IT outsourcing in Australia is set to crack AU$11 billion but Australia's dwindling IT baby boomer generation will cause problems with both outsourcers and in-house IT projects.
Research from analysts Gartner found that the Australian outsourcing market is set to grow at a rate of 4.7 percent in 2008, with skills shortages pushing more companies to turn to offshore providers.
"We're going to see staff shortages because a lot of experienced IT professionals are ageing," Gartner research vice president Jim Longwood recently told ZDNet Australia.
"IT is one of those areas we're seeing the effects of an ageing population. In one sense, it will be inevitable to see a higher utilisation of offshore resources in the future," he said.
Historically, offshore labour supplies could have solved skills shortages, however these may become less attractive to Australian organisations in the future: "Staff shortages for internal and outsourced projects are a growing problem in Australia and in most other countries in the Asia Pacific region including India, New Zealand, Thailand and even China for some specialised skills and experienced staff," said Longwood.
Indian IT skills in particular are expected to become more difficult to access due to upward pressure on local wages.
"Strong demand is putting a strain on the available Indian labour force, while staff attrition and cost increases remain high," said Ian Marriott, research vice president at Gartner.
Marriot expects this situation to cause sophisticated buyers to seek "multi-country" offshoring strategies, allowing them to choose foreign suppliers that can work with the organisation's primary time zones.
Gartner expects the trend towards multi-sourcing, where contracts are divided between several suppliers, to continue, although for some, contract management will remain a major problem.
"For many, their IT sourcing strategies and governance structures are still immature ... or misaligned with enterprise objectives," said Kurt Potter, research director at Gartner.
"In extreme cases, the lack of needed trust and control to optimise the outsourcing relationship results in deal failure," he added.
Australia's largest bank, Commonwealth Bank recently announced it will move to selective sourcing, dumping incumbent EDS from its application services work and hiring IBM and Tata Consultancy instead.
Gartner's Longwood expects labour shortages to change the way organisations fulfil the demand for application development work.
"There's a lot of talk about enhancement and transformation -- that's happening at the Department of Immigration, the ATO with IBM as well as AGL's transformation," he told ZDNet Australia.
"Because of the economic environment [these organisations] are doing enhancement projects such as ERP upgrades for SAP or Oracle. These new business systems being implemented will drive more application outsourcing and is forcing clients to look at new delivery models," he said.