Outsourcing: The Pros and Cons of Offshore Remote Infrastructure Management

Remote infrastructure management outsourcing—the hot buzzword for offshoring IT operations work—is big business for India's IT services providers and a competitive imperative for U.S.-based outsourcers. But it may not be right for you.

By Stephanie Overby
Tue, March 18, 2008

CIO — Bill Piatt, CIO of the International Finance Corporation (IFC), sits in his Washington, D.C., office just three floors above the company's primary data center. But for all he cares, that server room could be halfway around the globe. After all, many of the people who manage that infrastructure are. Satyam Computer Services provides global network monitoring, database administration and mail server maintenance from a network operations center in Chennai, India.

"Why would anyone think this is unusual?" wonders Piatt, who, in the past, worked for IT services providers Unisys and CGI and was CIO for the General Services Administration. "All infrastructure is managed remotely. No one's ever sitting inside your data center anyway, even if it is in your basement. Admins are working from a different building or a different city or, if it's a weekend, logging on from home. Remote infrastructure management is something that virtually every organization does every single day. But people somehow think there's a material difference if that work is done offshore."

In fact, the offshore delivery of infrastructure management services—from network services and help desk support to server maintenance and desktop management—is becoming more mainstream. And while Piatt sees that as no big deal, it's a huge deal for providers of these services. Depending on whom you ask, the total market for remote infrastructure management services is anywhere from $80 billion to $120 billion. Today, for traditional, large global outsourcers, less than 5 percent of revenue from infrastructure outsourcing is derived from services delivered from an offshore location back into North America or Western Europe, says Kurt Potter, research director for Gartner. But experts say that offshore take is growing at 20 percent to 30 percent annually, as global IT services providers amp up their offshore delivery capabilities and CIOs look to cut infrastructure costs. Approximately 70 percent to 80 percent of vendor IT outsourcing proposals hitting the market today contain some form of offshore infrastructure delivery of services, says Adam Strichman, senior partner of Nautilus Advisors.

Offshore vendors—particularly the bigger, Indian multinationals such as Wipro and Tata Consultancy Services (TCS)—see infrastructure management as the next big source of revenue as demand for offshore application development and maintenance stabilizes. Between 2003 and 2005, the number of offshore vendors capable of handling infrastructure tasks tripled to 15,000, according to McKinsey. In February, India's National Association of Software and Services Companies (Nasscom) published a report (compiled by McKinsey) proclaiming that up to three-quarters of all infrastructure management roles could be offshored, creating a $26 billion to $28 billion revenue opportunity by 2013, of which Indian companies could capture about half. Meanwhile, more established U.S. and European infrastructure outsourcing providers view offshore delivery as a way to compete on price with their offshore rivals and improve their own slim margins.

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