Offshore Readiness

History of Danish Outsourcing
Danish industries have traditionally been slow to pursue IT-outsourcing, but that is changing as the need for assistance on large scale IT projects grows. Ironically, via the Industrialization Fund for Developing Countries, the Danish state actually grants subsidies to countries willing to move Danish jobs to low-wage countries. For years, the Danish state has helped underwrite massive job outsourcing by the nation's largest companies to the Far East and other low-wage areas.

According to daily newspaper Jyllands-Posten, outsourcing is often conducted via the Industrialization Fund for Developing Countries, IFU, which is basically a state-owned venture company that promotes investments in countries with an average annual GNP per capita under USD 5115 (about DKK 32,000). Through IFU, large, well-padded companies like A.P. Møller-Mærsk, Danisco, GN Store Nord, Royal Scandinavia, Novozymes, Carlsberg and others have secured state grants on numerous occasions over the past 10-15 years to finance new jobs in low-wage countries.

Still, some companies continue to struggle to get a foothold in the Danish market. Indian IT/software houses, other than L&T and TCS, have found it quite hard to gain a foothold on the Danish market. Most outsourcing has been to support smaller projects and as a temporary solution. Large-scale IT outsourcing has recently become a focus of Danish industries.

Current Outsourcing Environment
Denmark strives to manage the results of pursuing desire to both help developing countries and continue to grow its own economy. Economic theories have claimed that more jobs are generated in Denmark when companies internationalize. The alternative to moving jobs to these countries isn't for Danish companies to just keep producing and growing. A company that can't use the international division of labour to its own advantage will retreat or perish. Historically, Denmark has acquired wealth when new industries and technologies emerge that we can use.

Denmark is also struggling along with the global economy with understanding the realities of outsourcing. Data n success and failure is beginning to modify the outsourcing market into those who will continue to pursue outsourcing, and those that feel they need to manage IT outsourcing themselves. As companies are able to view the results of their targets, many are reconsidering the ay they pursue outsourcing. Being able to manage the goals and timelines is very important.

According to a survey conducted by international consultancy company PA Consulting Group, 25% of all outsourcing projects in Denmark fail to achieve the desired savings targets. DI, the Association of Danish Industries, points out that the high failure percentage could be attributed to the fact that corporate leaders do not make enough preparations before outsourcing. What is more, they mainly focus on matters such lower pay expenses when outsourcing to low-cost countries when they should also take into account various risk factors such as the political and financial stability in the country, currency risks and cultural differences between Denmark and the other country.

But outsourcing can be a fuel for growth. IDC says growth in outsourcing helped spur the Danish IT services market to DKK 20.8 billion in 2003, representing growth of almost 7 percent over the previous year. Spending on Business Process Outsourcing services totaled approximately DKK 2,224 million in Denmark in 2003.

Future of Danish Outsourcing
IT outsourcing is on the rise in Denmark. The relative size of the Danish market may be a consideration as Denmark moves forward in the IT outsourcing world. Outsourcers resources will be devoted to large markets. Many plan to pursue an overall strategy for targeting all the Nordic countries – Denmark, Sweden, Norway, Iceland, and Finland – together. "With the strong competition, Denmark and the Nordic countries become too small as standalone markets, and players will need to consolidate at a Nordic level," said Mette Ahorlu, IDC Nordic consulting manager.

IDC forecasts a compound average growth rate for the IT services market of 6.5 percent for the 2003-2008 period. This rise is primarily a result of the high growth in outsourcing, at 21%. Outsourcing reached DKK 6.950 billion, or 33% of the Danish IT services market in 2003. The compound annual growth rate for outsourcing is forecast at 12.1% for 2003–2008, while other IT services markets will experience only slow growth.

Offshore outsourcing services will continue to be a key for Danish companies and will continue to influence the IT services market. Many countries offer the option of low-cost, highly skilled labor with required skills. There are cultural barriers that will need to be addressed. International vendors such as IBM and HP continue bring a combination of local and global resources and drive down the cost of services.