Introduction

The entry of labor arbitrage into Application Development and Maintenance (ADM) outsourcing has redefined the market and created a US$20 billion offshore industry. Since the emergence and rapid growth of the first Indian offshore outsourcing firms in the early 1980´s, the basic premise of ADM outsourcing (i.e., labor arbitrage) has remained unchanged. Wide adoption of labor arbitrage by traditional ADM outsourcing suppliers along with buyers raised a question: What is the next lever of value in ADM outsourcing? The research defines ADM outsourcing market models and characteristics, analyzes forces driving prevalence of labor arbitrage as a key value lever in ADM and discusses emerging partnership approaches in ADM.

Scope

• Overview of the ADM market and analysis of the labor-arbitrage adoption
• Analysis of investment strategies of ADM suppliers
• Definition of the partnership models in ADM
• Identification of opportunities for buyers and suppliers

Contents

This report summarizes key market trends and insights to assist management in making more informed business decisions. Key Insights are divided into four categories: ADM market overview, Buyers´ view of ADM improvement, Suppliers´ investments in ADM, and Partnership models in ADM outsourcing. Each category contains 4-6 key trends, which are discussed in detail (and illustrated with supporting data and analysis) to provide the reader information in easy-to-apply, bite-size pieces. For example, Buyers´ view of ADM improvement is sub-divided into the following:

• Buyers often view improvement levers for Application Development(AD) and Application Maintenance (AM) along the same lines as suppliers (i.e., demand, supply, and optimization) but the approaches for extracting value vary significantly
• Demand and supply levers are the low-hanging fruit in ADM improvement
• Value-based pricing deals have started to occur in ADM but tend to be limited in scope