Gartner: Geopolitical Uncertainty Brings Risk to Offshoring
There has always been risk associated with outsourcing software development. The question of which outsourcing option (offshore, near shore, onshore) is right for a CIO depends on an equation that addresses price, speed and risk.
That equation keeps changing as the risks of offshore rise.
A recent Gartner report outlines major geopolitical concerns that are impacting both offshore and near shore development.
“Political and economic stability is an important factor in offshore outsourcing arrangements,” said Jim Longwood, research vice president at Gartner.
The outsourcing market has been relatively stable for the past few years, according to Gartner. But that may be the quiet before the storm. Recently, we’ve seen terrorist attacks in Sri Lanka, a trade dispute between the US and China and political tensions in Hong Kong. These global incidents demonstrate the potential dangers of relying on offshore development.
“Gartner has started fielding more questions from clients about how to address these scenarios. This includes whether to stop sourcing services from a particular country, move services to another country or bring them back onshore. Each option is quite costly and can disrupt service delivery in the short-to-medium term.”
For example, Gartner estimates that China exports around $10 billion of IT application and business process services. Indian outsourcing firms generated more than $45 billion in global services in 2018.
“Concerns include potential disruption to or cessation of services, increased tax added to export labor rates and reduced quality of service due to ‘patriotic’ backlashes by local staff,” said Longwood. “However, instability is not limited to the U.S./China situation. All organizations should review their offshoring and nearshoring arrangements.”
With so much instability with offshore development, it is critical for companies to proactively mitigate risk to ensure the stability of their systems. According to Gartner, that is leading companies to develop a multi-country sourcing strategy. Gartner predicts that by 2023, 65 percent of large companies will switch to a multi-country sourcing strategy.
The relatively new category that has been added to the procurement strategy for many companies is the low-cost, onshore development.
We’re seeing more and more companies add the category as a strategic sourcing bucket to meet ever growing digital demand. Onshore outsourcing can be competitive while bringing the added benefits of speed, improved communication and lower risk. By finding tech talent in Middle America, where there is a lower cost of living, companies can lower costs while maintaining the high level of quality and security that CIOs, CISOs, and CTOs demand.
Organizations cannot control geopolitical unrest, but they can control their exposure to risk. Onshore software development is the solution needed to manage risk, lower costs and ensure development work meets goals of speed to market and quality.