US IT Service Firms Will Face More Offshore Competition.

Offshore service providers are making serious inroads into the US outsourcing market. According to IDC, several factors, including the IT skills shortage, globalization, and the Internet, are causing firms of all sizes to look offshore for help with their IT projects. The urgency of Y2K also dramatically increased the mindshare of offshore service providers among high-level business managers.

Offshore IT ventures have historically been perceived as high-risk gambles whereby cultural misunderstandings and miscommunications create complications that outweigh the cost-effectiveness of the projects. However, IDC learned that as US companies increasingly work with offshore service providers, the stereotypes that have inhibited growth of these providers are breaking down.

According to IDC, companies that used offshore providers to help with Y2K compliance found the service they received was high quality, cost-effective, and fast.

Another factor contributing to the increase in use of offshore providers is the increase in the types of services available. According to IDC, new technology development is enabling far more complex IT services and even business functions than ever before to be provided remotely. Internet services, remote hosting of applications, platform migrations, enterprise resource planning customization and support, and business process outsourcing are just some of the functions now available from offshore providers.

IDC believes that as all these factors continue to converge, the offshore outsourcing model will improve and more companies will use some variety of offshore IT services.

"In the future, as companies become comfortable using offshore resources, they may move toward a hybrid global sourcing model, where critical IT programs are resourced from multiple offshore firms located in different regions of the world," says Tom Murphy, an analyst with IDC's IT Advisor research program.

"The offshore model will evolve to become a serious threat to US-based services firms and large global IS outsourcing vendors," says Cynthia Doyle senior research analyst for IDC's IS Outsourcing and BPO service. "Collaboration between regions playing off local strengths could offer users cost-effective remote services that are highly competitive when measured against those of the traditional service providers."