According to Giga Information Group Inc Recent Research, Growth in Offshore Outsourcing of Services Has Avoidable Risks

Business Wire, Feb 27, 2003

Business Editors/High-Tech Writers

CAMBRIDGE, Mass.--(BUSINESS WIRE)--Feb. 27, 2003

More companies than ever before will use remote programming and business processing resources to support their corporate goals in the coming years, according to new research by Giga Information Group (OTC BB: GIGX). This uptake is expected to put pressure on offshore outsourcers trying to meet demand.

"Businesses need to understand the latest trends in global outsourcing to get the most business value from these relationships," said Giga Vice President Stephanie Moore. "Companies should not rush into offshore or nearshore outsourcing relationships without first understanding how to approach the endeavor. Global outsourcing is a complex undertaking that requires significant investment in knowledge acquisition and program management."

Recent research by Moore identifies several key drivers that will influence the development of global or offshore outsourcing, including:

-- The need for companies to reduce costs and remain competitive.

-- The need for companies to improve the quality of their software

maintenance and development efforts.

-- An increased acceptance and understanding of the value of offshore outsourcing -- cost, quality and time-to-market benefits.

-- An increased awareness on the part of all Global 1000 firms that some portion of their IT function can be supported in lower cost geographies and that this is the wave of the future.

-- Many offshore firms have mitigated the risks associated with offshore outsourcing relationships.

-- Offshore IT-enabled services firms are beginning to mature and have legitimate customer references to support their value and safety propositions.

These drivers will increase competition and put pressure on a number of players. "India's offshore industry will undergo a crisis during the next two years as IGS, Accenture and other global players attain quality/cost ratios similar to those achieved by TCS, Wipro, et al," noted Giga Research Fellow Will Cappelli. "Business process outsourcing is no salvation here, because the global players will, of course, deliver that too. At the same time, as these ratios become the norm throughout the industry, the case for maintaining in-house IT operations becomes ever more tenuous." Some other outsourcing trends Giga expects to see in 2003 include:

-- US-based outsourcing firms such as IBM, CSC and EDS will undercut Indian vendors' offshore prices.

-- Companies too dependent on one country's labor pool (India) will increasingly look to diversify their risk.

-- Mexico will emerge as a strong nearshore outsourcing alternative for North American companies.

-- The large top-tier outsourcing firms will continue to thrive and many will match or exceed industry growth rates, while the smaller, newer Indian vendors will struggle to survive.

Another trend seen of late is use of the term "co-sourcing" instead of outsourcing. But don't be fooled, said Giga Industry Analyst Robert McNeill. "Although the term co- sourcing has seen increasing use there appears to be no significant difference between outsourcing and co-sourcing. The principal reason the term is being used is that it resonates well with end users who want to partner with service providers but have become indifferent to outsourcing, or end users who find it hard to internally sell outsourcing." More important is to focus on constructing the most appropriate deal with the vendor, he said.

For a copy of the full report or commentary by a Giga analyst, contact Christina Thirkell at cthirkell@gigaweb.com or call 617-577-4965.

About Giga Information Group, Inc.

Giga Information Group(R) is a leading global technology advisory firm that provides objective research, pragmatic advice and personalized consulting. Emphasizing close interaction between analyst and client, Giga enables companies to make better strategic decisions that maximize technology investments and achieve business results.

Founded in 1995, Giga is headquartered in Cambridge, Massachusetts, and has offices worldwide. For additional information visit www.gigaweb.com.