Outsourcing on the outs?

I'm in California this week. The weather is beautiful, especially compared with frosty Boston, but the state is still the land of fruits and nuts. (Get a side-by-side Weather Comparison widget.)

A friend of mine in the software industry who sits atop a publicly held company said to me this week: “Open Source Software has tempered outsourcing by solving the same problem. It’s a matter of engineering expediency: If you add a software library from an open source repository or engage and manage an outsourcer, you go with the open source repository.”

My friend is a very smart fellow, but I don’t see outsourcing abating -- in fact, quite the opposite. A recent McKinsey report reinforces my view indicating that by 2010 the global outsourcing market is expected to reach $130 billion.

There are some chinks in the outsourcing armor. For example, India might no longer be as much of a haven for business process outsourcing (BPO) because of rising wages and rents. The Philippines, Vietnam, and other places are becoming more attractive by comparison.

But slowing BPO in some places does not constitute a change in overall trends. A recent survey that compared BPO figures from three years ago with current figures concludes that use of BPO by midsized businesses (companies with 100 to 999 employees) remained static at about 60% over the three-year period.

I think OSS has had a marginal impact on the growth of outsourcing, and it will probably fuel growth in new ways as outsourcers and offshore entities use more of it based on the encouragement of their OSS-using clients.

Black Duck’s involvement with outsourcers and offshore development organizations is just starting. We have clients on either side of the outsourcing equation -- clients who want to check outsourced code, and outsourcers who are checking their own code (for example, EPAM Systems. These clients are located in the United States and Europe, while our outsourcing clients are located in India, Eastern Europe, and Asia.

As some of the surfer dudes here in California might put it, there are still some mondo BPO waves to ride. Totally gnarly, dude.