Did you know?

As a part of our creative activities :) we're pleased to introduce encyclopedoical category "Did You Know?" together with #nearshorefacts hashtag on twitter to provide you with quick and notable facts surrounding nearshoring industry.

As a first shot we'd like to cite CEE IT Outsourcing Review 2010 Fact Collection.

First Fact:

In 2009, the number of IT specialists employed in companies providing IT outsourcing and software development services in the CEE region reached 95,000. Ukraine and Romania led statistics with 18,000 and 14,000 respectively

LinkedIn Discussion - Agile and Nearshore - two elements of formula to successful software development (IT Outsourcing)?

During the last years we see an astronomic adoption of Agile methodologies to software development process of organizations across industries. Latest Forrester Research of 1300 IT Professionals revealed that 35 percent of respondents stated that agile most closely reflects their development process.

Being unique in their specific approaches each of Agile methodologies shares the common idea of aligning programmers and business users more closely together to build the right product faster. This is especially important to IT outsourcing industry as usually there is a lack of communication between customer and service provider.

In this way Agile promotes more direct and face-to-face communication and collaboration between two teams with customer side engaged in the product building.

Yet this might be difficult to achieve in long-distance engagements, where far-travels, time-zone and cultural differences might hamper collaboration and coherence between the teams.

Solution?

Well some outsourcing practitioners say “one can perceive Nearshore and Agile as two core elements of a certain formula to effective software development.”

In this formula Agile is responsible for the rapid delivery of business value and smooth adoption to changing requirements through the better alignment between programmers and business users, while nearshore chemicals, namely proximity, cultural and business language constructs are actually ensure that alignment between the teams.

What is your insight? Is distance still matter in today's technology-enabled world? And what is your take on combining Agile + Nearshore as well as comparing Agile to traditional (non-iterative) methodologies?

Please share your insight on these questions here or in LinkedIn

The overview of the study prepared on this topic might be founded in our previous article "Agile and Nearshore - Formula for Successful Software Development".

Thanks!

“Agile and Nearshore - The Formula to Successful Software Development”

"It's time for software professionals to stop sitting on the fence where agile is concerned.

Forrester Report 2009

This is the quote from our new research “Agile and Nearshore - The Formula to Successful Software Development”, which is officially available here

We would like to draw a special attention to this work, as the aim of it is to give a broad overview of the Agile development methodologies, their practical appliance and successful combination with nearshore IT service delivery models.

The study analyzes the history of Agile development, discusses the main changes occurred in commercial software development sector over last years and presents a real-world case-studies of successful implementation of Agile methodologies in conjunction with Nearshore delivery approaches.

The study features successful implementations of Agile methodologies for software product companies “Borland”, large ICT multinationals “British Telecom” and professional ITO service providers “Levi9 Global Sourcing”. Especially the last one, as the company successfully crafted these two elements of successful software development into one robust approach!

Want to know more about the formula and real-world case-studies check out our report!

Coming soon......

Cio's embrace custom application development

As the recession eases, senior IT executives are shifting their focus from using
technology to reduce costs to using technology to drive revenue. At the same time,
improving customer service has become a pressing concern at the highest levels,
as companies are intent on maintaining relationships with profitable customers
and acquiring new ones. CIO magazine’s 2010 State of the CIO survey found that
managing customer relationships as a core function jumped to 34 percent from 18
percent the previous year.
CIOs are in an ideal position to help improve those relationships by implementing
IT solutions that can meet customers’ unique needs. This report focuses on how an
increasing number of organizations are using custom application development as a
means to enhance customer service with tailored solutions.
According to a poll conducted by IDG Research Services, nearly two-thirds of CIOs
and other senior executives surveyed listed improving customer satisfaction among
the top three factors driving the need for custom application development; they
also cited the need to differentiate their companies from competitors, and the
need to comply with regulations and industry mandates.

Austrian IT companies chose nearshore for outsourcing their software development

As a part of its Pan-European IT outsourcing research 2010, IT Sourcing Europe, a UK-located ITO research and advisory agency presented its findings of Austrian IT Outsourcing Software Development survey.

The survey aimed to explore the key trends and challenges among software development firms that outsource their software development areas to the 3rd party outsourcing providers.

In the period between September and October 2010 approximately 160 small, mid-sized and large companies across verticals in Austria were surveyed.

The survey results indicated that the number of nearshore software development outsourcers is double the number of offshore outsourcers (32% vs. 16%). For the time frames the study differentiate as offshore at least 2 time zones away from the home country, while nearshore maximum 2 time zones away or within Austria.

These figures supported by the top outsourcing drivers of the choice of the outsourcing destination in Austria which are: geographical and cultural proximity (25%), available IT resource pool (19%) and low costs (18%);

Among the main outsourcing goals polled companies indicated the following: to reduce operating costs (30% of respondents); to get access to more qualified resources and skills which are hard to find within Austria (24% of companies polled) and to respond to pressures from investors and/or executive management to cut down software development budgets (22% of participants);

The majority of the Austrian companies surveyed (28%) outsource 40% to 59% of their entire software development function, while only 2% of companies outsource less than 10% and 19% of companies outsource 90% to 100% of their software development volume.

The most outsourced area of expertise in Austria is Web 2.0 (Microsoft ASP.NET, Java, EpiServer, open source etc) – 42% of companies polled, followed by mobile development (34%). The least outsourced area of expertise is embedded development (only 3% of companies surveyed).

IT Outsourcing Market in Central and Eastern Europe: Trends, Figures, Predictions

Nearshore Blog analyses main trends surrounding IT Outsourcing market in CEE region

Contents

Introduction

About CEE Review

Trends Confirmed!

• Trend 1. Shortage of IT specialists in developed economies
• Trend 2. Growing IT workforce - Romania and Ukraine leaders
• Trend 3. CEE IT Outsourcing Market Growth 4
• Trend 4. More market players despite crisis 4
• Trend 5. The EU - US outsourcing spending race will continue
• Trend 6. Nearshoring strengthen its positions at global aren
• Summary

Introduction

The Nearshore Blog in conjunction with Levi9 Global Sourcing are pleased to present an analysis of “the Central and Eastern European IT Outsourcing Review 2010” annual research conducted by CEEOA with the aim to study main trends, figures and predictions and update the perspective on the potential of the CEE region for provision of nearshore IT outsourcing for the Western European countries and for offshore IT outsourcing for the US market.

The CEE IT Outsourcing Review is the research work that became one of the most demanded analytical source about the state of IT outsourcing market in CEE region within such a short period of time celebrates its third edition this year.

Being an information partner to CEEOA traditionally the Nearshore Blog team conducts its overview of the research and provides the perspective on the main trends and predictions surrounding IT outsourcing market in CEE region.

From this partnership it became a good tradition to exchange the views and predictions for the time to come and we are pleased to say that historically our views are in line, therefore our work represents a complementing rather than debating character.

This year the study appeared exactly the same way, so we’re pleased to present our overview of “Central and Eastern IT Outsourcing Review 2010”.

About CEE Review

Central and Eastern European Outsourcing Association (CEEOA), an information partner of the Nearshore Blog has been conducted the research project “CEE IT Outsourcing Review” annually since 2007. The previous issues of the report have been accessed by more than 15,000 people annually and were referred by industry research heavyweights. KPMG referenced the report in its “Exploring Global Frontiers” study.

This year “CEE IT Outsourcing Review 2010” represents a unique combination of proven research methodology, meaningful expert view and representative online surveying. By encompassing 246 companies operating in outsourcing service market from 16 countries alongside with 25 representatives of national outsourcing associations and impressive panel of leading industry experts the study provides a comprehensive yet accurate overview of the state of IT outsourcing industry in the CEE region.

Trends Confirmed

Being an information partner to CEEOA, the Nearshore Blog team was particularly pleased to learn that many of the predictions and trends we indicated previously on Blog’s pages are in line with the study data and leading industry’s experts forecasts.

Several independent experts and outsourcing activists kindly responded to the survey questions and provided their insights with regards to major trends and currents in IT outsourcing industry worldwide and in the CEE region specifically. Among the expert panel there are:

Phil Fersht, Founder and CEO of Horses for Sources outsourcing advisory firm,
Christoph Prieler: Offshoring Executive, Managemen Consultant, University lecturer
Magdalena Szarafin - Chairman of IFRS Practice Committee at German CPA Society
Boris Kontsevoi - Founder and President of Intetics Co.

Trend 1. Shortage of IT specialists in developed economies

The publication of the “CEE IT Outsourcing Review 2010” coincided with the series of studies “Nearshore as a solution to EU labor shortage” conducted by Nearshore blog this month. Similarly to our predictions the study “CEE IT Outsourcing Review 2010” together with the expert panel paid a great deal of attention to the growing shortage of IT specialists in the developed economies which might develop into a dangerous brake on post-recession recovery and innovation in developing economies.

One of the study experts Franco Dal Molin indicated:

In a number of West European economies there is – despite the crisis – still a significant shortage of skilled IT specialists. Finding developers and hiring them fast enough becomes often more crucial than just lowering costs. Finally, in times of uncertainty and volatility, outsourcing is looked at as an ideal way to become more flexible and/or scalable.

The survey trends summary reflected that increase in skilled specialists shortage is among TOP 10 region’s main trends with 32 per cent of survey respondents indicated it as the major trend.


Trend 2. Growing IT workforce - Romania and Ukraine leaders

From other side the study indicates a continuing increase in the number of employed specialists
working in the Central and Eastern European IT services market throughout 2009. The higher education that formed the base of educational systems in former Soviet Union countries experiences a further improvement of their already strong focus on fundamental engineering education.

This is one of the most important factors contributing to the preparation of qualified specialists in the industry. The presence of strong science schools and further education system conversion, fueled the rapid increase in the number of companies providing IT outsourcing and software development services in the CEE region.

In 2009, the number of IT specialists employed in companies providing IT outsourcing and software development services in the CEE region reached 95,000. Romania and Ukraine led in growth in the number of IT specialists with 12.33 and 9.51 per cent growth.

Trend 3. CEE IT Outsourcing Market Growth

The most prevalent trend in 2009 was the increase in the volume of IT outsourcing services
provided. The volume of work exported in 2009 indicated a noticeable growth in comparison to
the findings of the ‘CEE IT Outsourcing Review 2008’.

The general volume of IT outsourcing and custom software development services exported from
the CEE region reached USD $4 billion in 2009. The largest growth took place in Romania and
Ukraine. These two leaders invariably show high rates of market growth and leave other countries far behind in terms of the volume of IT outsourcing services exported. Hungary, Poland, Belarus, Czech Republic and Bulgaria close out the list of leaders.

Outsourcing services providers are quite optimistic about their development prospects for 2010. Respondents from all countries forecast 10%-30% growth depending on specific circumstances at work within each individual country.

According to the forecasts of those surveyed, the volume of IT outsourcing and custom software development services exported from the CEE region will reach about USD $5 billion in 2010.

Trend 4. More market players despite crisis

Rather interesting trend might be observed from the study statistics on the number of companies within the region. As reasonably one might have thought about decrease in the number of companies throughout economic meltdown the actual figures are quite opposite.

Not only no significant bankruptcies, closures or IT outsourcing company failures were reported during 2008-2009, in fact 20% of responding companies were established during that period. These were mainly small-sized companies established in times of negligible redundancy at the
end of 2008 through the beginning of 2009. Many of these companies also were the result of
business restructuring when service companies shifted to independent organizations.


Trend 5. The EU - US outsourcing spending race will continue

Last year TPI’s sweeping report marked that Europe outran US in terms of IT outsorcing spending. The report indicated that EU businesses signed a record number of IT outsourcing contracts in 2009 and beat US in terms of Total Contract Value (TCV). By the end of the third quarter of 2009, G2000 companies headquartered in Europe were spending more on outsourcing deals overall than G2000 firms with headquarters in the US and Canada.

The study surveyed the expert panel on the further dynamics in this competition. While most experts agree on the difference in economic cycles between EU and US being the main driving force in this competition, some respondents indicated the gap in IT and telecom between US and EU which can be a motive for European companies to spend more to make up the distance missing.

In a further perspective experts associated dynamic with the size of economies. Since USA and Canadian economies is just about 7% bigger than EU economy, the outsourcing spending of both regions, especially long-term, to smooth out saturation effects, should be about the same.

Trend 6. Nearshoring strengthen its positions at global arena

The Key Conclusions chapter within the study signals that software development and IT outsourcing services provider industry in Central and Eastern Europe successfully overcame all of the challenges of the recession of 2008 and resumed its previous trajectory of growth.

The main drivers behind this dynamic experts named the numbers of long-term contracts and big clients who transferred their projects on software development to their CEE outsourcing partners.

The expert panel came to agreement that such a trend closely associates with the growing notion about outsourcing as a people’s business where geographical, cultural and language proximity are of importance for buyers. Sourcing buyers survey shows that customers from Western Europe are likely to make business with partners from Central and Eastern Europe as their locations are available within 2-3 hours, their business partners speak their languages. They are high-qualified тв the prices are still lower than those in Western Europe.

The panel indicated a growing significance of nearshoring at the global outsourcing arena. As new stratums of businesses, especially mid-size businesses, are coming to outsourcing market, they feel more comfortable to work with nearshore providers.

Additionally, similar time zones and physical proximity promote more efficient operations. A noteworthy and interesting side effect of this is acquisition of Latin American and East European providers by Indian companies.

Summary

In 2009, the software development and IT outsourcing services provider industry in Central and Eastern Europe successfully overcame all of the challenges of the recession of 2008 and resumed its previous trajectory of growth.

The industry used the recession time to reorganize internal business processes within companies, to optimize costs, and to further develop more qualified operational business management processes

Such rapid recovery by the industry, and resumption of its previous growth rates, are testament to the strength and solid prospects of the business model used by Eastern European outsourcing companies in their strategic development.

According to the forecasts of those surveyed, the volume of IT outsourcing and custom software
development services exported from the CEE region will reach about USD $5 billion in 2010.

The material prepared by Nearshore Blog in conjunction with Levi9 Global Sourcing based on informational sources of CEEOA (http://ceeoa.org).

Levi9 Company Profile might be found on the pages of the study within the Partners Section. The study can be accessed on (http://itonews.eu)

Keeping up with Nearshore expansion - regional sub-groups to our group in LinkedIn

Dear Readers,


As we've been written in our previous posts "it's time to Nearshore", it's time to explore the unique opportunities provided by the optimal outsourcing model which has become the result of years of researching and practicing by businesses and practitioners from around the globe.

Although Nearshoring has been mainly associated with the European continent we saw an astronomical emergence of the practice on the lands of Western Hemisphere. Where escalating uncertainties and regional threats of the main offshore destination combined with increased focus on vulnerability management and demand to keep data close have changed delivery preferences of US businesses towards nearshore and sameshore options.

Nowadays, Nearshoring is a main outsourcing buzzword in Latin America, the region considered to be the main nearshoring destination for US. Recently the region held a prestige ranking contest "The Nearshore Americas Power 50" naming the most influential Nearshore figures from 16 countries from Americas region.

All this confirms the expansion of the Nearshoring across the world borders which, we personally think is rather reasonable :)

That said, we'd like to introduce the regions sub-groups in our sister LinkedIn group "Nearshore Professionals". You're very welcome to join!

The shortage of IT specialists in EU - predictions, solutions, consequences.

In the last decade, an increasing demand for high skilled hi-tech workers and engineers could be observed in most EU leading economies. From this point the ability of national education system to supply businesses with qualified specialists seen as crucial in driving post-recession growth and innovation.

Paradoxically enough, but the growing importance of IT coincide with rather different trend in education where popularity of hi-tech trades in falling swiftly. Result local institutes and universities do not produce enough qualified graduates while at the same time aging generation of old-school engineers comes to retirement.

What might be seen as a solution to the growing shortage of specialists, namely immigration and internalization of labour stumbles on the growing multiculturalism and immigration issues in most of Europe.

Based on this we conducted series of studies aimed to identify the current state of things on EU labor markets, main trends and solutions which can pick up the pluck on the growing shortage of hi-tech specialists.

The strategy of choice appeared as Nearshoring - as it provides two-way benefits to EU businesses - from one side enabling to access much-needed resources, while helping to explore and expand to developing neighbouring markets using local expertise of nearshore providers.

To bring this topic up and find out opinion of our readers and members of sister Nearshore Professionals Group on Linkedin we started series of discussions and pools (on the right side of this blog) where you can express your take on this problem, its solution and future trends.

Nearshore Study Part II. Netherlands - European leader in IT innovation

The Nearshore Blog is pleased to present the second part of the study series “Nearshoring to Eastern Europe as solution to EU labor shortage”.

The study is conducted by the Nearshoring Blog in conjunction with Levi9 Global Sourcing to analyze the issues of the EU leading economies associated with the lack of qualified IT specialists as well as existing labor restrictions and multicultural problems that slowdown countries innovation and post-recession recovery.

The issue of this series coincides with the first international report on shortage of IT specialists published by UNESCO in October 2010. The report features escalating demand for engineering talent across the EU as well as indicates serious shortage of engineers in most sectors.

The Nearshore study. Part II Netherlands - European leader in IT innovation

The second part of study concentrates on the Netherlands. The Dutch economy is among leaders in innovative activity and highly relies on the hi-tech sector. From this point the ability of Dutch economy to supply businesses with highly-qualified resources seen as a crucial prerequisite for post-recession recovery and further economic growth.

With this aspect in mind we decided to concentrate the second part of our study on the potential of Dutch IT service market, its needs in terms of supply of highly-qualified IT specialists and current labor regulations and multiculturalism issues preventing Dutch businesses from immigration of foreign work and as a result slowdown in growth and post-recession recovery.

Please note: The following chapters present the first part of the study content providing details of the analysis of Dutch IT service market as well as current trends and issues on the labor market, and its ability to meet the demand for hi-tech specialists.

The full paper can be accessed by following this link or in “researches” section of our blog.


Major trend

In the last decade, an increasing demand for high skilled hi-tech workers and engineers could be observed in most the EU leading economies. This development has been associated with the development of increasingly integrated labour markets and the appearance of skill-biased technological change which is often ascribed to the acceleration of technological developments in the information and communication technology (ICT).

In the first chapter of this series we examined the current situation on IT labor market in Germany - the EU largest economy and world’s leading exporter along with its effect on further economic growth.

The study confirmed that German economy and labor market experience rather opposite trends:

• from one side there is a booming demand for German goods and services, particularly from Asia, which result in growing trade surplus and customer confidence
• from another part Germany experiencing a real labor crisis. Market surveys indicate that the country is in desperate need for skilled specialists and engineers with overall 400 000 positions unfulfilled only in IT

The survey conducted for famous German IT sector magazine revealed that a high percentage of businesses questioned for the poll said they had declined contracts during the first half of 2010 because they did not have enough staff to take on the extra work.

Businesses cannot fill open jobs with suitable candidates and the lack of labour is developing into a dangerous brake on growth, particularly for small and medium-sized companies,” said Marie-Christine Ostermann, chairwoman of the employers’ association Young Businesses-BJU, which co-commissioned the survey.

Data on similar trends has been observed in other EU developed economies such as France, UK and the Netherlands. Especially the latter, as the Netherlands is one of European leaders in technological innovation and world’s largest exporter of IT services and chip manufacturing.

Netherlands - European leader in IT innovation

The Netherlands can fairly be considered as a hi-tech engine of the European Union. The following facts just prove this statement:

• Some 70 percent of all innovation in the Netherlands is IT-related. The country is a world’s leader in ICT patent applications with more than a half of all patents submitted by Dutch companies and organizations are related to hi-tech sector.
• The country is a world’s fourth-largest exporter of IT related services with software sector contributes annually 17.3 billion euros to the Dutch economy
• Netherlands is a world’s leader in embedded systems and a world leader in chip manufacturing equipment
• The country is one of the most 'wired' countries in the world, with broadband network is the second-highest in Europe and over 90% of Dutch households have a computer

Apart from all this the country boasts of the region’s most advanced infrastructure and hosts a number of high-capacity networks used for R&D purposes, thereby providing platforms for global software developers, hardware companies and IT consultancies.

Shift to Service Model

Such progress in information technology along with increasing role in Europe’s business and scientific areas contributed to the further shift of Dutch economy from the production to the service based.

IT services became more tradable and Dutch IT sector achieved a record growth of 4.2 percent in 2007, exceeding GDP and average European IT industry growth of 2.9 percent, with the software sub-sector showing growth of 9.5 percent. IT market in the Netherlands experienced a fast growth over last decade developing in a 30 billion market already in 2007.

Demand for hi-tech specialists

Rapid technological advances and increasing use of information and communications technology (ICT) have increased demand for skilled labour dramatically. Before the crisis, Dutch IT industry employed over 255,000 people; or 3.5 percent of the total workforce.

Demand for information technology workers in the Dutch services sector continued to grow despite the crisis. The industry labor market surveys showed that IT specialists have become a hot property in the Netherlands because too few young people entered the field over the last decade and national educational system cannot meet the demand for hi-tech specialists.

As it was indicated in the first part of the study the Netherlands follows similar to Germany trend where hi-tech and engineering trades falling in popularity. Contrary to

the country’s growing role in Europe’s IT innovation young population in the Netherlands is not rushing to get IT education.

“The decline in engineering’s popularity among students is apparently due to a perception that the subject is boring and hard work, and engineering has a negative environmental impact, and may be seen as part of the problem rather than the solution,” explains Tony Marjoram, the Report Magazine editor.

Despite the high salaries in the sector the image of hi-tech professions still stays at the relatively to other sectors low rank in the Netherlands. As result local institutes and universities do not produce enough qualified graduates while at the same time aging generation of old-school engineers comes to retirement.

With overall shortage of hi-tech specialists and engineers comes to 1.2 million in the EU - based on data provided by European Round Table of Industrialists - the Netherlands together with Germany, France and UK responsible for a lion share of that shortage.

Please note: The previous chapters presented only the first part of the study content. The full paper can be accessed by following this link or in “researches” section of our blog.

Nearshore Study Part II. Netherlands - EU leader in IT innovation

Dear Readers,


The Nearshore Blog team is extremely pleased to announce about the completion of the second part of our "Nearshoring to Eastern Europe as a solution to the EU labor shortage" studies series. The work is almost finished, and the study is in the pipeline :)

Hot on the heels of welcoming reception of the first part of the studies "Germany - EU largest economy needs 400,000 high-tech specialists" we concentrated our investigative efforts on analyzing another European leader in IT sphere - the Netherlands yet native land for Nearshore blog!

The Dutch economy is among world leaders in innovative activity and highly relies on the hi-tech sector. From this point the ability of Dutch economy to supply businesses with highly-qualified resources seen as a crucial prerequisite for post-recession recovery and further economic growth.


With this in mind we dedicated the second part of our study on the potential of Dutch IT service market, its needs in terms of supply of highly-qualified IT specialists and current labor regulations and multiculturalism issues preventing Dutch businesses from immigration of foreign work and as a result possible slowdown in growth and post-recession recovery.

As a solution to the growing shortage of IT talent the study considers nearshore outsourcing and staff augmentation services from Eastern Europe.


The study paper is expected to be accessible within the weeks and Nearshore Blog is thankful for all your support and help!

Lineke Sneller CIO of the Year 2010

Lineke Sneller, CIO van Tele2, heeft de CIO of the Year Award van 2010 gewonnen. Een zeskoppige jury, onder voorzitterschap van Bernhard van Oranje (founder Levi9), heeft haar gekozen als opvolger van Arjen Dorland, VP en CIO van de Downstream-organisatie binnen Shell. De bekendmaking vond plaats tijdens de zesde CIO Day in Noordwijkerhout.

It's Time to Nearshore - Letter from Authors

First of all, it's our greatest pleasure to see an increasing interest in nearshoring from business and academic communities across the world. It became apparent that Nearshore community is growing at a fast pace and more people became interested in nearshoring day by day.

We've seen a growing membership in our Nearshore Group on Linkedin as well as growing demand for information from business and academic representatives across the world, who are willing to raise the standard of management knowledge in the field and explore nearshoring benefits.

It also became clear that our active position in investigating nearshoring at both corporate and governmental levels became critical into providing a specialists means on what works and what does not, so helping businesses to make the right choice for their business engagement models.

Today, it is crucial as never, as European businesses are under the growing pressure of labor shortage from one side, and escalating discontent with traditional offshore model from another. Businesses in largest EU states such as Germany and France show signs of reluctance towards globalization of their sourcing strategies, while there is a growing labor gap with shortage of 400 000 IT specialists and engineers only in Germany.

A survey conducted for the leading German magazine revealed that a high percentage of the German businesses questioned for the poll said they had declined contracts during the first half of 2010 because they did not have enough staff to take on the extra work.

This lack of labour is developing into a dangerous brake on growth, particularly for small and medium-sized businesses and at this point it can only be reversed by companies looking for staff augmentation services abroad.

Serious immigration problems, strict labour policies and tax regulation together with the low-popularity of hi-tech specialities in countries such Germany, France, Netherlands make filling the gap for the account of internal training or immigration programs highly unrealistic.

From other side, outsourcing and, especially nearshoring proved to be a viable alternative to complement existing resources with highly-qualified yet less expensive workforce.

Being not only a cost-reduction mechanism, as with its closeness and cultural advantages nearshoring opens up perfect possibilities for various outsourcing models and approaches, from multi-sourcing to captive centers, it is also a prefect entering strategy for Western European companies to advance to economically growing Eastern European market, as the partnership with local providers not only provides access to less expensive and developed labor market and skills, but also enhance local market knowledge and expertise.


Conclusion

With this crucial aspects in mind we conducted a series of studies to discuss the current issues of the EU largest economies associated with the lack of qualified hi-tech specialists and labor restrictions.

We also want to update the perspective of Eastern European countries for providing nearshore outsourcing and staff augmentation services, and their possibilities to fill the gap in increasing labor shortage inside the European Union.

The first part of the study can be accessed here or in “Publications” section.

Nearshoring to Eastern Europe as solution to the EU labor shortage

“Outsourcing to Eastern Europe as solution to EU labor shortage”, is a study prepared by “Nearshoring Blog” to discuss the current issues of the EU largest economies associated with the lack of qualified hi-tech specialists as well as labor restrictions and multicultural issues that prevent countries from immigration of foreign work.

Another part of study updates the perspective of Eastern European countries for providing nearshore outsourcing services, and their possibilities to fill the gap in increasing labor shortage inside the European Union.

The study consist of the following sections:

1. Germany - EU largest economy needs 400,000 high-tech specialists
2. Economic Recovery
3. Lack of specialists
4. Immigration - not welcomed
5. Offshore Outsourcing? No, look closer!
6. Why outsource? Why just don’t attract people from other EU member states?
7. Nearshore Outsourcing. Win-Win solution

and provides latest statistical data and trends on Germany labor market in general, and IT specialists market in particular. In this post we presented a part of the study, while the full version is available in PDF format here


Part I. Germany – EU largest economy

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Germany - EU largest economy needs 400,000 high-tech specialists

In the first chapter of series we decided to start from Germany - the EU largest and most technological economy. The country which has been crying out for skilled hi-tech specialists and engineers for years, yet opposing to the idea of attracting foreign labor.

Economic Recovery

The country steadily emerges from the crisis and sees record growth of 3.3 percent. Booming demand for Germany cars and technologies from Asia, particularly China - world’s largest consumer market strengthen country’s export indicators.

The experts confirmed that Germany is one the raise. The third quarter of 2010 indicated a massive trade surplus, grew nearly 9 percent. German consumer confidence shows stabilization as well. The index is set to come in at high 4.9 points for November, which is almost in line with economists’ forecast of 5.2 points.

However, according to latest labor market surveys the EU largest economy and world’s major exporter is in desperate need for skilled specialists and engineers across sectors, with greatest need in hi-tech sphere with overall 400000 positions unfulfilled in the field.

A survey conducted for the sector WirtschaftsWoche magazine revealed that a high percentage of the 450 businesses questioned for the poll said they had declined contracts during the first half of 2010 because they did not have enough staff to take on the extra work.

“The lack of labour is developing into a dangerous brake on growth, particularly for small and medium-sized companies,” said Marie-Christine Ostermann, chairwoman of the employers’ association Young Businesses-BJU, which co-commissioned the survey.

Please access the full version of the study in PDF format here

Will decision of non-EU expansion till 2020 boost IT outsourcing in Eastern Europe?

In recent article we discussed enlargement of the EU and its impact on outsourcing landscape in the region. We considered two phases of expansion as they have been mostly associated with countries representing outsourcing providers market:

• 1st wave in 2004 with Malta, Cyprus, Estonia, Latvia, Lithuania, Poland, Czech Republic, Slovakia, Slovenia, Hungary,
• 2nd wave in 2007 with Bulgaria and Romania

Experts agreed that expansion of the EU boarders further Central and East has contributed to re-arrangements in the state of things in the region’s outsourcing market. Especially the first wave.

Once region’s premier outsourcing destinations, such as Poland, Czech Republic and Hungary which were mainly associated with the growth of nearshore outsourcing in the region have fallen in rank and gave their way as the top locations to Bulgaria and Romania. In 2009 A.T Kearney Global Services Location Index ranked Bulgaria and Romania as top destinations for outsourcing services while Czech Republic, Hungary and Poland fallen significantly.

These re-arrangements were associated with the impact of EU-membership on those 2004 entrants. Economic transformations, wage inflation and increasing operating costs resulted in eliminating cost advantage that countries offered before. While both Romania and Bulgaria representing a second wave of EU enlargement in 2007 being still on the earliest stages of transformation towards EU model. Having improved legislation, market economy and all other qualities needed to meet EU acceptance criteria these countries are developing markets with competitive prices and abundant talent pool.

Further East

However, experts agree that Bulgaria and Romania will not escape the impact of EU membership and some studies already indicated changing environment and growing indicators. Opened borders will attract many talented professionals to search for new opportunities while influx of foreign investment and new standards raise costs.

In the meantime we see a growing interest towards far Eastern neighbours, who has not joined the EU yet. According to the 2010 Global Services 100 lists, Ukraine is 11th and Belarus is 13th among Top 20 leading countries in the area of IT Outsourcing and Hi-Tech services with Ukraine representing the region’s biggest IT outsourcing professionals market with 11,000 professionals involved.

With shift in delivery preferences and outsourcing drivers in Europe towards nearshore options experts signal growing interest to Ukraine and Belarus. Being closest of those non-EU member states these counties might represent the second wave of nearshoring trend becoming outsourcing magnets.


No EU expansion till 2020

This trend might be facilitated by the news about the EU expansion plans put on hold till 2020. Instead, the new format for cooperation development with Armenia, Belarus, Georgia, Modlova and Ukraine is planned to be on place, including EU plans to ease visa and trade relations with those non-EU countries in the near future.

Ukraine is announced to get an action plan for visa-free regime with EU member states on November 22, 2010 while Ukraine itself establishment Visa-Free Regime for Citizens of EU since 2005.

Thus, geographical proximity and no-visa traveling together with cost advantages and large resource base will be driving forces for IT outsourcing market growth in Eastern Europe.

Polish delegation presented country as an attractive outsourcing destination in New York

On October 12th representatives from Poland, Silesia region stayed in New York to promote Poland and the Silesian region in southern Poland. The Silesian delegation and the representatives of the Polish Consulate in New York were working together to convince US businesses and potential investors to consider Poland a valuable business partner.

The delegation included Mateusz Skowroński, Manager of Investor Assistance Centre. Mateusz, was assisted by Michał Urbankowski, Consul at the Trade and Investment Section of the Consulate General of Poland in New York and Wanda Lopuch PhD, President of Global Sourcing Council, who organized the visit.

The event was broadcast over the internet to 12 000 recipients around the world, and was covered by New York Times. Mateusz Skowroński, member of the Katowice City Hall, presented the offer of Poland's Silesian region and promoted Katowice as a reliable partner in business. Mariusz Tomaka of DisplayLink and a member of the US-Polish Trade Council was interviewed and given the opportunity to introduce US businesses to take a closer look at Poland and Silesia as a potential service provider.

Business Process Outsourcing (BPO) has been growing steadily in Poland for the last couple of years and we anticipate this trend to accelerate in the future. At this time Poland, still considered a market with untapped potential, was a home to approximately 370 BPO and Shared Service Centers operating and expanding around the entire country. It is estimated that by the end of this year- 2010 about 60 000-70 000 people will be employed in this sector.

The Tech Recovery of 2010 Is Underway

As it was predicted by leading research agencies 2-3Q of 2010 continued a strong tech recovery in US and Europe. In its latest IT market outlook Q2 leading industry researcher Forrester indicates the growth of global IT market at the 7.8% mark.

Software and computer equipment awill be the strongest categories, with PCs, peripherals, and storage equipment leading the computer category, and operating system software and applications setting the pace for software.

As a factors for such growth experts associate a better-than-expected performance in communications industry and overall good performance of the economies in US and major European countries. Globally, the tech market measured in US dollars will grow by 7%, with the somewhat weaker outlook for the US tech market offsetting slightly better performance in Europe and strong growth in Latin America, the Middle East, Africa, and Asia/Pacific.

As for forecast for 2011 experts caution with economic indicators. Unstable US currency, Greek debt crisis and fears of one spreading to Portugal, Spain, Italy might influence global economy. Andrew Bartel from Forrester research sees global and US economies will fall between extremes of strong growth or recession, growing weakly but not slipping back into recession.

In general forecast for IT market in 2011 is set on 7.4% mark. Data source - Forrester US And Global IT Market Outlook Q3.

Ukraine to get action plan for visa-free regime with European Union

Ukraine expects to receive an action plan on the European Union's introduction of a visa-free regime for Ukrainian citizens at the Ukraine-EU summit in Brussels on Nov. 22, the press service of the Ukrainian Foreign Affairs Ministry has reported.

"Kyiv is expecting to receive an action plan on the European Union's introduction of a visa-free regime for Ukrainian citizens at the next Ukraine-EU summit, which will be held in Brussels in November," Pavlo Klimkin, the deputy foreign minister of Ukraine, said at a meeting with the ambassadors of EU member states on Monday,

Klimkin briefed the EU member state ambassadors on the results of the 13th round of talks between Ukraine and the EU regarding the across-the-board and deepened free trade zone, and pointed to the main priorities of the talks between Ukraine and the EU.

The EU member state representatives were briefed in detail on the key results of the visit of Prime Minister of Ukraine Mykola Azarov to Brussels on Oct. 13-14 and the state of bilateral relations between Ukraine and the EU on the eve of the Ukraine-EU summit in Brussels on Nov. 22.

Steady growth for IT outsourcing over last years

According to a California-based IT industry research firm Computer Economics spending on outsourcing within IT industry increased from 3.8 percent in 2008 to 6.1 percent in 2009, and set to show even greater rise in 2010.

Technology and business companies are moving more of their IT spending to outsourcing, according to a new study, which may interest international contractors.

John Longwell, vice president of research for Computer Economics, a California-based IT research and advisory firm, said the recession has been one of the key reasons why firms are increasingly opting to outsource their IT functions.

However, new currents in IT industry such as Cloud computing contributed to the growth of subcontracting within the industry. "Cloud computing is a development that will result in more money being spent with outside service providers, regardless of the macroeconomic climate."

The report from another researcher REC Technology revealed that demand for people who work as an IT contractor is on the rise as well.

IT Outsourcing – Choosing the right supplier

During the last years we’ve seen growth in demand for ITO and BPO services at the international scale. The crises brought both economic challenges and increased competitiveness across the sectors. Companies still are under the constant pressure to streamline efficiency and innovation while cut costs and derive more value.

From this perspective outsourcing appears as a liveable tool to respond to the current economic challenges and stay afloat, but still shaky economy requires businesses to take any step more cautiously, including outsourcing.

As a respond to this caution we’ve seen advisories across continents published their fit-to-all guides as to how chose the right outsourcing destination and partner. Although some of them were published for the promotional behalf of various providers we‘ve seen a change in key aspects to consider while selecting IT outsourcing choice.

Main Criteria have changed

Once not that long ago main criteria such as English language speaking skills and high numbers of unemployed locals turned into the often misguided recommendations of where to consider outsourcing and were substituted by the data safety and business continuity. Ability of both supplier and destination to provide data safety and business continuity became a key aspects of decision making process.

Evaluation Process

Some time ago the main process of evaluation revolved around the provider itself, as there wasn’t to much choice in destination options. The main aspects were:

- Company track-record and reputation
- Skills and competences
- Quality and Security
- Experience and References
- People

While making evaluation process companies should assess all that criteria and define which provider’s set of qualities fit most. Also, companies considered the human factor in each contender team, from managers to the people in the field to define the synergy and communication capabilities.

Further, with the growing popularity outsourcing seen emergence of new destinatons from exotic to socially downtrodden areas, business deal-makers from around the globe compete for a slice of the billions dollars outsourcing pie. Rise of whole new bunch of emerging outsourcing destinations have changed global outsourcing landscape and companies not being able to overlook new opportunities began to explore new outsourcing possibilities.

But investor and prospective client interest cannot longer be motivated by the provider’s assessment alone, as country legislation, infrastructure and approachability play a crucial role in outsourcing success or failure. Every company that outsources is fully exposed to the threats and hazards of the location where their operations hosted.
The terrorist attacks and corruption scandals of recent years in the offshoring industry main destination proved the importance of location assessment in decision making process.
Beyond reputations, expertise and skills of provider, one of the most critical issue became the developer’s country of origin. The knowledge of economic progress, democracy status, educational potential, etc. will let to assess potential benefits or losses of co-operation.

Industry attention

Following the suite leading analysts include not only the best location rankings into their reports and surveys, but also ranked the most unattractive and dangerous outsourcing destinations to help development and location specialists to determine the best location choice for their organization.

The location analysis became an integral part of each analysts study and report. Industry leading firms such as A.T Kearney, Black Book of Outsourcing, Gartner and Everest take annual outsourcing location rankings to analyse changes and developments in each region and update the perspective on providing outsourcing services.

Central and Eastern Outsourcing Association (CEEOA) leading regional union of IT associations commissions its annual Central and Eastern IT Outsourcing review to analyse the developments in CEE region and update perspectives of each country in providing IT outsourcing services.

BPO in Europe - offshore or nearshore?

Recent article by Alsbridge's BPO and shared services advisory practice in Sourcingmag.com discusses the opportunities of the development of Global BPO service market in Europe. Many experts see continental Europe as a next major business process outsourcing (BPO) growth area. But the question is - will Europe open its doors to leading Indian offshore providers, or will keep its short-sighted nearshore precedency.

One of they key aspects in determining the possible directions of BPO market movement in Europe is to look at the development of the sister ITO market which has been showing a clear signs towards homecoming for last decade. The panacea of outsourcing to nations such as India and China has proven illusory for many European companies. Latest reports confirms that long-distance offshoring does take its toll on the control of projects and erode program management and communication.

The lowering satisfaction levels combined with terrorist attacks, corruption scandals and rising attrition levels in India contributed to the shift in outsourcing delivery preferences towards nearshore and sameshore options. The survey being made by Black Book Research in 2009 confirmed this shift naming Central and Eastern Europe and Latin America top destinations for operating with lowest downstream risks for Western Europe and US respectively.


What is the relationship between ITO and BPO.

Although there are many differences between ITO and BPO, some relations are overt. The main objective of ITO is to improve IT infrastructure and reduce the cost of IT systems while BPO goes beyond that improving the performance, efficiency and productivity of a business. Nevertheless, most of the key core processes of a business require IT support whether its logistics management or financial management or customer care, all those processes will have a strong IT infrastructure to them.

That said both ITO and BPO come as a one strategic decision for the C-suite. The top management should co-ordinate IT strategy with the BPO strategy coherently. With this intimacy between two most European companies will be making sourcing decisions and determining best location choice based on their previous experiences and main drivers.


Current state of things

Global BPO is rather old hat in the UK and it remains Europe’s largest BPO market with Switzerland, Netherlands and Nordic countries showing high activity in these areas.

The largest European economies among which Germany and France show some signs of reluctance towards BPO though. That reluctance is explained by experts as a difference of world view - while cold-blooded Anglo-Saxons would outsource their grandmothers if they could, those conservative and consensus-driven Europeans prefer to keep the back offices close to home.

Many BPO suppliers - even a leading French supplier selling to French customers - complain of a crushing lack of interest in their outsourcing wares. It seems concerns about BPO's incompatibility with Europe have real currency at a local level, and as a result many local French, German or Italian organisations instinctively baulk at the prospect of externalisation. But the likes of Philips, Axa or American Express have proven that the barriers can be overcome.

They have experience with shared services and have accumulated the skills to know how to deploy them; they know that complex European language requirements can be handled well by low-cost east European locations.

In short they know that BPO works, and that there are only imagined barriers to it working well in Europe. More and more companies are finding that they can get it right, lowering operating costs and improving back-office quality and compliance as a result.

The question will global BPO works in Europe or it repeats failure of ITO.

Nearshore - the new offshore?

Realities of unsafe world affected outsourcing industry


Despite the economic crisis and challenges it has brought to global economy, the outsourcing market is expanding to offer both a bigger choice of locations and a wider range of services. These are turbulent times increased importance of operational efficiency and cost reduction, which closely associated with outsourcing nowadays. As the scale of this crisis become clear, most companies introduced cost-cutting measures and approved outsourcing strategies. Many see outsourcing as a road to survival as it allows to mitigate budget and bottom line pressures.

Outsourcing is not, however, appeared to be a panacea as many have tried and failed to make it work, especially where long distances, unfamiliar cultures and intellectual property along with other risks are involved. There was a big rush to go offshore early this decade, particularly to India. But the time and expense traveling to remote locations mainly caused by cultural and language dissimilarities has been noticed.

The global political, economical, social and security changes during past year have a substantial impact on outsourcing industry at international level. After the terrorist events and corruption scandals of 2008 in one of the offshore industry main destinations, the outsourcing decision process as well as risk/reward calculations have irreversibly been changed. The new realities of socially unsafe world have fully overrun into outsourcing decisions. Client's interests are no longer motivated by only English language skills and high numbers of unemployed locals as such criteria do not ensure data safety and business continuity. As every company that outsources is fully exposed to the downstream risks, unless it can establish the threats in the regional location where their operations are hosted.

As the savings gap between India and other world locations sunk to less than ten percent, the value proposition is tempered more by potential threads. From this point, the ability of suppliers to ensure that customers' sensitive data and business processes remain safe with the perspective to location's proximity, intellectual protection and infrastructure capabilities has been considered as an important element of decision making process and included into strategic outsourcing planning. While less inclusive outsourcing location rankings based on cheaper but skilled labor pools and tax incentives considered to be not sufficient to make a qualified destination decision.


Nearshoring - strong trend

Escalating uncertainties of regional threats in offshore locations combined with increased focus on vulnerability management and demand to keep data, process resources and account executives closer to where clients actually based have contributed to the shift in delivery preferences.

The survey being made by Black Book Research indicates that Central and Eastern Europe and Latin America are viewed as significantly less dangerous outsourcing locations that all major hubs of India and being marked as the top destinations for operating with lowest downstream risks in 2009. According to research having centers nearshore and sameshore will be a major client priority during next years.

Compared with offshore outsourcing, there are some other factors of nearshoring allowing to improve outsourcing governance and build productive relationships with providers, including less travel costs, less time zone differences, and closer cultural compatibility. In nerarshoring study conducted by Erran Carmel and Pamela Abbott argue convincingly that distance still matters, and point to customer choosing the nearshore option to gain benefit from one or more of the following constructs of proximity: geographic, temporal, cultural, linguistic, economic, political, and historical linkages.

Canada, Central and Eastern Europe and Latin America, for example, are significant nearshoring destinations for US and West European customers respectively, and some analysts argue that US and West European clients can have lower total costs with nearshoring to Canada and Central and Eastern respectively than with offshoring to India. As proximity between parties provides with lower costs interaction enabling client's management to be more present in the project, cultural closeness also makes easier communication thereby reducing time to reach a conclusion. Time zone aspect eliminates the need in extra work. And as a result of all this the hourly rate difference between nearshore service model and “traditional” farshore model is eliminated and real costs match.

Conclusion

Increased focus on vulnerability management as well as shifting outsourcing delivery preferences to nearshore and sameshore allow nearshoring destinations to profit from nearshoring advantages in their specific clusters based around clients in North America, Western Europe and in a less degree East Asia, differentiating themselves from farshore suppliers on proximity criteria. While traditional offshoring suppliers, particularly Indian leading providers will find the lack of client nearshore and sameshore options as absolute deal breakers and streamline their efforts on advancing to Central and Eastern Europe as well as Latin America to establish data and service centers to reduce downstream risks and diminish concerns of US and European clients.

Ukraine ranks 11 in the list of TOP100 outsourcing destinations by

According to the 2010 Global Services 100 list, Ukraine is 11th and Belarus is 13th among 20 leading countries in the area of IT Outsourcing and High Tech Services. The GS 100 list is annually compiled  by Global Services in association with NeoAdvisory, a consulting and advisory company.

This year more than 150 companies participated in the annual survey and analysis of the global ITO-BPO industry. The companies were asked to share detailed information through an online survey which contained over 200 data inputs and qualitative parameters. The GS 100 model for analysis includes such criteria as management excellence, customer maturity, global delivery maturity, and breadth of services portfolio.

According to Global Services, the top leading countries in IT-outsourcing by number of developers employed are: India (514,157 developers), Philippines (97,740 developers) and USA (42,808 developers). Ukraine is at 11th place with 5,816 employed developers, and Belarus is at 13th, with 4,534 developers. The number of developers is based on the data provided by the companies who opted to participate in the survey. The companies from USA and Canada form the majority of rating participants (37%), while 33% of the companies represent India, 9% are based in Europe, 9% in Latin America, 6% in China, and 5% are in Asia.

Introducing Country Profiles on Nearshore Blog

Dear Readers,


We're glad to announce the start of Country Profiles series on the pages of Nearshore Blog. The country profiles series include profiles of countries within the Central and Eastern European region with general information about the country, its economical and educational spheres as well as perspectives on provision of Nearshore IT services to Western European countries.

The series will be represented by the special sections "Nearshore destinations" tab on the right and upper menu on this blog as well as special articles, dedicated to each country.

With the growing Nearshoring trend and strengthening position of Central and Eastern European region at the global IT outsourcing arena the need in better information supply arose. The main objectives of the country profiles series is to provide sufficient information about IT outsourcing capabilities and latest developments in leading nearshoring destinations in Central and Eastern Europe.

Please see the country profiles sections to find out more about leading nearshore destinations.

First Ukrainian IT outsourcing company turned 21 - great mark for whole industry

Already for 21 years the last days of September, which are widely known here in Ukraine as a “golden autumn” have already became traditionally recognizable as symbolical time for Ukrainian IT outsourcing industry. These days the first professional IT outsourcing company in Ukraine celebrates 21 anniversary of its foundation.

Levi9 Ukraine, formerly known as Mirasoft celebrates its 21th anniversary this year. September 24 is official company day at Levi9 - the date which encompasses more than two decades of pioneering Information Technology and spreading the word about Ukrainian technological capabilities around the world.

Being one of the first professional software development companies in USSR Levi9 Ukraine represented the potential of Ukraine, which was the major hub of scientific and space industries for the Soviet Union. With leading scientists and engineers from the Kiev Institute of Cybernetics on board Levi9 Ukraine quickly gained attention of the Western companies and signed its first IT outsourcing contract already in 1990.

Since that time much progress has been done and the Ukrainian IT outsourcing market has grown to become one of the biggest in the Central and Eastern European region with the market volume ($844 Mln) and most employees involved in the industry (16000). Today, Ukraine considered as the most compelling destination for IT outsourcing services in Eastern Europe and attracts many world’s premier companies. The country boasts of 30,000 IT graduates each year and allocate established IT associations and alliances, namely Ukrainian Hi-Tech Initative and Central and Eastern European Outsourcing Association(CEEOA).

Many experts associate Ukraine and its closest neighbor Belarus with the rise of Nearshore outsourcing trend in the region. Being the closest to Europe out of those which not have joined the EU, Ukraine offers very attractive opportunities to the West European companies to explore its IT opportunities, with language and cultural ties, no time-zone differences, legacy of Soviet science, strong educational system and a huge pool of highly-skilled resources. According to acknowledged research agencies, such Global Offshore Associates Limited Ukraine is to be converted in the most arresting IT outsourcing destination in Eastern Europe in next several years.

From this point, Levi9 Ukraine and other established IT outsourcing players have a great chance to continue the mission started 21 years ago by brave enthusiasts and pioneers from the Kiev Institute of Cybernetics who today celebrate their success with friends, partners and colleagues.

Leading online Entrepeneur of the year 2010

This was the first time that the Loey awards were organized. A great event. Sea article. http://www.telegraaf.nl/mijnbedrijf/7536289/__Zoover_wint_eerste_LOEY-award__.html?sn=mijnbedrijf

Will the Cloud computing displace traditional IT outsourcing?

Browsing through the web last week I found an article with quite a strong title “The end of outsourcing?!”, written by my friend and fellow IT outsourcing expert. In the article he argued about the prediction made by the head of the outsourcing practice at consultancy A.T. Kearney. In its report “The End of IT Outsourcing As We Know It” Mr. Arjun Sethi states: "In the next five years, outsourcing as we know it will have disappeared." Well, I would say rather bold prediction, especially taking into account recent predictions about the “upcoming golden age of outsourcing”, nevertheless let’s try to find out the probability of such prediction.

There have been much said about the future of IT outsourcing lately. From the Cloud dominance to global shift in delivery and governance models to reverse sourcing and protectionism. Myself, I conducted several works and started a number of discussions here in LinkedIn with the relation to the Cloud computing and its potential affect on IT outsourcing industry. While I saw many experts predicted growing trend for pay-per-drink model there wasn’t concordance and obvious verdict for the shift inside the industry anytime soon. Of course there are some obvious benefits of this model, such as costs, agility and focus which can provide a whole new set of opportunities for both business and individuals. But for the corporate sector, bread and butter of IT outsourcing, all they don’t outweigh security, reliability and ownership of proprietary systems yet. Moreover, investments made by corporations into the existing infrastructure slow down adoption in the sector.

In his forecast, however Mr. Arjun Sethi associates massive reconfiguration of IT ousourcing industry, that according to him should take place in the nearest future precisely with the rise of the Cloud computing. The new era will be driven by Google, Amazon and bunch of new players, while powerhouses such as HP, Accenture and Xerox are in peril to lose their leading positions, and boutique Indian outsourcers poised to disappear at all. Well, it is quite truth that we are moving away from large multi-year full stack contracts towards more specialized, smaller service agreements, but with the current massive consolidation many of those specialized providers will be under umbrella of those big ones.

I also agree that the Cloud brings huge opportunities for highly-configurable systems that might fit needs of many sectors and industries, but standardization which, according to Sethi will feature the revolution in industry is unlikely. Although, today all major software houses and providers include cloud computing offerings in their portfolio, most of them just contemplate their core offerings with the Cloud options, even Microsoft - the company that announced a company-wide refocusing on cloud computing still fully relies on its software installed in physical assets. It will take more than a year or two or even three to change their model.

Although cloud computing experienced a phenomenal growth during last years, it's still in its infancy in corporate sector - cash cow of IT outsourcing industry. No doubts it will grow, grow fast, especially in SME sector, but it will take a good amount of time to make this transition to fully based pay-per... model. And still much should be done before we can signify the new era - meanwhile, forgive for my prejudice I don’t see end of traditional outsourcing.

Will be glad to know other opinions. Please join the conversation in Linkedin, click here.

The Creative Cradle mission by NL EVD International will gathers top decision makers from Netherlands and North America

NL EVD International - a department of the Dutch Ministry of Economic Affairs that implements government policy for sustainability, innovation, and international business and cooperation organizes a Creative Cradle mission which involves prominent decision makers from North America visiting the Netherlands for series of matchmaking and networking events.

Most of US companies seek international cooperation, a new technology or creative impulse and are interested in the Netherlands as a creative hub for Europe. The host cities for the mission are Amsterdam and Rotterdam.

The mission will be held on September 25, 2010.

Starting a Nearshoring # hashtag on Twitter

Almost for everyone who uses Twitter more than once in a month, a shashtag or # prefix is quite familiar. The prefix is a simple way to indicate the belonging of your tweet to some topic, so that people who search for tweets with similar topic can easily find your.

So, even if you don't indicate the keyword "nearshoring" in your tweet but place a #hashtag anywhere except the end, your tweet will appear on relevant search.

So we decided to start a #nearshoring hashtag to share ourselves and allow you to share useful info by adding #nearshoring to our tweets

Has the recession changed outsourcing drivers for SME's and large companies?

Surely, there were a number of different aspects of outsourcing between enterprise and SME sectors even before the crisis. Outsourcing played different roles and spanned around different areas in each league. However, before the crisis some trends became widely common. Both sectors showed move towards more strategic forms of outsourcing where costs reduction wasn't only one major factor that drove outsourcing decisions. The crisis, however is deemed to change this trend. In volatile economic climate of last years many experts distinguished outsourcing drivers for each sector - claiming that large companies want to globalize and cut costs, while small and mid-sized seek expertise.

According to the latest survey by National Outsourcing Association the focus on the costs reduction has risen significantly among large end-users of outsourcing in UK. Today's big customers want 15 percent savings from outsourcing compared to 10 percent before the recession, while the time they want to achieve reduction has shortened. Access to the specialized skills and offloading of internal resources for mission critical processes ranked distant second and third positions.

At the same time another survey focused specifically on SME sector came with different indications. According to the survey conducted by Irish-based HiberniaErvos Technology Group, 63 percent of SME's who already utilize outsourcing put the ability to free up internal resources and focus on business-critical processes as a major benefit of outsourcing.

So is it just a specifics of each sectors? or there are more inclusive post-recession factors on place (such as difficulties for SME's to compete for qualified talent domestically or shortened time-to-market)?


Join the LinkedIn discussion on related subject here

Strategic Sourcing 2010: Driven by value!

Strategic sourcing is at its crossroads. Many organizations are re-evaluating their sourcing contracts. How about strategy, sourcing governance, supply and demand management? Enterprise and government are ready for a change, a move to get more value out of sourcing relationships!

For IT executives this means they have to become business partners and at the same time challenge their vendors and business counterparts: in the end it’s not really about cost savings – it’s all about business value! So the question is: What is the value of sourcing?

Nearshore Outsourcing Trend Grows Across the World

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Although Nearshoring concept became a widely popular business practice across the Europe it's still in emerging phase in the Western Hemisphere mainly because of strong popularity of India offshore offerings. However, escalating uncertainties of regional threats in India combined with increased focus on vulnerability management and demand to keep data close to where business actually located have changed delivery preferences of US businesses towards nearshore and sameshore options.

Recent ranking "The Nearshore Americas Power 50" named the most influential Nearshore figures from 16 countries from Americas region. The region is considered to be the main nearshoring destination for US and viable alternative to offshoring to India. The $11 billion industry has all chances to successfully compete with offshore destinations as realities of unsafe world have fully overrun into outsourcing decisions. Focus on vulnerability management and operating with lowest downstream risks help nearshoring destinations to attract more attention.

The survey being made by Black Book Research indicates that Central and Eastern Europe and Latin America are viewed as significantly less dangerous outsourcing locations that all major hubs of India and being marked as the top destinations for operating with lowest downstream risks. Having services centers nearshore and sameshore will be a major client priority in years to come.

From other side in nerarshoring study conducted by Erran Carmel and Pamela Abbott argue convincingly that distance still matters, and point to customer choosing the nearshore option to gain benefit from one or more of the following constructs of proximity: geographic, temporal, cultural, linguistic, economic, political, and historical linkages.

Central and Eastern Europe is significant nearshoring destinations for Western Europe for more than a decade. Where geographical and cultural proximity provides with lower costs interaction, better communication and no time zone difference. As a result project management became more transparent, time zone eliminates the need in extra work and cost difference dilutes.

ISV's Lunch Seminar in Amsterdam - The Art of Software Dev

On June 16, Levi9 Global Sourcing in conjunction with the University of Utrecht, Microsoft Corp and Exact Software is hosting an IT industry specific lunch seminar.

The seminar will be held in Amsterdam, and will gather under one roof some of leading IT professionals and scholars from the Netherlands. Among keyspeakers there are such distinguished panelist as Prof. Dr. Sjaak Brinkkemper, Professor of Organization and Information Utrecht University with specialization in software products and Roland Janssen, Manager ISV Partner Group, Microsoft, Gerard Hurkmans, sales manager Levi9 and Aard ’t Hart, Director of Research & Innovation, Exact Software

The seminar is oriented on Independent Software Vendors (ISV's) and will attract executives and senior level professionals of leading tech companies in the Netherlands. The event will provide unique opportunities for ISV's to delve into the process of nearshore outsourcing and get real recommendations and advices for the effective adoption of the practice within corporate strategy.

Moreover, panel and knowledge exchange sessions will be held to raise the standard of management knowledge in this field. Session will kick off at 11:30 a.m. and will be followed by coffee reception at 1.45 p.m.

To register for seminar please click here.

EC demands more progress towards a single telecoms market

Digital Agenda Commissioner Neelie Kroes has lambasted EU member states for putting their national interests above efforts to achieve the full economic benefits of a "truly single and competitive EU-wide telecoms market".

Fragmented national markets and huge differences in mobile call rates are affecting hundreds of thousands of consumers and businesses, according to Kroes.

Member states need to do more to ensure telecoms rules are properly implemented and the necessary investments in innovative services are made for the benefit of all 500 million European consumers, she said.

Kroes said more progress needed to be made in the development of the mobile data services sector and the rollout of optical fibre-based next generation access (NGA) networks.

As the commissioner in charge of the recently launched EU Digital Agenda, Kroes is expected to put forward new recommendations on how NGA network rollouts can be made faster later this year.

The EU Digital Agenda aims to deliver broadband coverage to all Europeans by 2013. To help achieve this, national regulators are being urged to comply with a Radio Spectrum Policy Programme that aims to ensure radio frequencies that are freed by the transition to digital broadcasting (the "digital dividend") are made available for new services, such as mobile broadband.

To help drive forward its Digital Agenda, the EC recently establishd the Body of European Regulators for Electronic Communications.

EU Wants Privacy Standards in Data Sharing with US

The European Union wants to agree broad privacy rules with the United States to safeguard personal data shared in pursuit of criminals and terrorism suspects, the EU's rights chief said.

The executive European Commission presented plans on Wednesday to negotiate a deal with Washington that would set standards for giving crime investigators access to information about EU citizens such as tax and health records or phone bills.

Such an agreement could make it easier for the 27-country EU to negotiate specific data transfers to the United States, and prevent messy battles such as an ongoing debate in Brussels over access to EU citizens' bank data.

Cooperation on information is vital for anti-terror investigators because Europe lacks the technology to use some data, particularly bank records, in cross-border probes.

But access to information has become increasingly controversial in Europe because of concerns over privacy, notably in Germany.

"The two continents are putting down values on which they can build all technical agreements in the future," Viviane Reding, the EU's Commissioner for justice and fundamental rights said in an interview with Reuters.

"All bilateral agreements would be based on this basic agreement."

Underscoring controversy in Europe, the European Parliament in February vetoed a temporary deal to allow terror investigators from the United States access to Europeans' bank details, raising concerns in Washington over security.

Europe outlines plan to boost broadband by 2020

All European households will have broadband speeds of 30Mbps (megabits per second) by 2020, the European Union has pledged.

It also promised universal broadband coverage by 2013 while getting half of Europeans using public services and shopping online by 2015.It is part of the European Union's five year plan for the digital economy.

The raft of measure were announced by newly-appointed digital affairs commissioner Neelie Kroes.

The EU's digital agenda will see over 30 laws introduced over the next three years.

Laying out her plans, Ms Kroes said that the EU invested 40% less in technology than the US.

It meant that nearly a third of Europeans had never used the internet and only 1% had access to fibre-based high-speed networks.

In order to catch up, EU governments must double their annual spending on research and development to 11bn euros (£9.4bn) by 2020, she said.

She also plans to improve technology standards, eliminate regulatory barriers, encourage electronic payments and simplify digital copyright management and licensing.

In November the European Parliament voted in favour of a major overhaul of telecoms law.

It aimed to harmonise the way mobile broadband is rolled out across Europe as well as establishing internet access as a fundamental right.

TPI says UK no longer biggest outsourcing market outside US

For the first time, France, Germany and Sweden all spent more on outsourcing than the UK in the first quarter of this year as contract renegotiations surged, according to TPI.

The UK spent less than €800m, 50% less than last year, compared with more than €1bn in Germany and €2bn in France as a result of a massive SNCF deal.

TPI said one mega-deal in Sweden meant the country doubled its total value of outsourcing contracts. It would not name the customer, but Swedish engineering company ABB recently signed a big deal with IBM.

This was on the back of a 7% increase in the total Emea market to €7bn.

TPI's Index measures commercial outsourcing contracts valued at €20m or more.


Contract restructuring accounted for a massive 40% of the total value of deals in the Emea region, which was significantly more than the previous record of 24% set in 2006.

New scope in deals in Europe was down by 22% and the number of contracts awarded in the region also declined by 24%.

"Even though this is only one quarter's results, it does appear that the key countries contributing to Europe's outsourcing performance are shifting to the less mature continental markets," said Duncan Aitchison, president at TPI Emea

IT Outsourcing is set to growth in the second half of 2010

According to the industry experts IT outsourcing looks set to grow in popularity throughout the rest of the year.

This is the suggestion of a new report by IDC European Software and Services, which has predicted European IT services expenditure will grow in second half of 2010 and further in 2011, with IT outsourcing being the main driver behind this dynamic.

With stabilized IT budgets and easing of economic conditions businesses will begin to invest in IT project again. The study revealed the industry could record a growth rate of 2.2 per cent next year.

Laura Converso, research manager at IDC European Software and Services, said: "Demand for projects and outsourcing will pick up towards the second half of 2010."

She added that the need for IT services will be most prominent this year in the UK, Germany and the Nordic countries.

Patrick O’Brien, senior analyst at IT industry analyst Ovum, recently predicted a strong year for outsourcing IT as the economy emerges from recession.