Spain looks to balance quality and costs for offshore success

An association of consulting companies in Spain is attempting to sell the country as an IT services destination, building on its strong domestic market, as well as citing the high-level skills of its tech workforce and its capacity for further expansion into export markets. However, given the economic climate, Spain could struggle to compete with low-cost offshore locations.

The push, branded 'Valueshore', is an attempt by the Spanish Association of Consulting Firms (AEC) to position Spain as a low-risk, high quality, mid-price location. The group is no Nasscom though. Rather than being made up of domestic providers, the AEC includes the Spanish units of some of the largest European and US services firms such as Accenture, Capgemini and IBM, as well as domestic players such as Indra Sistemas.

At a recent meeting in Madrid, the group outlined the principal reasons why Spain should rank higher in enterprises' global IT delivery plans than it currently does. Spain stands as one of the lowest labour cost locations in Western Europe with a highly regarded education system that has 13,500 engineers graduating in ICT-related studies each year. Spain also benefits from a mature IT industry, with a strong legacy of high-level application development and a robust transport infrastructure. Finally, the country has time-zone favourability for Europe and North American customers compared to Asia.

The AEC was keen to point out that Spain was not in direct rivalry with India, which the group admitted that it could not compete with in terms of cost. Instead, the AEC claimed that Spain was the high-quality option at a price that offered the best overall value. The group said it was marketing Spain predominately for high-level application development work, in which it had shown particular success, and highlighted the successful integration of foreign acquisitions by Spanish utilities and banks through their domestic technology staff and service providers.

Pushing a higher-price service in the current market looks like unfortunate timing, but worse was the assumption voiced by the AEC that India and other low-cost locations are greatly inferior in terms of quality.

While there are some Indian vendors that might well suffer from quality comparisons, many Indian vendors have shown a growing ability to handle complex projects and deliver innovative, quality services. Indeed, Indian vendors are even making inroads into the Spanish market. Satyam has recently set up there and earlier this year Infosys won a deal to implement its Finacle platform at Spanish bank BBVA.

The AEC makes a compelling case for using Spain as a European hub in a multi-regional outsourcing strategy - a strategy which is becoming popular with enterprises as they become ever more at ease with sending work abroad. However, Datamonitor feels cultural and language issues will limit its growth in the non-Spanish speaking world.

While Spain claims not to be in competition with India, the truth is that India is certainly targeting the same high-level development work as Spain's Valueshore proposition. Clearly, as the global economic climate worsens, and cost cutting returns to the very top of buyers' agendas, India and other low-cost locations cannot be so easily dismissed.