A recent article in Business Week asks, “Is the Party Over for Indian Outsourcers?” and points to some interesting trends that indicate a cooling in the offshoring boom that has been so prevalent for the past 15 years. India has led the vanguard by providing fertile ground for American and European companies looking to find cheaper ways to get services like technical support, testing, development, and internal corporate processes done without impacting quality:
Yet behind this show of supreme confidence lurks deep unease. A confluence of adversities is at play. They include an appreciating rupee that is cutting into earnings, a severe shortage of qualified talent at home, and a cap on H-1B worker visas to the U.S., along with pre-2008 election protectionism threats.
At my current job we offshore/outsource certain aspects of what we do to India, and are exploring expanding our efforts there. But the realities this article mentions are things we run into also – offshoring is simply becoming more difficult to pull off profitably, and India’s best talent is becoming increasingly expensive and difficult to access (turnover is a big issue). Plus, our services firms here (Accenture, IBM, etc.) have become so good at the global game now that they are accelerating the market and making it harder for less skilled outsourcers (like my small marketing agency here) to go direct.
This pick-up in global efficiency is a permanent shift. India was the first, but other fast followers like China, Eastern Europe, and the Pacific Rim are already being jumped on by the likes of Accenture. That unique, long arbitrage of the past decade won’t exist again. The good thing for India is that they have built several billion dollar companies as a result of being first that will likely continue to be global players when the dust settles.
What does this mean for the rest of us? Well, the time will soon come when most firms stateside will need other reasons to offshore/outsource, such as exploiting the time difference (for 24/7 services) or particular regional or content expertise. Simply saving cash won’t be a good enough reason on its own.