January 18, 2017 3:21 pm | Updated 1 year ago.
The year 2016 saw a number of strong offshore outsourcing adherents set up onshore centers. This includes the big names like IBM, Accenture, Xerox, and Dell, Walmart, Siemens, Bosch, and Mazda. Some of the big offshore outsourcing service providers like Infosys, Wipro and HCL are also setting facilities closer to the business operations of their clients.
In 2008, the Contract Centre Outsourcing contracts had 35% onshore delivery and 65% offshore delivery. In 2014-15 the distribution has shifted to 53% onshore delivery and 47% to offshore outsourcing destinations.
What is fuelling this reverse migration of the traditionally heavy offshore outsourcing adherents?
Business Operations have become increasingly complex:
As the businesses deepen their engagement with their customers, the processes required to fulfil this newer demand requires talent pool to be located inshore. The talent pool, the cultural affinity and the technology backup is not readily available at offshore outsourcing locations.
Need to be Closer to the Client:
With the complexities of business processes coming into play, constant interaction with the client to maintain alignment real time has become an important variable. The cost of travel and the time zones at offshore outsourcing locations makes this real-time calibration difficult. A corollary to the adoption of agile development methodology is higher business user interaction and is significantly more advantageous which pips the scales against offshore outsourcing. Similarly, for customer-facing projects using Oracle Siebel/CRM, e-commerce and business intelligence, an interaction with the users at the client site is required, which in an offshore outsourcing environment can be a tad challenging.
Domestic Outsourcing to Smaller Towns on the increase:
Smaller towns are gaining maturity as outsourcing destinations Towns like Albany (GA), Oak Ridge (TN), Midland(MI), Jacksonville (TX), Grand Rapids (MN) amongst others are getting traction as preferred domestic outsourcing destinations. These onshore domestic locations are becoming a competitive alternative to offshore outsourcing locations.
Automation changing the paradigm:
With automation technology coming on its own in the last couple of years, machines are taking over a number of routine functions handled by humans in offshore outsourcing locations. Such automation facilities typically get located onshore given the propensity for higher managerial control of the clients.
Regulations around data security:
New tighter data security regulations, especially for the banking sector, are making inshoring a preferred business model compared to offshore outsourcing.
Availability of Subsidies:
Training costs is a significant expense item in the outsourcing industry. In some onshoring organizations, training is increasingly subsidized by state and local governments, which saves dollars for the client and also ensures longer hours of training. Better trained workforce delivers better.
In the near term, we may well hear the traditional outsourcers repeat the works of Alfred Zappala from his book The Reverse Migrant “Sicily is paradise. I live in paradise. Now pass the pasta please.”
Going forward, the service providers at the IT service outsourcing destinations will have to adapt to the changing milieu, by either going up the value chain , bringing in value added services, changing the offering to in-demand domains (e.g. analytics) and thinking of leveraging their experience in running Contract Centre Outsourcing at domestic locations where the client’s business operations are located.