The outsourcing story has always followed a predictable story line: Western firms get their first taste of getting work done by a third party and then start looking at the cost and quality benefits of moving it offshore – China in the case of manufacturing and India for services. And the software industry has followed this script and done exceedingly well in creating jobs in India over the last decade and more. But suddenly there seems to be a twist in the tale.
The majors – Tata Consultancy Services (TCS), Infosys, Wipro, Satyam, Genpact and even smaller companies like my own Zensar are stepping up acquisitions and opening more facilities closer to US and European clients. TCS, which currently employs 14,000 people in the US has opened up a new facility near Cincinnati, Ohio that will serve as the primary software development and delivery center for the company's North American customer base. Wipro opened a facility in the Mexican city of Monterrey to service American and European clients and Satyam launched a software centre in Malaysia. Infosys opened a 400-person facility in the Czech Republic to service European clients and purchased the service centres of Royal Philips in Poland and Thailand besides India. Genpact, the leader in business process outsourcing (BPO), already has centres in China and Hungary and is planning many more. Zensar is expanding its centres in Poland, Singapore, Slough, San Jose and New York and moving more and more work to a multi-shore model – the new theme seems to be “reverse offshoring.”
There are many drivers for this trend – the rise in input costs in the prominent IT locations in India, the lower attrition levels and good discipline in some of the newer locations in developing and developed countries and the ability to implement a more consulting-centric model with part of the work being done at or near the customer location. It could be expected that a level of equilibrium will be reached where companies exploit the best of both worlds and develop truly global delivery models that optimise the use of offsite, near-shore and offshore locations in a possible 10:20:70 ratio. One concern is that the possible withdrawal of the tax benefits under the Software Technology Parks of India scheme (though it has been extended by a year on Tuesday) could accelerate the process of reverse outsourcing and leave the potential of lower cost offshoring by setting up smaller centres in Tier 3 and 4 towns untapped. Will the shift to a more rural-centric model for BPO and IT be nipped in the bud?
These are trying times and both government policy and business decision making will be put to the test as the industry reassesses its strategies to hold on to its hard won supremacy in the outsourcing stakes.