Offshore providers should invest in cloud strategy

by CXOtoday News Desk    Jul 29, 2013

cloud strategy

Investments in cloud-based services can bring in new revenue stream for offshore providers, according to Gartner. The research firm therefore warns that those offshoring service providers that are slow, unable or unwilling to invest in the shift to the cloud will risk hampering offshore services revenue growth.

Ian Marriott, research vice president at Gartner believes this trend will further trigger public cloud investment which Gartner predicted is likely to exceed $180 billion from the current $ 131 billion. While increased investments in cloud-based services will differentiate the leading offshore providers from labor-intensive “pure-play” offshore providers, they will need to maintain a balanced portfolio of managed services and other traditional delivery approaches, in addition to horizontal and vertically-based cloud offerings. This strategy will allow them to compete successfully with leading multinational providers, by meeting the evolving needs of buyers, and drive the joint necessities of revenue growth and profitability. 

Unlike some of Gartner’s earlier report, where it was mentioned cloud-based services will replace offshore services, Marriott believes both will complement each other. “In addition, cloud services will not ‘make or break’ all offshore providers. There will always be a need for “pure-play” providers that operate a labor-intensive delivery approach. But, for broad-based offshore providers that operate in multiple geographies, industries and service lines, and who seek to compete for significant ‘wallet share’ in major accounts, strategic investments in cloud-based services are mandatory.” 

The consequence to offshore providers of not responding to such significant market changes will be the deterioration of market share, acquisition by another provider, or its disappearance from the offshore services landscape.
-Ian Marriott, research vice president at Gartner

In parallel, offshore service providers feel the increased pressure to adapt to changing market demands, and those that are unable to evolve from traditional delivery models could be displaced. Gartner analysts have witnessed the considerably slower growth rates of the top 10 India-based providers in the past five years that witnessed a decline from 21.8% growth in 2011 down to 12.7% in 2012. Over time, all leading offshore providers will use their investment in industrialized services and automation to break their labor-intensive linear growth path.

Moreover, the proposed changes in the issuing of H-1B visas for the US work permits could also have a significant effect on offshore service providers that depend heavily on these work visas, says Gartner. This could increase the need to both invest in local hires within the providers’ major target markets and increase investments in cloud-based service offerings,” added Marriott. 

For sourcing managers it is critical that they refresh sourcing strategies at least annually to ensure optimal responsiveness to changing market opportunities and business demands, as well as perform a critical assessment of any investments made by their offshore providers in cloud-based services, suggests Gartner.