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Information Technology Outsorcing Transaction - Halvey K.J.

Halvey K.J. Information Technology Outsorcing Transaction - Wiley Publishing, 2005. - 649 p.
ISBN-10 0-471-45949-6
Download (direct link): informationoutsourcingtransactions2005.pdf
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4 Ch. 1 Overview of the IT Outsourcing Industry
market continues to quietly expand its reach, adapting to the changing needs of companies and the changing ways companies do business. Yankee Group predicts that, while worldwide IT outsourcing (networking and computing functions) will grow 10 to 12 percent annually to reach $273.9 billion by 2006, BPO will grow at a faster rate—as fast as 12 to 20 percent annually to reach $500 billion by 2006.6 A more in-depth discussion of BPO is provided in Chapter 12.
• Offshoring. In 2004, by far the hottest outsourcing topic—fueling political debates at the local, state, and federal levels and at times recognized as a major issue by the presidential candidates—has been offshore outsourcing or offshoring. Although offshoring has been around for several years, the seemingly recent predictions made by outsourcing analysts regarding the growth in the offshore outsourcing industry have been meet with astonishment and calls by the legislature to limit offshoring in an effort to keep jobs in the United States (particularly outsourcing efforts by federal and state government entities).7 Examples of some of the predictions include the following:
о By 2015, Forrester predicts that a total of 3.4 million previously U.S.-based positions will have been relocated overseas.8
о By 2008, global investment in offshore IT services will grow from nearly $7 billion in 2003 to $17 billion in 2008.9
о Offshore BPO services will represent 14 percent of the total BPO market 2007, with India’s share of supply around 57 percent.10 India is currently the leading destination for offshore outsourcing; however, countries such as Russia, China, Mexico, Ireland, Malaysia, the Philippines, and Singapore are becoming serious competitors in this market. A more in-depth discussion of offshoring is provided in Chapter 11.
• Internet-enabled outsourcing. The Internet has spawned a new generation of technology outsourcers with acronyms that are often difficult to keep up with, such as system integrators (SIs), managed service providers (MSPs), application service providers (ASPs), and application service provider aggregators (ASPAs). Internet-based outsourcers include service providers using the Internet as a means or a platform for providing outsourcing services as well as outsourcers of a company’s Web-based business operations. Established outsourcers (such as EDS, IBM,
6. Business Communications Review, July 1, 2003, "Outsourcing."
7. Helpful Web sites that track the status of federal and state legislation relating to offshoring are listed in footnotes 2 and 3 on page xix in the Preface.
8. "US Outsourcing Is Accelerating," news.bbc.co.uk, May 1 7, 2004.
9. Jacques, Robert, "Offshore Outsourcing to Reach $17 Billion by 2008," PCW Inter@ctive, October 19, 2004.
10. Pastore, Michael, "Gartner Says Tech Jobs Will Continue to Move Overseas," cioupdate.com, July 29, 2003.
1.2 IT Outsourcing Industry 5
and CSC), established software companies (such as Oracle, Sun, and Microsoft), and a myriad of new players entered the race to provide Internet-based outsourcing services. One example of a natural offspring of traditional IT outsourcing in the Internet world is the ASP model. By definition of the ASP Industry Consortium, an ASP is a service that deploys, hosts, and manages access to a packaged application to multiple parties from a centrally managed facility.11 Internet-based outsourcers are forging new ground using more traditional IT outsourcing models as precedent for innovative service offerings and deal structures. Although many of the contract issues that arise in traditional IT outsourcing deals arise in Internet-based outsourcing deals, these issues (such as privacy, use of data, and exposure to hacking and viruses) may take on greater importance in an Internet context. A more in-depth discussion of Internet-enabled outsourcing is provided in Chapter 13.
• Going global. IT outsourcing has seen a significant growth in the number of global deals—deals that cover a company’s global operations (rather than deals that are piecemeal by country)—as well as the number of deals being entered into outside the United States. The United Kingdom and Europe have seen the most growth in IT outsourcing. One analyst indicated that IT outsourcing deals continue to boom in the United Kingdom and Europe, with the total value of contract awards in 2004 predicted to match that of the United States—up from 2002, when the outsourcing contract volume in Europe was one-third that of the Americas, and 2003, when it was 68 percent of the volume in the Americas.12 A discussion of issues impacting global outsourcing transactions is provided in Chapter 11.
• Strategic alliances. Companies continue to seek innovative deal structures, introducing new paradigms into the marketplace. The most basic of these structures is the strategic alliance—a loosely fitted joint venture or teaming arrangement pursuant to which the vendor and the customer, at least theoretically, share a risk and reward framework. Several of the larger transactions include an alliance component. In some instances, the customer and the vendor have become partners through equity participation in the vendor’s company. In other instances, the strategic alliance has taken the form of royalty arrangements or “go to market” strategies designed to create business opportunities for both the customer and the vendor in new marketplaces.
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