While reduced cost was the primary driver of the IT outsourcing market in previous years, sending U.S. jobs to India and China, businesses appear now to be putting a greater emphasis on value. It has prompted some companies to take a closer look at security concerns and service capabilities of offshore service providers.
“There is a certain backlash of bad outsourcing deals that has occurred,” said Michael Locher, CEO of Enterprise Integration, a Jacksonville-based IT services provider. Enterprise Integration has grown by about 29 percent annually over the past three years, adding dozens of staff and two new locations. The company is preparing for another year of similar growth in 2011 and expects to add an additional 70 employees to bring the staff size to 300 by the end of 2011.
Locher said his clients, which include many of Northeast Florida’s largest companies, such as CSX Corp. and Rayioner Inc., are increasingly looking for higher levels of service rather than simply lower cost.
“We are a huge customer service organization that happens to do IT really well,” Locher said.
It’s also been a good time for companies to give a closer look at domestic outsourcing operations such as data storage, network administration or software application development. The sluggish economy and greater availability of cheap, local labor has made onshoring less expensive, while rates have gone up in certain international markets.
“Offshoring isn’t as cheap as it used to be,” said Travis Webb, branch manager for the consulting services division of Robert Half Technology, an IT staffing firm.
China, Southeast Asia and India continue to be leading outsourcing locations because of the existing infrastructure to support increased demand, but the U.S. is gaining ground. The U.S. was an outsourcing destination for 11 percent of companies surveyed in 2010, compared with 8 percent last year, according to a January survey by global accounting and consulting network BDO Seidman.
But the U.S. may not be able to ultimately maintain its position. When those same companies were asked where they are considering outsourcing in the future, just 2 percent picked the U.S. China was the favorite with 28 percent considering it as a future outsourcing destination.
Joseph Turso, director of operations for iVenture Solutions Inc., a Jacksonville-based information technology company catering to the small to medium-sized business market, said increasing concern about fraud and security breaches is likely to fuel the domestic IT outsourcing trend.
“People just aren’t willing to see their data and support go overseas,” Turso said. “What you’re seeing is that overseas outsourcing requires companies to overcome a communication barrier, so they don’t make the customer feel they don’t care about their issue because they can’t communicate the way their peers do. It becomes a barrier of trust.”
As a result, businesses are multisourcing and semisourcing, keeping mission-critical data and support closer to home while outsourcing to one or more service providers. Although companies such as iVenture and Enterprise Integration sometimes operate as a fully outsourced IT department, they are frequently supporting noncore segments of the IT operation.
Sea Star Line LLC, a Jacksonville-based transportation company, outsources certain functions of its IT department to three different service providers — two in the U.S. and one in India. The transition over the past four years has trimmed the in-house IT staff from 19 to seven.
“We have made the decision to outsource pretty much nonbusiness-knowledge-related work,” said Doni Perry, assistant vice president and chief information officer of Sea Star.
Perry said outsourcing closer to home means easier vendor management, and with the costs of overseas versus domestic outsourcing becoming more competitive, it’s preferable to have relationships that can be managed locally.
“Larger companies are outsourcing slower,” Turso said. “They are taking segments that they can outsource a little at a time, but smaller companies that are 40 seats and below just pick up and move to the cloud.”
Cloud computing, or a Web-based shared resource platform that provides various IT needs on demand, is expected to be a significant growth area for companies such as iVenture and Enterprise Integration as companies shift toward outsourced cloud computing.
“The cloud will become important as companies realize that they can achieve significant cost savings by exploring the option,” according to a January report on global sourcing trends by law firm Morrison & Foerster LLP. “With major providers like IBM, Google and Microsoft offering desktop deals in the range of $35 to $75 per head, companies will find their existing deals of $300 to $1,000 per head difficult to defend.”