IDC Demand-Side Study of U.S. Enterprises Reveals Key Best Practices and Buying Patterns for Offshore Services

FRAMINGHAM, MA – JUNE 3, 2004 – Based on interviews with 30 U.S. enterprises that currently leverage offshore as part of an overall sourcing strategy to support their IT and business services needs, the results of a new demand-side IDC study show that U.S. companies are not only leveraging offshore to source a wide variety of business and IT services but also requiring that key best practices be integrated into the process of procuring these services. In addition to these findings, the study, though limited, reveals that enterprises are looking to increase their offshore spending for these types of services by approximately 25% over the next 12 to 24 months.

While the share of budgetary investment currently made by companies in procuring offshore services is still small, relative to total budgetary expenditures on IT, the interest in increasing spending on offshore highlights that overall offshore expenditures in the coming years will become a larger share of total spend. A major impact of this increased spending will be the need by service providers to seriously adjust their service delivery capabilities in order to support the broader set of services required by companies going offshore.

"While integrating an offshore business strategy has now become a requirement for services companies to leverage in order to meet the primary customer need of lowering costs, it also brings with it a broad array of opportunities and challenges that will likely impact not only the makeup of the competitor landscape, but also the structure of how services will be delivered in the future," said David Tapper, director, Outsourcing, Utility and Offshore Services at IDC.

The study also identifies what offshore service providers will need to do in order to fulfill the growing needs of companies who source their business and IT services needs from offshore/nearshore locations such as Asia, Latin America and Central and Eastern Europe. Key criteria include:

• Providing the appropriate business and service delivery model as determined by customer and country criteria

• Meeting customer expectations regarding benefits, drivers, and provider requirements

• Utilizing customer contract and pricing preferences

• Building a value proposition that meets customer requirements while mitigating concerns

"For players to compete successfully they will need to develop robust investment strategies across infrastructure, geographies, capital equipment, and operational skill sets as well as take advantage of revenue opportunities emerging from utilizing offshore locations with particular focus on emerging services involving utility computing and ASP, as well as technologies, such as grid computing, Web services, and Linux," Tapper added.

This IDC study, U.S. Customer Experiences and Best Practices When Going Offshore (IDC #31179), provides key statistics and analysis on customer experiences in sourcing IT and business services from an offshore location. The findings are of interest to services firms as well as hardware and software providers that are either looking to leverage offshore as part of their service delivery capabilities or already provide offshore capabilities.

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