Offshoring of IT services works increases as clients go for cost cutting

Companies also lured by access to affordable skilled-labour and currency benefits

Even as large Indian information technology (IT) outsourcing services players are stepping up their onsite hiring, a recent report by the Reserve Bank of India (RBI) indicates they are now executing more works from offshore locations than the past. 

 

In its survey on ‘Computer software information technology services exports’, the central bank said offshore services made for 82.2% of total IT services exports  in 2011-12 against 67.8% in 2008-09. 

 

“Even in 2012-13, offshoring is likely to have increased from a year ago,” said Shashi Bhushan, senior research analyst at Prabhudas Lilladher. “Due to the cost pressure on clients and the noise around immigration norms, this trend is likely to continue playing out in the coming years as well.”  

 

According to the survey, the IT services exports from India using offshore efforts consistently kept on increasing from 2008-09. “… the share of export of software service through the off-site mode increased in 2009-10, following the global (economic) crisis. The share of export of software service through off-site mode continued to increase consistently and its share increased from 67.8% in 2008-09 to 82.2% in 2011-12,” the survey said.

 

Post the Lehman Brothers collapse in 2008, which was followed by a global economic slowdown, Indian IT services players were seen taking more works to offshore locations to cut costs and protect dwindling profit margins. This trend is expected to continue as clients are also increasingly favouring sending works to offshore. Besides, service providers are also leveraging offshore not just to reduce cost pressure, but to get access to affordable skilled-labour and currency benefits, analysts said.

 

In addition to favorable factors in countries such as India, China, Indonesia and Brazil, which have emerged as preferred offshoring locations, the restrictions on employee movements, stringent visa norms and expensive labour in key markets such as the US and Europe are encouraging more companies to opt for this model.

Software Services Export – Type of Service

Type of Services	2008-09	2009-10	2010-11	2011-12
Onsite	32.2	21.6	20.7	17.8
Offshore	67.8	78.4	79.3	82.2
Total	100	100	100	100

* Source: RBI Survey on Computer Software & Information Technology Services Exports: 2011-12