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April 30 2008, HINDUSTAN TIMES
 
Reverse Outsourcing - Is this inevitable ?
 
The outsourcing story has always followed a predictable story line – Western firms get their first taste of getting contextual 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 to the tale.
The majors - TCS, Infosys, Wipro, Satyam, Genpact and even smaller companies like 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 MSC Malaysia, a government-designated high-tech zone. 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 leading 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 Outsourcing.
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 off site, 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 STPI scheme could accelerate the process of reverse outsourcing and leave the potential of lower cost outsourcing 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?
The next twelve months could determine which way the pendulum swings. A prolonged slowdown would make it more attractive to do work in India as the cost benefits of offshore outweigh the strategic advantages of a multi shore model but lack of clarity on the tax regime could see many more captive centers and Indian firms move tens of thousands of jobs overseas. 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.
 
   
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