With an average of 19% of total planned applications spending for 2014 being directed offshore globally, sourcing managers are taking a keen interest in which offshore locations their services are delivered from, according to Gartner research vice president Jim Longwood.
Ongoing cost pressures in Europe are driving some multinational corporations to consider moving their offshore services from mid-cost countries like Malaysia to lower-cost locations in Asia, Eastern Europe and Latin America. Some Western countries are becoming more protectionist, which is also having a negative impact on demand for offshore services from Asia Pacific.
Cost increases, either due to currency exchange and/or increases in cost for local resources and infrastructure are affecting the ability of India and China to be as cost-competitive as they have been. However, service providers are also taking advantage of market changes to revise their business strategies, according to Gartner.
With demand slowing in Europe and North America, we have seen a range of Indian providers expanding their regional Asian presence and leveraging their nearshore capabilities, said Longwood. As a result, they are growing their presence in more mature markets like Singapore and Malaysia, and are now challenging the traditional MNC application service providers in these markets.