Offshoring goes further

The traditional offshore outsourcing model is set to disappear and will be replaced by a global services delivery model, leading to more IT functions being handled overseas, according to experts at Forrester Research?s GigaWorld event in Prague.

"The offshore term will become irrelevant and will be presented in a much wider context of global services delivery," said Pascal Matzke of Forrester Research. "You can't talk of [offshore service firms] Infosys or Wipro as niche vendors as they're now roughly the size of LogicaCMG or Siemens Business Services."

Traditional offshore vendors are starting to set up more offices near their customers and are hiring local consultants - a move that could enhance the popularity of their services across Europe, said Matzke. Meanwhile, international service providers such as Accenture and EDS are building their own offshore centres to protect profit margins.

"If you talk about offshoring, you have to change your mindset. It's not just associated with low-cost in India," Matzke said.

However, cost was the starting point for Virgin when it looked at offshore IT options in 2003, said Gareth Lewis, Virgin's group chief information officer. "It's inescapable," he added. "Salaries in India are 20 percent of the UK average."

Managers often resist offshoring plans, Lewis added. "The only way to get people on board was to show them places," he added. "We have done four tours to India and back via South Africa to visit facilities and there's no substitute for air miles. One of the companies turned out to be operating from the back of someone's house."

Tara Basi, former CIO at shipping giant P&O Nedlloyd, warned that offshoring could cause firms to breach regulations. "If a firm is moving work offshore to cut costs, it could be out of the realms of governance controls," he explained.