By Robert L. Scheier
A recent study out of Duke University shows that American companies still prefer India, China and the Philippines to the Latin American Nearshore for IT infrastructure and application development and maintenance (ADM). The percentage of finance and accounting work done in Latin America rose from 10 percent in 2009 to 16 percent in 2011, with application development and maintenance (ADM) work rising from seven to 12 percent in the same period, according to the International Offshoring Research Network Project at Duke’s Fuqua School of Business.
And yet, the researchers found, the percent of ADM work done in Asia rose from 66 percent in 2009 to 70 percent in 2011. Among the reason for the preference for Asia (especially India), they say, are customer familiarity, the maturity of the IT and BPO industry. And China, which some predict may outpace India as the largest outsourcing provider in the world by 2020, already has 10 percent of America’s outsourcing business, the study found.
Another factor, as reported on Alsbridge’s Outsourcing Center, is that relocating to the nearshore or even back to the US is not free of cost or complications. It requires planning, management effort, possible disruption to operations (and other) transition costs, says Arie Lewin, a professor of strategy and director of Duke’s Center for International Business Education and Research.
Lewin also points out that the decision to outsource, and where to outsource, is being driven over time more by strategic concerns such as the need for innovation, or to move into a fast-growing developing market, than by cost savings alone. While it’s little surprise that India continues to be the home of choice for mature, well-understood disciplines such as application development and maintenance, Latin America can carve out specialties for itself in newer areas such as the development of mobile or social applications.
There’s no doubt, as we recently saw at the Sourcing Interest Group’s spring summit, that growth and innovation are key customer concerns as the global economy recovers. For customers looking to “transform” their organizations, the greatest concerns might not be where to outsource, but what specific skills and expertise a partner (wherever they are located) can provide.
The onus is thus on Nearshore governments to provide the appropriate training to their populations and to keep providing hopefully smart incentives to foreign as well as local start-ups. Just as important, Nearshore based service providers must keep moving up the value chain and differentiating themselves from their hungry Asian competitors. The current differentiators of location, language and cultural affinity will only go so far before the Nearshore must distinguish itself with value-added skills in area such as agile development, software testing or multimedia.
This article originally appeared on our sister site Global Delivery Report