|
In Anglo-American countries, IT outsourcing
as well as IT offshoring have already been established as common business
practices throughout the various industries. For example, in the United States, about 20 percent of companies’ total IT budgets is invested in
low-wage countries, most notably India (Buchta
et al., 2004).
From a European perspective, ever since the
concept of IT outsourcing made waves
in the 1990s, its popularity among both medium-sized enterprises and
multinational companies has remained stable (Schwarz, 2005). Correspondingly,
Allweyer et al. (2004) expects the European market volume for the outsourcing
of IT services to increase significantly from 45 billion euros in 2003 to
approximately 100 billion euros in 2008, with the UK and Germany accounting
for nearly half of that figure. The global consulting firm Frost and Sullivan
reach out even further, predicting that total revenues for the European
outsourcing market will grow to about 150 billion euros in 2006 (Söbbing,
2002).
Although, Europe as a whole has embraced
the various IT outsourcing arrangements as effective and sustainable business
practices, non-English speaking countries such as Germany
are still struggling to catch up. Particularly in the context of IT offshoring, structural, cultural,
and linguistical issues complicate the cooperation of German-speaking companies
with offshore providers. In consequence, according to Buchta et al. (2004),
only one third of German companies which cooperated with an offshoring partner
were able to realize cost savings surpassing the 30 percent mark, whereas half
of all the international companies involved in IT offshoring projects were
cutting costs by more than 30 percent. Possible reasons for this unbalanced
statistic are:
·
High vertical integration in German firms: In German companies, internal IT departments often cover the
complete range of services from software development to IT operations.
Therefore, many a time, external service providers are only called upon sporadically,
explaining the low outsourcing rate in Germany
compared to the United States or the UK. As a result, German-speaking firms often lack experience in
relocating and managing IT services over a larger geographical distance.
·
Small number of strong relationships with local IT service providers:
As a result of long lasting partnerships, many a
time, German companies are used to fast and direct communication processes with
their IT service providers. While the small number of local service partners is
familiar with the specific characteristics of their clients, and, therefore,
only need a general description of a specific project, offshore service providers
require much more detailed project specifications.
·
Cultural and linguistical differences with Indian IT service providers:
A lot of German-speaking companies followed the
Indian mainstream, resulting in additional problems due to cultural and
linguistical differences, which U.S. and UK companies do not have to fear, at
least not to this extent. In Germany,
the word offshoring tends to be used as a synonym for outsourcing to India. As
a result, alternative offshoring destinations (e. g., in Eastern Europe) are often not
even considered, while the many differences in culture and language
continuously give way to substantial problems, thereby prohibiting a smooth
cooperation between the project partners.
Figure: Size of the German IT offshoring market
On a whole, when compared to the U.S.
market, the German market for IT offshoring has just recently begun to “crawl
out” of its fledgling stages. Nevertheless, experts from Deutsche Bank Research
see a significant amount of potential in the market (Broß, 2005), and project a
doubling of the market size for Germany
until 2008 (compare figure above).
Figure: German IT offshoring market shares by industries
Especially in the financial services sector
(AT Kearney, 2003) and the IT industry (Buchta et al., 2004; Allweyer et al.,
2004), the offshoring of IT services is becoming more and more of an established business practice (compare
figure above).
This is most notably due to the high degree of
standardization and enormous cost pressure attributed to these particular
industries (Allweyer et al., 2004). Furthermore, a similar trend towards IT offshoring
is already apparent in the German automotive industry (Boes and Schwemmle,
2004).
At present, in Germany,
three major types of offshore providers can be distinguished. According to
Buchta et al. (2004), these are:
·
Offshore subsidiaries, joint ventures or strategic alliances: Especially large-scale enterprises have built or acquired IT
subsidiaries in low-wage countries. Another possibility is to cooperate with IT
service providers in these countries by means of joint ventures or strategic
alliances. All three of these arrangements give companies the opportunity to
embrace the various benefits offshoring has to offer (e. g., reduced labor
costs, access to a highly qualified workforce, etc.), while simultaneously minimizing
the risks associated with relocating IT projects abroad. An example is Munich-based
Siemens which possesses IT subsidiaries in Hungary, India,
and other developing countries.
·
International IT service providers: Companies
like IBM, Accenture, or EDS have already established offices in countries like India,
hereby using their global network to perform IT services at the most suitable
location. Due to their strong competitive position in global markets, these
providers do not have to fear the competition of classical offshore providers.
·
Classical offshore IT service providers: In order to strengthen their competitive position in Europe, offshore providers like
NIIT Technologies have tried to enter the German service market. In this
context, however, offshore providers realized that many German companies had significant
difficulties with directly relocating their IT services to countries like India. As
a result, numerous offshore providers established offices or acquired IT
service providers in Germany (e. g., NIIT Technologies acquired Mannheim-based AD Solutions
in 2002), in an attempt to penetrate the German market.
Against the background of a total cost
savings potential of 2 billion euros per year in Germany (Buchta
et al., 2004), offshore providers expect annual growth rates of more than 20
percent in the German market. Here, particularly the huge differences in labor
costs between developed countries like Germany
and developing countries like India, Russia,
etc., as well as the enormous potential of highly qualified IT workers in these
countries, will fortify the IT offshoring trend in Germany. In
this context, due to a cultural similarity and an adequate knowledge of the
German language, especially IT service providers in Eastern European countries
(e. g., Czech Republic, Poland, Russia, Ukraine) might be able to benefit
from the growing trend towards IT offshoring in Germany.
With regard to the type of activities
selected for an offshore project, Eichelmann et al.’s (2004) research confirms
that representatives of European companies consider the full range of IT
services, from front office to back office, as suitable for offshoring. While
back office services such as finance, accounting, IT support and human resources
are already involved in about 60 percent of all current or planned offshoring
projects, one third of the European companies interviewed also mentioned front
office services as potential offshore candidates. This, however, is in many
cases not feasible for German-speaking companies, due to the language barrier.
Schaaf (2004) bases his research on the
perspective of a German bank and thereby finds the following IT activities and
processes to be particularly affected by IT offshoring initiatives (listed in
the order of their offshoring likeliness):
Application development, coding, application maintenance, helpdesk, call
center, IT infrastructure, data center, network management, etc. Here, it
should be noted that this list of potential offshoring activities is representative
rather than comprehensive. In addition, the order of the activities may differ,
depending on the specific company and industry.
In line with Schaaf’s (2004) ranking of
offshore activities, Broß (2005) found that OSD, primarily in the form of application development and maintenance,
currently accounts for the most significant part of the German IT offshoring
market. In contrast to other IT offshoring markets, IT services such as call
center and data center operation only make up a small part of the German market.
 References
|
