, or a whole department. But research suggests that there's growing momentum for redeployments of a much smaller scale. According to a report by research company Evaluserve, offshoring has reached small businesses and even homes--a trend it dubs "person-to-person," or P2P, offshoring.

Examples of services outsourced in this way include online tutoring, Web and software development, and writing and translation services. Customers for these services can be small businesses or even individual consumers.

Evaluserve says revenue for this sector stood at more than $250 million between April 2006 and March 2007, and it predicts that the value of the P2P offshoring market will rise to more than $2 billion by 2015.

Green sourcing
Rising energy prices have put ecology issues firmly on CIOs' radar. But could pressure to demonstrate green credentials influence businesses' outsourcing decisions as well?

Silicon.com's CIO Jury--a pool of chief information officers and other corporate IT professionals who are polled on various technology issues--recently revealed that environmental factors play a key role in the selection of technology suppliers and partners.

Virtual worlds
The rise of virtual worlds such as Second Life is making it easier for companies to justify hiring offshore workers for tasks that may include building virtual offices or even working as virtual-world "meeters and greeters."

The market for outsourced virtual-world services is still very new, but businesses increasingly are taking an interest in the likes of Second Life, so momentum is likely to build.

Last month, news emerged of a partnership between a Chinese online-entertainment company and Entropia Universe, a virtual world with a science fiction theme, to create a virtual economy that could provide as many as 10,000 jobs.

Over the longer term, customer contact jobs, including those for help desk and call center services--could migrate into virtual worlds, where customers can be both informed and entertained.

Natasha Lomas of Silicon.com reported from London.

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