Factors And Preconditions
It is often said that the general enterprise structure was shaped during the age of Industrial revolution and did not dramatically change since then. It won’t be an exaggeration to state that basic business schemas can also be traced to that good ol’ time. The idea of passing parts of your work to subcontractors has by no means a different history. It is just the scale that makes difference. Besides, a phenomenon must exist for some time in order to get named and classified.
In its narrower meaning, the notion ‘outsourcing’ is tied with software development industry. Software outsourcing began its rise in 1980s when the software market grew mature enough. Intense competition is a usual outcome of an economic boom; thus the growing success of the software industry urged its niche players to seek more cost-efficient schemas.
Certain economic conditions were required in order to make offshore software development profitable and massively utilized. Firstly, a powerful hi-tech sector should exist in a country with booming economy. Secondly, appearance of big-sized locations with much poorer economies but numerous human resources with sustainable level of technical knowledge were required. By 1990s they were mostly reached. USA, and in a lesser amount Northern & Western Europe, experienced huge growth of computer technologies sector. At the same time India and China became important parts of the global market after serious economic reforms took place in both countries.
Software Market: A Little Too Rapid Start?
The beginning of 1990s was marked with personal computers massively appearing in offices and households, with development of the first web browsers and with construction of global networks which immediately changed the process of knowledge exchange on the international scale. All that created a never-saturated demand for software – newer, more functional, more agile and better-looking apps. Its key role in the world of future was widely acknowledged back then. Some even overestimated the overall dependence on software solutions which led to appearance of such frightening predictions as the Year 2000 problem.
Fast growth of this technology segment had a downside. Software engineer was still a new job role. Experienced developers were rare; there were fewer opportunities to get appropriate education and training. Therefore people much more often had to get knowledge through self-education. There was significant shortage on working hands; and as new software producing companies in North America appeared and grew, they had to look abroad for people with good knowledge of computer science.
The Dot-Com crisis of 2001 was the first grave challenge. The rush of Internet startups and hyper-optimism of investors led to heavy casualties after the recession took place. Lessons were learnt; and software companies became more concerned about cost-effective business plans. Hiring offshore workers was also simplified as Internet access and online collaboration tools were already widespread enough.
According to researches, the value of the worldwide IT outsourcing market reached $569 billion in 2003 and continued to grow steadily. At that time India was the main offshoring destination, and its share was increasing.
Financial Crises And New Players
The breakdown of 2008 opened a new stage of this segment’s evolution. As the software market grew bigger, its correlation with the global financial trends increased. So the end of the decade was marked with another sensitive blow for IT companies. The rush for expenditures reduction occurred once again. There were not so many segments which were lucky to keep fighting; and IT outsourcing market was one of them. According to industry analysts, after a period of decline in 2008/2009 its growth resumed, and the results of Q4 2009 showed significant progress compared to Q2 2008.
By the beginning of the new decade the situation changed: Southeastern Asia started losing its monopoly as an offshore development cluster. While outsourcing to India or China was still a tradition for American companies, many of their peers from UK and continental Europe decided to look for remote contributors in less remote locations. Romania, Russia, Ukraine, Poland and other neighbours became much more popular as outsourcing destinations. In the previous post we have made a brief review of IT outsourcing in Eastern Europe and highlighted the main reasons why local IT services providers have strong potential.
Things continue to change fast at the edge of IT technologies evolution; and one has to try hard in order to keep fit. Newest trends of virtualization and cloudification are about to bring great changes to the industry. A number of predictions were made recently about cloud computing solutions soon replacing IT outsourcing schemas. Today the outsourcing market continues to grow yet on the other hand the global cloud migration is still relatively small. Well, the nearest future will show who’s stronger.
Meanwhile, Intercomputer company survived all the crises and ready to offer you the outsourcing services together with outsourcing services based on cloud technologies from a trendy outsourcing location — Ukraine. Contact us to find out more.