Can Cloud Really Replace Offshore Outsourcing?

The cloud is changing much about how IT is done. But has it changed or possibly even eliminated the need for offshore outsourcing? In the short term, the answer is no. That’s mostly because the cloud is not yet in full play. However, given the current momentum behind the cloud, change is inevitable and the impact on offshore outsourcing is unavoidable.

“In the ‘cloud era,’ division between service lines will collapse, building a new outsourcing model, which is anything but conventional,” said Sadagopan Singam, VP of Cloud Computing at HCL Technologies, a leading offshore IT and software development company. “Cloud computing will help shift the focus to delivery of business services rather than delivery of IT solutions. In the process, this will enable new service definitions, service lines and business models for both the customer and the service provider.”

Just hype?

Despite all the hype, the cloud era is not yet here. Indeed, there is some concern that some things carrying a cloud label are not cloud at all.

In a recent survey by audit and tax advisory giant KPMG, both sourcing advisors and third-party service providers were polled on the maturity of cloud offerings on the market today. The “advisors were of the opinion that what is being taken to market under the cloud marketing banner is for the most part repackaged legacy offerings.”

Those same third party providers, however, ranked their own infrastructure as a service (IaaS) and software as a service (SaaS) offerings as high in both quality and quantity.

Further, advisors in the survey voiced concern over the total cost of ownership (TCO) of cloud resources. “There is little reliable data on the total cost of ownership of cloud resources,” said one advisor quoted in the survey results. “Yes, the initial capital expense is lower, but are access fees and other installs going to be higher or lower than conventional licenses? I don’t think we are far enough into the cycle to have good, verifiable data on TCO.”


There’s a dearth of skills needed to fully execute cloud services, as well.

The KMPG survey found that, on a scale of one to five with five being “very skilled,” advisors gave only a score of 2.39 to end-users for understanding how the cloud works. Providers gave the end-users only a slightly higher score of 2.73. And those were the highest scores cloud end-users received. At the very bottom of the rankings, according to both the advisors and the providers polled were end-users’ skills relating to both sourcing and managing cloud computing initiatives.

That’s not to say that traditional offshore outsourcing is a sure win in the contest.

“Not only is the cloud more labor efficient than traditional IT delivery, the technology makes more efficient use of non-labor IT resources, as well, and allows for delivery and management of applications in new ways,” said Mike Eaton, CEO and founder of Los Angeles-based Cloudworks. “So when customers consider some of the risks and difficulties of offshoring, such as process realignment and, in some cases, quality, cloud computing may very well be an appealing alternative.”

Offshore outsourcers are fully aware of the difficulties CIOs cite with the traditional outsourcing model. They are also highly sensitive to the changes brewing in the cloud and are seeking ways to make their operations weather resistant. In essence, most are looking to build new cloud-centric outsourcing models using a blended model.

“We are observing that business process as a service (BPaaS) is adding new sophistication to existing outsourcing traditional back office functions,” said Singam. “This brings in enhanced cost efficiencies and is attractive to the customer.”

Whether or not any given enterprise decides to go with the cloud, offshore outsourcing or some blend of the two depends entirely on the enterprise’s specific needs and the tasks at hand.

“The impact of the cloud on the outsourcing industry depends on the definition of outsourcing,” explained Paul Liu, CIO at the global IT services provider Freeborders. “If outsourcing is defined as resources doing application development and maintenance, then cloud computing is not really a game changer.

“The real paradigm shift is in infrastructure as a service, which is shifting a company’s systems, storage, and databases to the cloud. But new architectures will need to be created that takes into account the challenges of security, compliance, and accessibility requirements.”

In the end, said Liu, “we will see a continuous movement of services to the cloud as traditional IT environments come to the end of their lifecycle.”

A prolific and versatile writer, Pam Baker’s published credits include numerous articles in leading publications including, but not limited to: Institutional Investor magazine,, NetworkWorld, ComputerWorld, IT World, Linux World, Internet News, E-Commerce Times, LinuxInsider, CIO Today Magazine, NPTech News (nonprofits), MedTech Journal, I Six Sigma magazine, Computer Sweden, NY Times, and Knight-Ridder/McClatchy newspapers. She has also authored several analytical studies on technology and eight books. Baker also wrote and produced an award-winning documentary on paper-making. She is a member of the National Press Club (NPC), Society of Professional Journalists (SPJ), and the Internet Press Guild (IPG).