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XMG Bullish On Offshoring Despite Global Financial Crisis
Despite global economic meltdown, offshoring will hit double digit growth
Victoria, Canada - October 08, 2008

In the face of a battered US economy and a global financial crisis, the few remaining bright spots in the next two years will be  IT and the offshoring industry according to Canadian-based ICT think-tank XMG.

To assess the effects of the world wide credit disaster on the global ICT industry, particularly the offshoring market, XMG concluded that the outlook on offshoring in countries such as India and the Philippines will continue to grow well into the next decade. 

According to recent XMG analysis, the state of today’s economy will reshape the offshoring industry for the years to come.  Foresight and analysis generated by XMG show:

1. The expected strengthening of the US dollar long term over currencies like the India Rupees and the Philippine Peso for the first time in 12 months. This will highlight a better quality-to-cost ratio for offshoring not seen in recent years when the US dollar was lower in the same period improvements in service delivery processes and service level targets were achieved by global delivery centers.
2. Industries such as the financial, insurance and manufacturing industries, which will all take a direct hit by the slowing economy, will slash jobs.  This increases the potential talent pool for larger and upbeat business process third party vendors with healthy sales pipeline for business process services.
3. Further consolidation in the market as deep-pocketed and larger technology service vendors focus on increasing size, scale and market share through next wave acquisitions in late 2009.  Unlike the bubble burst in the earlier decade, these companies have a stronger balance sheet and the liquidity that can hold strong throughout the economic upheaval.
4. Financial and insurance captives will seriously consider selling IT and business process service units to third party providers to monetize assets.  Captives in this segment will realize that it will be difficult to achieve the operational efficiency of a focused, well managed and profit-driven third party vendor.
5. Non-financial captives, primarily those belonging to the IT sector such as Dell, will focus in improving its client satisfaction levels as consumers and enterprises reduce spending.  These captives will invest further in successful offshore delivery centers with higher-than-average client satisfaction ratings and manageable talent attrition levels.  Expect caution and investment reductions in countries with lower client ratings and high employee turnover.

In 2007, XMG predicted offshoring to grow 34.7% through 2010.  However due to the global economic slow down and expected recession, XMG reduced the global offshoring forecast to 24.2%, most of the growth cut due to reduced investments by captive operations.  India’s offshoring growth forecast has been tempered from 29.5% to 22.2% through 2010.  The Philippines’ growth decrease is expected to decrease from 31.2% to 25.6%. “The global financial upheaval will have a deleterious effect across most industries, but the IT industry and offshoring specifically will still experience double digit growths”, says XMG chief analyst Lauro Vives.