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Forbes Column 08: The Coming Death of Indian Outsourcing

Posted on Friday, Feb 29th 2008

My most recent Forbes Column, The Coming Death of Indian Outsourcing, discusses companies like ADP and their “nearshoring” moves.

This segment is a part in the series : Forbes Column 08


. Connecting With Your Intimate Bot
. The Gap in Google's Defenses
. A Recession-Proof Corner of the Tech Sector
. eBay's Bounce-Back Opportunity
. How To Dig Out Yahoo's Treasures
. The Microsoft-Yahoo! Battle Plan
. What Microsoft Should Do While Yahoo! Dithers
. The Next VMWare
. The Smartest Unknown Indian Entrepreneur
. The Coming Death of Indian Outsourcing
. India - Cash Rich, Product Poor
. How to Save the World's Back Office
. Latin America's eCommerce Leader
. The Next Indo-China War
. The Real VCs of Silicon Valley
. Fund Envy
. Bootstrap Yourself
. The Coming Convergence
. Lighting The Way In India
. Hydro-Alchemy
. How Amazon Could Change Publishing
. A Technological Fix For Education
. How Technology Can Save Retailers
. Mobile Microfinance
. How To Heat Up Solar
. How Chip Toolmakers Can Survive
. Kill The Business Trip
. Water Firm Enlivens IPO Market
. Web-Savvy Authors Reap Fame, Fortune
. Peeking Inside the iPhone
. Bootstrapping, Montana Style
. Entrepreneurs Flock To Online Travel
. Silicon Lazarus
. Carts Ahead Of Horses
. Weapon Of Mass Reconstruction
. Barack Obama' s Finance Lesson
. Stimulus Package For Entrepreneurs
. Building A Smarter Corporation
. Deconstructing The Cloud
. 'SaaS-ing' Back At The Economy
. Web 3.0
. My Adventure With Amazon
. An S.O.S. To Silicon Valley
. OLPC’s Last Billion
. Capitalism Revisited
. Bargains For Private Equity
. President Obama
. Perilous Protectionism
. Healing Health Care
. Stop The Fear Epidemic
. Obama
. 'Edutainment' Needs Entrepreneurs

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While I agree with all that you say, (and from correction perspective – it is needed as well – a little bit of a downturn will end up stabilizing wages), it is also a fact that overall tech talent is getting more and more scarce. And what will happen is, when you take the cost arbitrage away – you still need technical talent – and I don’t see that being available or increasing in the US (or elsewhere). So maybe generic IT and ITES may see some downturn – there is still so much talent in India that needs to be tapped and will get tapped.

But as I said – some kind of downturn in the Indian outsourcing industry is good and will happen – most likely in the latter half of 2008.

Kiran Friday, February 29, 2008 at 11:48 AM PT

Well, I think this post is too much American centred. As the increasing incomes of the Indian families will create a lot of new companies with new needs, the IT industry of India will change from outsourcing to global player in innovation as all the countries with well trained personal have done. Then the outsourcing will not disappear, it will just go to a new patter, of more aggregate value.

Gian Friday, February 29, 2008 at 12:19 PM PT

I like to read your article allways and so it is this time as well. Its thought provoking and instigative of various argumentative discussions. I think SaaS is a good business model but still not sure whether using it I like to read your article always and so it is this time as well. It’s thought provoking and instigative of various argumentative discussions. I think SaaS is a good business model but I fail to understand whether using it any corporate can get rid of their main stream enterprise software and applications built around that. And if not then there is a continuous market demand for building those. May be you are to some extent correct in saying that India is still an execution house, a back office, and I think there is hardly any wrong in it, as even when you are moving up the value chain you cannot leave behind the areas where your most expertise are and which earns you most of the revenue. If we are not talking about the Indian IT companies particularly, and if we are talking about the IT industry as a whole, I think big American companies who has set bases here are not really betting on the product innovation capabilities of Indian employees but its really the strength and capability of delivering service in a consistent and reliable manner over and over, which make people to think about India.corporates can get rid of their main stream enterprise software and applications built aroud that. And if not then there is a continuous market demand for buidling those. May be you are to some extent correct in saying that India is still an execution house, a back office and I think there is hardly any wrong in it, as even when you are moving up the value chain you cannot leave behind the areas where your expertise are and which earns you revenue. If are not talking only about the Indian IT companies here, if we are talking about the IT industry as a whole, I think big companies who has set bases here are not really betting on the product innovation capabilities of Indian employees and its really the strength of delivering service in a proven consistent and reliable manner over the past several years, which make people to think about India.

arindam Friday, February 29, 2008 at 1:52 PM PT

Hi,

You may want to read this piece as addendum:
https://sramanamitra.com/2008/02/21/indian-it-industry-the-next-8-years/

Sramana

Sramana Mitra Friday, February 29, 2008 at 2:58 PM PT

I think we will live in denial till we switch to despair…..nothing in this world remains so for ever…..

IT is becoming infrastructure for most and for a few a real enabler….so the SaaS is going to handle the infrastructure piece and Zoho promises a lot — as an offering and as a model…..on the enabler front, much has been talked world over but there is absence of real theory / science to make it happen — IBM has invested major bucks and time in building up the Service Science…..so yes the big wave will hit and business as usual will simply sink…

Terrible if you are caught napping….but that is the brutal reality of the business world….cost arbitrage is a fleeting game….real value creation is not….and nothing is permanent

Anil Paranjpe Saturday, March 1, 2008 at 5:57 AM PT

I fully agree with Kiran. It is very hard to take away the human element in many tasks. will a robot/computer program be ever able to do as well that a human can do? I dont believe so. Americans may be hoping some of the jobs would come back. Rather we may see jobs moving to philipines, brazil etc.

v bosco Monday, March 3, 2008 at 4:51 AM PT

Sramana,
An excellent article, in fact I had just recently answered a similar question on linkedin.

I truly believe that your question has more to do with the sustainability of the business model and not the sustainability of outsourcing. As others have mentioned, outsourcing has always been there and will be there. No one company can do everything and few things are best left to specialists. The business model in my opinion is sustainable, but that does not mean that the business model will be in the same shape and perspective. There are IT companies in India who have decided to move up the value chain and are constantly doing new things and refining their business models and are concentrating on winning the customers based on value. I believe, that we have scratched the surface here. In my humble opinion, we should stop looking westward too much and concentrate on the emerging markets. IT companies will slowly be getting more and more revenue from the emerging markets as the number of companies who grow to a size where it makes business sense to outsource. Which is why many IT companies in India have started looking inward and are providing the same value additive services for their domestic customers. Also, the impact of exchange rate, and the reverse outsourcing examples you have quoted.

The problem is that we have equated outsourcing with offshoring. Not necessarily should outsourcing always entail an offshore component. There is now focus on both onshore and nearshore. As a business, I would not mind where my money is coming from as long as I am making money ethically and legally. If, my costs are same in say India and US in the scenario that the exchange rate halves then it makes no sense for me to convince my customers to offshore, rather I shall be working at his or my premise in the US. The fact of the matter is that IT has really changed the way business is being done. Also, we are yet to see the concept of Software as a Service take off. Once it takes off, we may probably see the Indian IT companies having to change their business models to suit the change in the customer preferences probably they shall start offering their own SaaS solutions. I can say one thing with certainty these are exciting times for the IT industry.

Also, you are right that there are not many Indian product companies. The reason for that being not many have that mindset, so companies like Wipro and HCL are now getting into R&D for their customers. HCL’s work for Cisco is a case in point where they have done some wonderful work for Cisco.

I will not worry about the Indian biggies but about the SME’s who are unable to find a new differentiation, they are not going to able to move up the value chain, because would their customers pay or even be comfortable with them moving up the value chain.

The answer does not lie in becoming a product company or changing to a different business model it lies somewhere in the middle.

This is the beauty and joy of being in strategy, if strategy was so simple, would people like you and me be interested in it? 🙂

Venkatesh Sridhar Thursday, March 6, 2008 at 8:22 AM PT