Continued financial pressures at home and improved worker skills abroad will ultimately push 60 percent of large companies' software development work offshore, according to a new report from META Group.
"Application development and maintenance constitutes approximately 30 percent of total spending for the average IT organization," said Dean Davison, a vice president with the IT researcher. "Offshore typically reduces that expense by 30 percent, but introduces additional risks and challenges."
Based on a survey of 13 companies using offshore facilities, Meta Group estimates the market will grow by more than 20 percent per year through 2005.
Much of the work will go to India-based firms (which have a large supply of well-educated workers, most of whom speak English), however, some U.S. outsourcing companies are building or acquiring their own facilities abroad.
The study also concludes that: most IT organizations will have an offshore strategy by 2005 or 2006; vendors will jockey in upcoming years to establish their name before a wave of consolidations and acquisitions take place by 2007 or 2008.
A Forrester Research report, based on the responses of 145 senior IT decision makers, had similar findings. In it, 80 percent said the offshore provider's value for the money was somewhat or much better than U.S. counterparts such as EDS, IBM or KPMG/BearingPoint, the report said.
"Although they see the benefits of going offshore, experienced customers nonetheless have a real challenge in managing remote providers," Forrester said.
Eighteen percent of respondents reported a major challenge in measuring performance, while 20 percent have serious issues specifying the work needed to be done. Another 22 percent said cultural differences between offshore and U.S. staffers was a problem.