One third of organisations would consider managing their IT infrastructure from an offshore location in the near future, according to a new survey of senior IT decision makers.
Datamonitor questioned 150 CIOs and IT managers at companies around the world and found that Eastern Europe ranked higher than India as the preferred location for offshore infrastructure support, while respondents said that they would rather source this work through a large Western services supplier than an Indian vendor.
The findings are particularly interesting in the light of Wipro's $500m bid to acquire US infrastructure services vendor Infocrossing this week. While there is clearly a lot of growth potential for offshore services suppliers in the infrastructure management space, the survey suggests that Indian players need to build scale and credibility in order to compete against the established Western players such as IBM and EDS.
We questioned organisations in eight different vertical markets (including banking, insurance, manufacturing and telecoms) based in eight different regions: the US, UK, Germany, France and the Benelux. Three quarters of the participating companies had annual revenue greater than $50m, while over one third had an annual IT budget in excess of $10m.
Some 33% of the respondents said they would consider using an offshore IT services provider to manage their IT infrastructure during the next two years. But users are more enthusiastic about offshoring some elements of their IT infrastructure than others, with helpdesk and network management the most popular (12% of the respondents said they are considering offshoring these two functions), ahead of server management (11%), desktop management (10%) and data centre management (8%).
These seem like relatively low percentages, but offshore infrastructure management is an immature market, and if, for example, 10% of investment in desktop management goes to offshore locations, this would equate to an annual opportunity for suppliers with global sourcing capabilities of more than $4bn.
Clients are most reluctant to offshore security management, with just 5% of respondents considering infrastructure offshoring stating that they would look at security. The outsourcing of some security technology such as firewalls and intrusion detection systems has become commonplace, but it seems that users are still wary of offshoring security, due in part to regulatory requirements in some industries and a perception of security as being so critical to the organisation that they need to maintain in-house control.
So what are the main concerns that make the majority of respondents unwilling to consider offshoring their IT infrastructure in the near future? At the top of the list was security, cited by 32% of respondents as their primary concern. There have been some high-profile examples of security breaches at Indian business process outsourcing centres in recent years, but offshore IT services vendors have established themselves as having security policies as robust as those of their Western peers.
The second biggest concern was the quality of service, which is interesting given that most of the offshore sourcing specialists put this issue at the forefront of their marketing, particularly through highlighting their SEI-CMM and ITIL accreditation. Incidentally, 80% of survey respondents said that it would be necessary for a services provider to have ITIL accreditation if they offshored their infrastructure to them.
Some 18% of the surveyed organisations cited cost as their primary concern. Reduced cost remains the big selling point of offshore delivery models, but the potential level of savings to be gained from sourcing infrastructure management from India is being pressurised by rising salary levels and the appreciation of the rupee. A total of 47% of the respondents said they expect offshoring to deliver savings of between 10% and 20% over managing their infrastructure onshore, while 41% expect savings of between 20% to 40%.
India has established itself as the undisputed top sourcing location for low-cost applications services, but our survey suggests that it may not necessarily claim a similar position in offshore infrastructure management.
Just under three quarters of respondents said they would consider Eastern Europe as a potential location for offshore infrastructure services, ahead of India with 38%, China with 15% and Latin America with 9%. Infrastructure services vendors including Getronics and CSC have set up delivery centres in the Czech Republic and Hungary, primarily to support clients in Germany and Central Europe, and 80% of German respondents named Eastern Europe as their preferred offshoring location. Some 21% of respondents said they planned to use multiple offshore locations in order to mitigate risk.
India's big applications services vendors are aggressively targeting the infrastructure space evident in the Wipro/Infocrossing takeover bid and they have had some early success, with clients such as DSG International and Autodesk signing up to major infrastructure support deals in the last 18 months. Western suppliers such as Perot Systems and IBM Global Services are also ramping up their Indian infrastructure management centres, but the survey suggests that the country has still got some way to go before it replicates its status from the applications services space.
The preferred method of infrastructure offshoring produced some surprising results. One half of the respondents said that their preferred route would be to engage with a Western services supplier with global sourcing capabilities, ahead of 35% who named a captive operation as their first choice, and just 12% who would plump for an offshore-based third party.