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. Last Updated: 07/27/2016

Outsourcing Software Firms Gaining on India

MUMBAI, India -- Offshore outsourcing is the fastest growing segment in the global tech sector but Indian firms, which have been the leaders in this business, are facing tougher competition, research firm Gartner Inc. said Tuesday.

Outsourcing IT services -- which comprise developing software applications for purposes like doing business on the Internet, automating business processes and maintaining computer networks -- to offshore locations are seen growing at 29 percent annually over the next five years.

Business process outsourcing -- which includes accounting, payroll management, insurance claims processing, animation, engineering and web design -- to offshore sites is forecast to expand 68 percent each year over the same period, Gartner said in a statement.

U.S. companies were outsourcing activities to save on costs in a tough economic environment at home, Bob Hayward, senior vice president at Gartner APAC, said in the statement.

India has been a beneficiary of this trend as billing rates in India are at about $20 per hour compared to $90-100 per hour that U.S. firms charge for services offered there, analysts say.

But India, which used to be a "destination of choice" is facing competition from Russia, Ireland, Eastern Europe, the Philippines and China, Gartner said.

Rita Terdiman, research director at Gartner, said the new service vendors had broken the stranglehold of Indian providers to the United States in the past six months.

Infosys Technologies and Wipro Ltd., two of India's top three software exporters, now offer one-stop service shops combining software with back-office work, including accounting and payroll management over high-speed telecom links.

Global giants such as IBM and Accenture are also expanding their units in India to cater to rising outsourcing business.

"Going forward what will emerge is a set of 'global players' rather than the notion of U.S. or Indian vendors," she said.

U.S-based outsourcing firms will establish or expand their capabilities offshore to compete effectively on cost, through 2004.

They could also look to acquire smaller local players, she added.