If Ireland-based IT outsourcing companies do not move to protect and upscale their operations, the ICT industry could lose as much as €600m by 2007, claims market intelligence firm iReach.
The report says while multinational corporations were the first to use cost differentials across the globe, by moving their ICT operations to low-cost countries such as Ireland in the late Nineties and the early years of this century, this model is becoming less attractive given Ireland’s rising labour and material costs.
Instead, iReach believes IT outsourcing companies should leverage advantages such as Ireland’s attractive tax incentives, educated workforce and improving ICT infrastructure that will make it a viable location for high-value business services.
The company maintains while cost is typically the deciding factor in shifting technology or manufacturing operations, the presence of intangible assets such as employee skills in the areas of technology research, product development and consulting will result in outsource buyers being less likely to switch to a lower-cost location.
According to iReach, the Irish ICT outsourcing industry is worth €1.9bn a year and employs approximately 30,000 people.
However, it is coming under increasing threats from lower-cost economies – India and China respectively are the first and second fastest IT markets in the world.
IReach forecasts that if companies based in Ireland do not move to protect and upscale their operations, the Irish ICT industry could be set to lose as much as €600m and 6,000 jobs by 2007.
“While the mantra may be to move up the value chain in relation to Ireland’s ICT industry, iReach has found that there remains significant gaps in the market before this can be turned into a reality,” said the report’s author Brian Foley, a research analyst with iReach.
Foley said iReach has developed a phased-plan approach that focuses on how companies can prepare for value-added services in place of ICT infrastructure or manufacturing operations.
“Some key steps that iReach has identified include: developing a talent pool; intelligent manipulation of ICT infrastructure; and focusing on demonstrating return on investment for outsourcing contractors,” claimed Foley.
By moving to such higher-value outsourcing activities, companies can earn approximately 25pc more than from pure infrastructure outsourcing while providing added value to their clients.
By John Kennedy