On behalf of Wipro, PAC recently conducted an analysis on the German mid-market and Wipro Technologies’ role in this market.

The mid-market is considered as the ‘backbone’ of the German economy, in terms of revenues, employment, etc. Especially in the manufacturing sector, there are many ‘hidden champions’ that are positioned as market leaders in their business segments – often at a global level.

And also when it comes to IT outsourcing – in the past rather a large enterprise topic – the German ‘Mittelstand’ has been steadily gaining in importance. Already today, companies with fewer than 5,000 employees account for more than 50% of the total German outsourcing market, and the trend is still upwards.

The reasons are manifold. All user surveys confirm that cost cutting remains the number-one reason for outsourcing considerations – but seldom the only one. It is followed by the concentration on core competencies, optimization, consolidation and/or modernization needs of infrastructure and application landscapes, quality assurance (availability, performance, compliance, business continuity, etc), the ongoing internationalization process of German companies, demand for flexibilization – especially facing the ongoing uncertain economic situation – as well as increasing skill shortage.

One difference between large and medium-sized companies is obviously the availability of resources and capabilities to deal with these challenges. Often medium-sized companies do not have sufficient internal IT resources – and business focus – to keep up with technological development and innovation, e.g. in areas like mobility or cloud computing. What is more, medium-sized companies have to concentrate their resources on their core business – a major reason for IT outsourcing considerations.

An external supplier may bring in proven methodologies, processes and global delivery capabilities for the optimization of the ongoing operations, but can also help to keep up with innovation and thus to increase the ‘future readiness’ of the company. In addition, medium-sized companies are often keen on exploiting the cost advantages of offshoring services but do not have the necessary experience, so that they prefer the cooperation with a proven partner.

But despite all standardization, automation and the omnipresent cloud trend, outsourcing remains a ‘people business’. Given the criticality of IT for most business processes, the external provider must be a strategic long-term partner – rather than a mere ‘component supplier’ – who assumes responsibility and actively creates value for the customer. This is especially true when it comes to transferring a significant part of the company’s IT landscape – often the heart of a company – to an external provider.

And within such a strategic partnership, close collaboration and communication between the parties is of outstanding importance. Insufficient communication belongs to the most prevalent reasons for failed outsourcing contracts.

Choosing the right supplier

The selection of the appropriate partner, not only on the basis of technological skills but, even more important, also considering the right cultural fit, is thus one of the main factors for a successful outsourcing project. And medium-sized companies have particular requirements with respect to the selection of their outsourcing partner.

For example, an internal IT department will always be closer to the customer’s business than any external supplier may be. Normally, the internal IT – just as an external small, local IT services provider – is more flexible and the collaboration is easier for the users (‘Hey Joe mentality’) due to the importance of the customer for the provider. A large, global player, in contrast, requests more formalized collaboration processes, but such a partner may bring in optimized delivery and price structures, international reach and a degree of innovation that an internal department or a purely local player can hardly reach.

Each kind of provider brings specific advantages to the table. The final decision depends on the individual requirements and preferences of the customer, e.g., whether efficiency is in the foreground or customer proximity, standardization or flexibility, etc.

And not only the local ‘mid-market specialists’ have meanwhile been vying with established ‘global IT giants’ for the attention of the German mid-market – a promising area of growth for the provider community. Increasingly also Indian players – so far often focusing on offshoring services for large accounts – are ambitious to get their slice of this cake.

Wipro, for instance, is a global player with proven offshoring methodology, processes and resources, combined with a global delivery mix of off-, near, and onshoring resources. The German market is of high importance for the company’s growth strategy. Since 2010 Wipro has owned a data center in Germany and has a declared focus on medium-sized customers, which is underlined by a particularly flexible and customer-centric approach. German customers – and not only the DAX 30 companies – may thus expect high attention.

The complete document, including a check list for provider selection, is available for free download from our websites in English (http://bit.ly/PAC_free_downloads) and German (http://bit.ly/PAC_kostenlose_Downloads).

Post by Karsten Leclerque