Part 1. Why software outsourcing companies should be worried that business is booming

I'll show why booming business might not be such a good thing for IT outsourcing companies.
The trend looks good for outsourcing providers, at least for INFOSYS, EPAM, LUXOFT. Quarterly (yoy) growth 13.30% -32.20%, with steady positive cash flow. But can it be the beginning of the end?

5 bullet points

IT outsourcing growth might be linked with:

• Merge and Acquisition  - since the market growth is negative, big companies thrive , while small ones go up in smoke.
• Product companies outsource deprecated technologies  - in-sourcing new projects with new technologies, because innovation matters. "And it is often difficult to get innovative, differentiated outcomes when you turn IT over to someone else".

This leads to the following risks:

• Knowledge deprecation - outsourcing providers are not early adopters or innovators for obvious reasons, stated in the excellent "The Passionate Programmer" book.
• In-sourcing of IT jobs - there's a movement to bring IT jobs back to USA and look for local talent. It's relatively small, but has quite important objectives - to reduce risk, and lower management and communication overheads.
• High automation of programmer's work - with sharp up-to-date skills and tons of open source tools, one passionate programmer can replace 10 average ones or 20 outsourced (factor in communication overhead [ 2.1 The Formula chapter in the link ]).

Technology adoption challenge

In a future blog post I'll speculate about the Innovation and Automation points above, in particular how emerging languages can affect IT business.

Summary

The outsourcing boom might be linked with unimportant projects with deprecated technologies at the end of their life-cycle, and can can turn into durst pretty quickly.

Links

Deloitte’s 2014  Global Outsourcing  and Insourcing Survey  
10 IT Outsourcing Trends to Watch in 2014