Tuesday, June 24, 2008

Reverse Outsourcing is Official !!

The reverse outsourcing trend is not a phenomenon being predicted anymore. Its here and it has found its share of clients. The recent Black Book of Outsourcing has in very clear terms stated that the Indian offshoring (Outsourcing to other geographies and countries) success story will require greater onshoring strength to support it. What this means is that Indian IT companies that grew big by successfully placing their bets on the offshoring mantra and drastic cost savings for the clients will now have to wake up to the fact that they will also need to have physical presence closer to where their clientele is located. Why was this in the prediction books all along and materializing now? I can pin point a few tactical reasons why this would be the trend for the immediate future.
  1. The first wave of offshoring is nearing an end: All the low end, ‘immediately off-shorable’ components of work have been offshored (Ex: Testing). The next wave of offshoring (if at all it happens) would involve the upscale work which would involve high end consulting, end to end project execution would require the customers to repose complete faith in their vendors. This would requires substantial confidence building measures to be taken by Indian IT companies. This would require close working proximity with clients.
  2. Global Economy is facing a crunch: With crude prices shooting up by the hour, the wheels of the global economy are slowing down. The US downturn and the stalemate in big decisions till the new government in the US gets elected next year mean we will be seeing an extended period of cautious IT spending. Nearshoring (outsourcing within geographies or within the country) and insourcing (Outsourcing to other departments or subsidiaries of parent company) are buzz words that are picking up speed in corporate circles.
  3. Entering the Era of Big deals: Companies are consolidating and deals are getting bigger. Multi vendor deals are drying up and are being replaced by single vendor mega deals worth billions of dollars. MNCs, given this backdrop, would award the deals to vendors whom they trust, whom they can feel close to in the working proximity.
I think this is a big opportunity for the Indian IT giants to expand their global footprint faster while retaining the cutting edge that the Indian talent pool provides them. However for companies that fail to see this trend setting in, it is going to be tough times ahead.

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