outsourcing work on the Rise

outsourcing work appeared to make sense in pre-recession days when customers were viewed as commodities and local job preservation as little more than a quaint notion. Then along came a global recession that made cost-savings a grim necessity and outsourcing neatly fit the bill. Post recession, consumer behaviors and opinions are shifting radically and outsourcing work is becoming a dirty word. Ugly and persistent consumer backlash was inevitable as local job preservation rocketed from businesses' quaint notion to consumers' prime concern.

Consumer resistance has had an effect. "Offshoring is still thriving, but you may not hear about it much anymore as many companies want to stay quiet on where their call centers and operations are located for fear of backlash from the US," explained Scott Archibald, managing director of Bender Consulting. "One trend is to relocate call centers back to the US or to English speaking locations."

U.S. H-1B, L-1 visa reform under a new border security appropriations act also discriminates against offshore outsourcing work providers, critics and advocates alike say, as it penalizes Indian IT service providers while ignoring US IT service providers who are also heavy users of H-1Bs like IBM, Accenture and UST Global.

Rocked by smaller margins, stagnant sales, shrinking budgets and staggering staff reductions, enterprises still reach for the outsourcing of jobs as a coping mechanism but they do so with a jaundiced eye.

"Rates have increased and there are many issues related to communication barriers and quality of work relative to the standard of work being performed onshore," said Paul. "Poor quality and rework has caused the true cost of outsourcing work to increase."

This has changed buyer preferences considerably. According to a Gartner report, buyers will remain price-sensitive, particularly for IT jobs they perceive as basic, but they will look for smaller, shorter-duration contracts. Risk-averse customers will want transparency and predictability from their service providers, which will increasingly guarantee outcomes and price.

Enterprises now possess hard-won experience with outsourcing work and a near-savage level of sophistication in structuring deals. Gone are the days of bait-and-switch tactics where offshoring companies could present educated talent to land the deal only to switch to unskilled workers when the project began, for example. Gone too is the theory that cheap labor is the alpha and omega in outsourcing models.

"Outsourcing is still alive and well, but it has a new name: cloud computing," said Archibald.

Public and hybrid cloud computing is really just another way of saying outsourcing, said Archibald, only better as you have the ability to get more granular in what you outsource. "For instance, in the early days of outsourcing, IT departments had to pretty much cut off portions of their infrastructure services to be outsourced," he said. "However, now IT departments have many more choices on what they can outsource and to what extent."

Offshore providers have also learned a lot in the school-of-hard-knocks and many are ahead of the curve on cloud adoption. They believe embracing the trend -- rather than bucking it -- to be the better survival strategy. "We agree that cloud jobs are an important part of the outsourcing industry's future," confirms Renato Mendonca, PMP Service delivery manager for Stefanini IT Solutions, North America. "This is something outsourcers are already embracing."

Embracing cloud and other changes in IT is a last-ditch effort to save outsourcing in geographies where it is clearly dying. "In some ways, offshore is a victim of its own success," notes Doug Mow, senior vice president of marketing at Virtusa. "On the provider side each successive dollar of reduction is becoming increasingly difficult to achieve as margins continue to erode," explains Mow. "Providers are looking to new geographies and lesser skilled resource pools to meet the demand."

The jobs drain from outsourcing hubs like India is having the same dire economic consequences as the previous US job drain has. When India saw its heyday in offshore outsourcing, a middle class formed and grew. The Indian market for goods and services then climbed steeply. But then Indian workers began to expect higher pay, better benefits and improved working conditions. That meant the Indian labor market was no longer cheap enough and the outsourcers began to offshore, as well. Now that the jobs are disappearing, the Indian market for goods and services will shrink.

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