Last year’s sourcing activity was more concentrated in top 10 locations offshore and nearshore for similar reasons—the work outsourced is more complex and these cities can accommodate higher-level tasks. “Cost arbitrage is important, but that is not the only consideration. In many cases, the shortage of skills in onshore locations is the primary reason behind offshore or nearshore location set-ups,” says Karthik, who expects the trend to continue until tier-two and -three cities develop such capabilities.
Demand for those more complex services is growing. The share of digital services in IT outsourcing deals as compared to traditional services rose to 35 percent in 2016, according to Everest Group, with cloud, analytics and mobility services leading the way. Ultimately, digital services will overtake traditional services. “It is hard to accurately predict a timeframe to this, but we see this happening in two to three years,” says Karthik “This varies across industry and functional segments. In some areas, digital has already overtaken traditional services.”
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