Thursday, March 22, 2007

According to recent 4Q 2006 Outsourcing Pulse Surveys conducted by EquaTerra, the demand for outsourcing in the overall BPO and IT outsourcing markets has grown at a slower rate in 4Q 2006 as compared to 3Q 2006 and 4Q 2005.

The number of expected deals grew to 61 percent in 4Q 2006 as compared to 48 percent in 3Q 2006 and 67 percent in 4Q 2005. The study also anticipated a low growth in the outsourcing market during 1H 2007. This slow growth is primarily driven by multisourcing and capacity constraints among BPO service providers. The study also revealed that outsourcing of non-traditional functions, such as document and imaging services, legal processing, knowledge process outsourcing, and logistics services are expected to grow significantly in terms of demand as well as supply in 2007. The existing renegotiations for outsourcing deals among buyers and suppliers were not the main reasons for slow growth in the outsourcing industry. However, it has been predicted that large outsourcing vendors will be able to retain a majority of their business with their existing buyers.

According to a recent study by AT Kearney, the US firms will not be benefited (in terms of cost savings) by offshoring their IT and back-office work to destinations, including India and China, in the next 20 years due to rising wages and price inflation in such countries. Among the key findings, the average wages for the programmers in India, China, and Eastern Europe grew by up to 40 percent in 2006 as compared to up to 10 percent for their US counterparts. Despite this fact, majority of US-based companies, such as Accenture and IBM, are establishing/expanding their offshore units in countries such as India and China, in order to leverage the low-cost labor market in such countries.

It is evident that Indian professionals' wages are 40-60 percent less as compared to their US counterparts.

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