IT Outsourcing: Deciphering the Challenges of the Industry

With the pandemic and, most recently, artificial intelligence (AI) shaping our lives and how we work, IT outsourcing is swiftly becoming a mainstay in the IT world. With the changes in the economy and technology, those of us in the IT Outsourcing industry face some ongoing and new challenges that we at Era Biz Solutions have to overcome in order to give the best services.

1. High Competition and Increasing Pricing Pressure:

The IT outsourcing industry has been highly competitive for the last decade or two. However, from 2022 when the Ukraine-Russia war caused a downfall in economies around the world, the demand for IT outsourcing has started rising sharply to combat the rises in costs. This has a corresponding increase in IT outsourcing companies, many of them being startups trying to vie for a place in the industry through a pricing war. This intense competition is making it very challenging for established outsourcing companies such as Era Biz Solutions to maintain profit margins while offering competitive rates. 

Mitigation Strategies: This is where the true-blue talent of the IT companies such as Era Biz becomes visible as those who are truly established in the market are able to hold their front through work quality so that clients keep coming back to them regardless of the price – hence establishing authority as industry experts. We also bring themselves to the fore by providing excellent SEO content online on our products and services that can make us stand out from the crowd.

2. Geopolitical and Economic Factors:

Geopolitical events, economic fluctuations, and regulatory changes in different countries can have a major impact on the outsourcing industry. Some prime examples in the recent few years were the Easter Bomb Attack in Sri Lanka, the COVID-19 pandemic, and the Russia-Ukraine War that started on the 24th Feb 2022. Each of these major geopolitical events has caused significant loss of life and political and economic instability. The war in particular has caused major repercussions in countries around the world and in Sri Lanka and UK where Era Biz Solutions has offices. 

Mitigation Strategies: As countries and economies fall and rise opportunities and risks appear to those who are alert. For example, despite the current economic downturn causing clients to become more reluctant to spend premium amounts on technological advances, it also creates the opportunity for Era Biz as an IT outsourcing company who is able to provide services at low cost but high quality. Companies need to monitor and adapt to such factors to minimize potential disruptions.

3. Talent Acquisition and Retention:

Finding and retaining skilled IT professionals can be a significant challenge. The industry’s demand for specialized expertise often outpaces the available talent pool, leading to a talent shortage and increased competition for qualified employees. Most importantly, the recent COVID pandemic and the Ukraine-Russia war have caused a very high demand for IT experts in Western countries such as the US, UK, and Canada while even countries with lower living cost indices face drastic rises in their costs. This has caused many highly experienced developers to migrate overseas in search of greener pastures. 

Mitigation Strategies: As a top offshore software development company, Era Biz Solutions is able to retain its developers through great employee benefits and a good working environment. Another factor to consider is offering the room and opportunity for growth for developers both in their home countries and overseas such that they don’t feel the need to go to another location to develop themselves.

4. Changing Technological Landscape:

The world of technology has been highly volatile in recent years. From new programming languages and development frameworks to brand new technologies such as blockchain, cloud technology, virtual reality, and most recently the advances in artificial intelligence (AI); companies working in the IT Outsourcing sector have been forced to view the upcoming changes as a stormy sea where you can only sink or swim. In specific AI, which has automated many processes has a drastic change where we as an IT Outsourcing Company have to think beyond code to create new concepts. 

Mitigation Strategies: Skilled outsourcing companies in the IT sector push themselves to continually invest in training and upskilling their workforce to stay relevant and deliver cutting-edge solutions to clients. Era Biz Solutions has its own in-house learning management solution which makes a big difference in adding training and skillsets to their developers.

Are looking for trouble-free IT Outsourcing? Contact Era Biz Solutions for an easy ride!

5. Client Expectations and Communication among Remote Teams:

As many IT outsourcing companies such as Era Biz Solutions have remote teams located in different time zones and cultural backgrounds, and/or work with clients in differing time zones, managing communication, collaboration, and project coordination effectively can be a geographical challenge. In a globally connected era with new communication technologies and solutions coming out constantly, client expectations with regard to networking and collaboration are often extremely high.

Mitigation Strategies: In order to handle this challenge, not only do IT outsourcing companies need to keep up with technologies that ensure the best remote team collaboration, but there is also an additional requirement to hire developers with good communication skills in English and other global languages.

6. Managing Scope Creep:

This is one we at Era Biz Solutions and every other Outsourcing company or freelancer out there has trouble with. “Scope Creep” is that process where clients start with seemingly just a few simple requirements, but slowly add new requirements one by one as the project takes shape and they are able to compare and contrast with other similar solutions that they consider “the perfect one” – thereby gradually taking the project well beyond the initial scope of the project. Many of the clients also have an indeterminate mindset that causes them to want to change user interfaces and technology, according to the newest fad. They completely disregard: the costs in terms of finance and time, which they are often not willing to adjust accordingly. Preventing such scope creep can be a major challenge in the IT outsourcing industry.

Mitigation Strategies: To prevent this IT outsourcing companies need to have complete and transparent documentation. At Era Biz Solutions, we ensure that all changes in project requirements or added functionalities without proper documentation and adjustments need to be logged as and when they are requested, and agreements signed off by the clients with regards to the specifics and the delays and cost overruns they would cost. This process is communicated to the client when signing the initial agreement.

7. High Requirements for Data Security and Privacy Compliance:

While the advances in technology have brought many good changes, it has also exacerbated the darker corners where crimes occur. Even as new more secure programming languages and frameworks rise, hackers and other criminals who thrive on information crimes are finding new ways to get around security using technology as a tool for social engineering. In response to the rising wave of online crimes, many countries are strengthening their laws on cybersecurity and data privacy. 

Mitigation Strategies: As custodians of sensitive client data, IT outsourcing companies are required to find new ways to combat cyber-attacks, while always ensuring that they maintain the highest levels of data security and privacy in order to comply with the legal regulations of their own country and those of their clients. Era Biz Solutions has a complex and complete process for this that you can read about on our About Us page. This process can be costly for us but is still necessary.

8. Intellectual Property Protection:

Protecting the intellectual property ownership of the software that is being developed while respecting client rights can be a complex legal and contractual matter. As an IT Outsourcing Company, the products developed for the clients are the lifeblood of our organization. Therefore, it becomes a problem if more unethical clients make illegal resales of the product when the actual intellectual property rights belong to Era Biz or any other IT company. This is why it is necessary for IT Outsourcing companies to take mitigation actions.

Mitigation Strategies: There are several ways to mitigate this challenge. But two methods are key. Firstly, the client’s agreement has to clearly state the intellectual property rights and the client must be made aware that what they purchase is the right to use the product and not to resell or make changes. Many companies do this, and enforce their rights with patents, trademarks, and copyrights. Later the client is given the product on a subscription basis, while the IT company holds the full administration rights to the product. Another method is to white label and provide full ownership of a customized version of the product to the client at a relatively high price, while holding the intellectual rights to the original base source code which can be reused. This is usually the method used by Era Biz

9. Dependency on Specific Clients or Industries:

Industry specialization, or having the regular patronage of major clients is a lucrative route for many IT Outsourcing companies.  During our decade-long experience in the IT Outsourcing industry, we have seen many young and sometimes even matured IT companies bite the dust due to overreliance on a few major clients or a particular industry, as such industries can have a fall or even major companies can go bankrupt (The fall of Silicon Valley Bank being a major example). 

Mitigation Strategies: IT Outsourcing companies need to diversify their client base and explore new market opportunities for long-term sustainability. During this process, they should also maintain the quality of their products to maintain their client base while achieving growth.

To navigate these challenges successfully, Era Biz as an experienced IT outsourcing company ensures that it prioritizes adaptability, agility, and a highly secure client-centric approach. Continuous innovation, investment in employee development and benefits, strong risk management practices, and a proactive approach to addressing client needs have helped us thrive in the dynamic and competitive outsourcing market in Sri Lanka and other global markets that is growing rapidly worldwide. We also have a very diverse product range from bespoke software development, mobile app development, and web development to enterprise eCommerce platforms, government digitization, and CRM solutions.

Contact us today to book your free consultation!