Client Needs and Market Trends Are Leaning in a Good Direction for Nearshore IT Providers

More outsourcing clients appear to be waking up to the fact that a sourcing strategy based only on cost savings is prone to dissatisfaction. Nearshore IT providers and proponents have been preaching this for a few years now, but some thought those people were either being defensive because they couldn't compete on that price basis, or were emplying the old magician's trick of misdirection. Now, further evidence shows that that idea can be put back in the box.



Strategies are shifting. A recent study by Duke University's Fuqua School of Business highlights this by reflecting changes in outsourcing amid an evolving provider mindset. The report quotes Dr. Charles Aird, global leader of PwC’s Shared Services and Outsourcing Advisory Practice:

“Given the current market condition, relying only on low cost and labor arbitrage is no longer a successful strategy. To gain a competitive edge in today’s dynamic and increasingly global marketplace, it is critical that providers go beyond the third-party service-delivery relationships of the past and find ways to become valued business partners.”

And as the study's author Dr. Arie Lewin told CIO.com, "For most locations labor arbitrage dissipates over three years. If you are only counting on labor arbitrage you will be disappointed."

The Duke study also reveals something that is no revelation to some people but is good to hear anyway: a "trend toward nearshoring." Guess what? Clients want to be closer to providers!

What's really key in this study is the business need for outsourcers that can handle tasks and projects higher up the value chain, the harder stuff. Again, this is an evolution that nearshore champions (and some analysts) have been talking about for a while, but to have this affirmed by unaffiliated voices is encouraging.

So, how do nearshore providers ensure they keep getting a piece of this demand and keep their ball of success rolling? Besides doing what they've been doing, they have to keep producing the right kind of talent or risk losing customers to other countries that are skilled at both technology and foreign languages, like Romania. They have to keep looking down the road and anticipating what prospective clients are going to need.

So, what are those needs? According to Computerworld's Forecast 2012, 61% of U.S. companies are going to be hiring people with application development skills — up from 40% in 2010. Finding people with solid understanding of mobile technology and being able to design for the little screen is the hottest demand right now. "It's competitive as hell," one IT director said.

The trick here is knowing which platforms to focus on and hire or train for. "In the more fragmented world of 2011 and beyond, software and hardware will likely require more customization," as a Deloitte analysis says, "and developers may need to pick and choose which platforms they develop for, knowing that they cannot afford to address all markets simultaneously." Those who can master the most platforms will have the best chance at thriving.

Project management will be the second-most in-demand skill going forward, according to the Computerworld survey. But not just people who know how to manage — what the world is looking for is people who can provide business analysis as well, who can translate user or client needs and objectives to an IT staff. Business intelligence is also a skill that companies will be seeking more often in 2012.

The need for help desk, network management, and data center staff will be decreasing in the next year, the study finds.

It's tough out there, and many economists aren't exactly predicting a "Woo-hoo!" scenario for the near future. But trends like demand for higher-value services and clients wanting proximity to providers make things look less gloomy for nearshore IT companies. In fact, it sounds like opportunity.

Topics: outsourcing strategies, application development, outsourcing market, nearshore IT, Nearshore Outsourcing, outsourcing trends, Duke Fuqua School of Business

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