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Friday, August 18, 2006

Offshoring : More Insights

For sometime, people have been complaining about rising costs. Many have joined the chorus and some went to the extent of saying several things like India’s offshoring market share may go down from 80% to 10% in the next 4 years!! As I wrote recently, there are sustainable advantagefor indian headquartered majors. I was surprised to know that many of them who feel Indian is overheated and to my surprise, I noted that some of them who were so vociferous have not even visited the country.

The accompanying chart(for some strange reason -blogger is not allowing upload now - shall do so shortly - but some quick numbers to note summarizing monthly location costs for ITS- Vietnam - 6131USD, India - 9896USD, China- 10095USD etc..)(average entry level costs) settles the case on the cost dimension. India scores the highest when assessed from cost & suply situation. Of course, offshoring is not just cost arbitrage - many factors that influence the choice includes talent pool, cultural affinities, geographical proximities, cost structure and ability to scale etc. The sustained growth of offshoring is non-debatable. I would like to point out that many are soft on the emerging locations for offshoring – as I see it many of them do not attach the same importance when they write about key issues like attrition and scaling up. For example, people in the business know the alarming attrition and higher costs base when it comes to looking at China for offshoring, while I do certainly expect most of the emerging locations to increase the volumes, in reality I am not sure if any one country(other than china) can be the miniature equivalent to India – even on a scale of 1:XX in a sustained way. Also to be noted is that there are larger issues at interplay : The focus now needs to shift to improving productivity & yield converting into better business value as can be seen by executing faster and providing better business solutions. As I wrote recently, sourcing relationships actually encompass a wide array of choices given the dynamic nature of business and the intersections of various levels of capabilities that lay within enterprises and service providers. The increasing expectations associated with outsourcing are becoming difficult to meet. With a wide range of functions getting outsourced, the ability of the outsourcer to bind and manage all these functions meets with a varying degree of disruption. On the other hand, the service providers are coming under huge pressure to improve operational efficiencies and to maintain and enhance margins. So in essence, seen from a customer perspective, offshoring strategies need to be dynamically re-evaluated as the business needs, strategies, models and execution methods keep changing. Clearly for the foreseeable future, despite the higher salaries experienced in India and other offshore markets, customers can continue to work with their chosen offshore service provider out of the existing locations to maintain the cost advantage besides reaping a set of other known higher-order benefits in offshore outsourcing opportunities.

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