IT industry and Government must work closer together to make New Zealand an offshore outsourcing destination says IDC
In a recent IDC report "The Impact of the Offshore Services Phenomenon: A Global Perspective" (IDC #30362), New Zealand
is described as a potential offshore outsourcing destination with high value, but limited domestic demand and possible
access issues. With demand for offshore outsourcing growing rapidly in both the US and Europe the IT industry and the
government will need to work together to ensure New Zealand is perceived as an offshore destination.
According to the results of an IDC study that examined the offshore services perspective of leading US–based companies,
nearly 20% of respondents indicated that they buy offshore services, with the majority leveraging offshore directly and
for application development services. The current trend by US companies to increase their use of offshore must be
considered a permanent trend — a trend that mimics other historical offshore movements in industries such as textile,
electronics, and manufacturing. Like these other industries, this shift will involve not only the relocation of large
parts of an industry but also the creation of global sourcing models that can leverage capabilities across a vast set of
geographies designed to provision the highest quality of services at the lowest possible cost.
European organisations are also increasingly demanding offshore elements from service providers, with some providers
reporting this to be the case in 60–80% of contract negotiations with large companies, particularly in the United
Kingdom.
The use of the "traditional" offshore services, such as software development and customisation, is still the first entry
for many companies. However, there is an increasing demand for using offshore services for call centre operations and
the delivery of high-volume processing services, such as ticketing or back-office accounting operations.
New Zealand's advantages as an offshore location stem from cost differentials, market maturity, ability to support
multiple languages and a stable economy.
However, there is very low market awareness of New Zealand as an offshore possibility. European businesses consider New
Zealand to be isolated, possibly too small or the same as Australia (of those that had even heard of New Zealand). To
change these perceptions will require a sustained joint effort by both the industry and the government. Even the large
multi-nationals such as IBM and EDS, with the advantage of having offices in other countries, still have to fight poor
perceptions of New Zealand as an offshore location. Another recent disadvantage has been the strengthening Kiwi dollar.
"The volatility of the New Zealand dollar, which has reduced New Zealand's cost differential substantially over the last
6 months will also have to be addressed by the government if they are serious about positioning New Zealand as an
offshore location", says Phil Hassey, IDC's Associate Director of IT Services.
Still, there are opportunities for the New Zealand IT community such as customer contact solutions, a market worth over
US$35 billion in 2003. IDC believes that the key for New Zealand is to pick an area where there is some domestic
evidence of success and promote it vigorously, in conjunction with a government initiative for enhancing the perception
of New Zealand as an offshore outsourcing location.
About IDC:
IDC is the premier global market intelligence and advisory firm in the information technology and telecommunications
industries. We analyze and predict technology trends so that our clients can make strategic, fact-based decisions on IT
purchases and business strategy. Over 700 IDC analysts in 50 countries provide local expertise and insights on
technology markets. Business executives and IT managers have relied for 40 years on our advice to make decisions that
contribute to the success of their organizations.
IDC is a division of IDG, the world's leading technology media, research, and events company. Additional information can
be found at www.idc.com or www.idcresearch.co.nz.