IT markets are picking up to such a degree that both the U.S. and Europe are running out of critical skills, and with this, offshore and Indian alternatives are increasingly becoming attractive for tech buyers, analysts said.
In addition to the skills shortage, the pandemic-induced work-from-home has further raised the openness of global tech buyers to working in a distributed environment, away from onshore (or the client’s location), Peter Bendor-Samuel, CEO, Everest Group, said.
“These factors are working together and have gone a long way to offset the pre-Covid trend to onshore. The effects of the pandemic may go away but the talent shortage looks to be increasing and is likely to stay for several years... Be it offshoring or onshoring, a robust market is floating all boats and they are likely to sail steady for the next few years.”
Typically, offshore accounts for 70-80% of a project while onshore is in the 20-30% range. In the COVID-19 era, markets are seeing a clear 50% reduction in onshore and 5-15% rise in offshore share, said Phil Fersht, founder and CEO, HfS Research. The rise in offshore share is smaller in existing projects while new ones come with a higher ratio.
“For all IT work conducted remotely, it makes perfect sense to run it from India and the Indian model will dominate the IT service scene for at least another decade,” he added.
Offshore providers have ended up being ‘pandemic winners’, seeing quantum growth in revenues and substantial decline in operational cost after the WFH trend kicked in, said Siddharth Pai, founder, Siana Capital.
On the impact this has had on pricing, Mr. Fersht said, “We’re now seeing some of the most aggressive pricing ever. Several deals are priced as low as $4-6 per hour for IT and business process work.”