IT industry in Western Europe, Germany in particular, is highly developed and C-level executives are well aware of what profits outsourcing this part of business may potentially bring. However, they don't let it happen all that often, but when they do, they keep it the old fashioned way without giving much chance to the new perspective destinations, by which they limit their own opportunities in the long run.
What drives German IT managers in such a decision making? I've attended a workshop held by a German businessman who actually outsources his IT to Ukraine (Eastern Europe) and quite successfully, reviewed a couple of reports (by IT Sourcing Europe), and decided to put all the information I've heard and read together in this article.
The most common situation for German companies is to either keep their IT in-house, or outsource it within the country, or alternatively use one of the traditional offshore destinations for IT outsourcing. Here is a chart proving the point, of how unwillingly German businessmen delegate their IT to third parties:
The number of survey participants were 764 German companies, of which 398 were IT and software development outsourcing companies and 366 were companies developing their IT and software solutions internally.
German IT industry is somewhere in the middle of the world arena. And with all the reluctance to transfer a part of business elsewhere German companies are in fact forced to depend on national or international services providers due to tremendous competition in eCommerce, eBusiness and many other directions of Information Technology.
Some of the other classical locations where occasional German companies outsource are China and Vietnam. However Germany and nearshore Eastern European locations such as Russia, Ukraine, and less – Poland and Czech Republic remain more preferable for the majority of German companies who go with outsourcing strategy.
Some companies, nevertheless, practice multi-sourcing – outsourcing to a few destinations at a time.
The survey held by the specialists of IT Sourcing Europe shows that the most outsourced solutions in Germany are mobile and web technologies. Enterprise solutions come next and the least popular for this purpose are SaaS/Cloud services.
Whenever German businessmen choose to outsource their IT, they are mostly ruled by cultural proximity and qualified & available talent whereas political and economic situation of the outsourcing destination doesn't matter all that much.
Once the location is determined it's time to define the partner. Nothing can win over solid experience and a proper portfolio in the eyes of German business owners. References from customers is another important aspect for perspective partnership. Surprisingly for some of us Germans do not really care if the contract terms are flexible or rigid.
Over 55 % of German companies find their ITO partner(s) through web research. Two other effective ways are an active searching for ITO service providers through references and a passive one - being found by a vendor.
Fixed-price and Time & Material types of projects are the most frequently used engagement models in German outsourcing while Captive or Shared Service Centers are the least popular.
General impression of software development outsourcing in German companies is positive, even though in-house work is still highly appreciated.
However, the majority of companies still considers to carry on with outsourcing either onshore, nearshore or offshore.
Because the average experience is rather positive than negative.
And if outsourcing is on the agenda, the majority of German companies feel safer to work with onshore service providers, slightly less of them wouldn't mind nearshoring and very few business owners in Germany would agree to outsource offshore.
So, in case more than half of conservative Germans choose to outsource their IT, what prevents you from benefiting from all the advantages of this business model? Consider Zfort Group as your IT outsourcing partner and keep in touch!
The article is written with the use of data from the following reports and materials:
- European IT Outsourcing Intelligence Report 2011: Germany
- European IT Outsourcing Intelligence Report 2012: Germany
- Torsten Daerr's presentation "IT in Germany".