Offshoring to the U.S.

If you examine the top 50 outsourcing contracts (by value) inked over the last decade, you'll find that an overwhelming majority of them involve U.S. service providers. A broad generalization is that as we move along an increasing continuum of strategic value of outsourcing (reduction of costs for transaction intensive business processes on one end and business transformation on the other), we find ourselves making the journey across the Atlantic from India to the U.S.

Interestingly, while much interest and discussion in the offshoring space has focused on the transactional end of the spectrum, little is known about strategic offshoring that happens to the U.S. So much so that the conceptualization and imagery of offshoring has shifted from its inclusive characterization of inter-country outsourcing to be limited to outsourcing to low cost destinations or emerging markets such as India and China.

Further, while a large percent of the client firms involved in the top 50 contracts are from Western Europe and Japan, a few firms outsourcing their business processes are also India-based. More evidence that globalization, global diffusion of competencies and development are good for the U.S. And that we're still traversing the circle.

Offshoring - Decision to outsource

The research, so far, on offshoring suggests that the three main motivations to offshore include:

1. Reduction of costs,
2. Access to competitive capabilities not available within the firm, and
3. Pursuit of a growth strategy.

Are these applicable to your key, strategic offshoring engagements? Why did you offshore that product design function in your firm? Or that R&D capability?

Please take the offshoring survey on this page and inform.

Offshoring series

My dissertation comprises three essays on outsourcing – the first two essays focus on issues of governance choice in BPO relationships, including the different governance forms that firms use to create value and the drivers of these governance forms. The final essay in my dissertation takes a closer look at the financial value (read abnormal stock returns) created through outsourcing and analyzes whether these returns are consistent with the efficiency gains realized.

Your comments and feedback over the past two years have served as an important input to my research. Now, as I examine the above issues in the context of offshoring, I’d like to hear from you how these issues play out in your organizational contexts.

Also, I have a survey up on BPO Journal. 16 questions long with the promise to take up less than 15 minutes of your time. No identifying information is required. All responses will be treated as confidential, and results will be published (only in aggregate) over the next month on this blog. I am sure you'll find these analyses and results a valuable tool to design your offshoring relationships and objectively benchmark your performance. Do ink at your convenience.

Mail, comment and inform!

Back home

Friday marked the end of my month-long trip to India. Seems like I arrived just in time as well - all flights from Dallas into Austin were cancelled on Saturday due to that nasty winter strom.

The 10 Best (and 10 Worst) Companies for Call Center Service

Rich McIver mailed me this link to an article in CRM Lowdown that honors the companies that have made customer service a priority and shames those that haven't.

Most of the hall of fame and shame are consistent with personal experience.

India Number One

So claims Swaminathan Aiyar in his column in the Times of India as he emphatically announces India’s professed transition from "a global supplier of software, generic drugs and auto components" to "a global managerial power, one that can take over multinationals across the world and improve their performance". He stakes his claim on the basis of India Inc.’s takeovers during the year 2006 – for example, Tata Tea acquired US energy drinks manufacturer Energy Brands for $677 m. Dr Reddy's Labs acquired Betapharm of Germany for $570 m. Suzlon acquired Eve Holdings of Belgium to become one of the world's top manufacturers of windmills, etc.

Well, hope is a good emotion to start the New Year with. So, for the first post of 2007, I’ll harmonize tunes with Aiyar and summarize all that seems well in India. Some of this touched my life and longing during my last month here in the country while much of these economic achievements fail to improve the lives of a majority of Indians. Yet, they should bring comfort and confidence as India moves forward into 2007.

1. As the country looks forward to the eleventh five year plan for 2007-2012, it considers real GDP growth rates of below 9% a failure. Contrast this with the sixth five year plan in 1980-85 where the country seemed content with an average real growth of 5.2 per cent.
2. There’s greater recognition than ever of India’s and Indians’ economic potential. There’s Aiyar’s list of takeovers by Indian firms. Then there’s Uncle Sam’s warmth wrapped in the Indo-US nuclear deal. A leadership role in global governance seemed imminent last year with Shashi Tharoor coming close to being UN Secretary General. Kiran Desai won a Booker. And, of course, all that talk about outsourcing, software exports, and becoming the third largest economy (after the United States and China) in the world by 2007 if one uses purchasing power parity. Ah, before I forget, only 14 IITans took a plane overseas this graduating year.
3. Manmohan Singh, in the cover story of “The Week”, writes that “India has become a net aid giver rather than an aid recipient”. This marks a broader shift away from the notion of a constrained economy, evident in the increase in savings rate (from around 23% in 1982 to around 30%) and investment rate (from around 25% in 1982 to around 30%), FDI and easy access to capital and equity markets.
4. There’s a discernible shift in consumption. Consumption at 64% of GDP is even higher than China’s (at 42% of GDP) and is reflected in greater choices and better quality of goods and services. This might be a good place to talk about rising inflation but I’ll stick to my promise for now. A marked change from the shortage economy of the eighties.
5. A heartening impact of civil society in the organs of the government finds place in the new India. My earlier post on outsourcing justice demonstrates that the influence of civil society on the judiciary was the star of 2006. This was reflected in broader cases of justice for the disempowered, public interest litigations, increased consumer awareness, and government support for woman empowerment.
6. Finally, something that was very visible to me as an outsider was the significant increase in the country’s confidence. Aggressive self-assertiveness is a far cry from the meek Indian of yore, and is to a large extent, a function of India being a young country, with a median age of 24 years.

There is some improvement in social indices such as woman empowerment infant mortality and literacy rates. But, I cannot cite them without talking about what’s obviously unchanged in the country. So, shall desist from that line of commentary.

And on that optimistic note, here's wishing all of BPO Journal’s readers a great year ahead!