Decoding the lexicon: backshoring, reverse outsourcing, insourcing or rural-sourcing?

July 6, 2009

Of late, a few offshore players like Dell, Apple and American Express have repatriated a small chunk of their projects to the home country, under a trend that is enthusiastically being dubbed “backshoring,” reverse outsourcing, insourcing or rural-sourcing. Effectively, they convey the same model — movement of projects to low-cost locations within the home country.

Now the essential question here is: is the cost advantage offered by BPO employees in Idaho the same as that offered by their counterparts in India or Philippians?

Unfortunately, no. Which is why, a recent survey of over 600 companies conducted by Duke University has revealed that three-quarters of U.S. businesses plan to continue to offshore their customer service operations; increase it, if possible. And the writing is clear on the wall: “Despite the falling dollar and relatively low labor and real estate costs in semi rural America, the U.S. cannot compete with the economics or demographics of India and other emerging markets players,” points out an article in Strategy+Business. In Backshoring: Just PR, or Long-Term Business Strategy?, Pam Baker writes that although a few major U.S. companies including Sallie Mae, Delta, Dell and the Home Shopping Network are moving some of the formally outsourced work back home, the scale of this movement is insignificant. The media hype indeed appears to have been generated by local recruitment companies.

In fact, while IT workers in Corsicana, or Kearney can offer potentially lower costs (20% to 30% less) than those in say, Los Angeles, besides lower risk than offshore, closer proximity and at time, quicker and cheaper travel to project site, if required,, “the wage differentials are simply not compelling enough for rural sourcing to take significant market share,” explains Ron Hira, Assistant Professor of public policy at the Rochester Institute of Technology. This implies that rural outsourcing will at best remain a niche market.

Since, enterprise IT budgets in 2009 are predicted to remain nearly flat (16%, according to a recent Gartner survey), the pressure on CIOs is to “improve business processes” that’s emerged as a top concern with 57% CIOs in the Gartner study.

The only effective way of doing so is through offshore outsourcing.


Comments

9 Responses to “Decoding the lexicon: backshoring, reverse outsourcing, insourcing or rural-sourcing?”

  1. Rochester Public Market | All Days Long on July 6th, 2009 8:41 pm

    […] Decoding the lexicon: backshoring, reverse outsourcing, insourcing … By Radhika … enough for rural sourcing to take significant market share,” explains Ron Hira, Assistant Professor of public policy at the Rochester Institute of Technology. This implies that rural outsourcing will at best remain a niche market. … OutsourcePortfolio – Latest… – http://outsourceportfolio.com/ […]

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  3. Scott Risdal on July 7th, 2009 6:05 pm

    This may be true for a good piece of the work that goes offshore, however I believe there is more than a niche’s worth that can be done onshore. In the case of our company, Saturn Systems, we are a rural outsourcing software engineering firm that specializes in custom software solutions for business and government. We have been involved with a number of customers who have returned to domestic resources due to dubious results and questionable savings.

  4. Radhika on July 7th, 2009 11:33 pm

    Tell me why would anyone — other than those NOT outsourcing — resort to “dubious results and questionable savings”? What good will that serve to their interests? And, even if there are a few companies that are winding up their offshore operations, we doubt they constitute a significant number — else this whole outcry against outsourcing would have died out a long time ago!

  5. Accurateafrica on July 8th, 2009 7:06 am

    Why would a company consider back / reverse outsourcing? In these hard economic times saving the time and financial resources that would normally be spent in recruitment, training and retaining professionals is what outsourcing of non-core items would help institutions achieve. Outsourcing wouldn’t hurt a country. On the contrary it would help create more better paying jobs. That is what policy makers have failed to understand. Companies like Accurate Africa eServices even offer free trial periods to clients. Free services still exist!

  6. Jim on July 14th, 2009 12:32 pm

    Jobs like call center are outsourced due to cost advantage between developed countries and India, China, etc. Now with the slow economy companies are hire employees with comparable rate to offshore workers, so companies want to take advantage of this situation and bring back the call center jobs to the countries where there customers are physically located.

  7. anuj on July 18th, 2009 12:38 am

    jobs like call center are outsourced but now a days website outsourcing is now easy and bidding of projects also easy i just see a web site and created my account there http://www.getaelance.com

  8. Backshoring: No place like home? | Outsource Portfolio on February 8th, 2010 9:54 pm

    […] recent years, “backshoring” has occasionally been noticed by outsourcing observers (including us) and the media. However, backshoring may increasingly become the buzzword of the future as the […]

  9. christopher hytry derrington on February 13th, 2010 12:30 pm

    I love the talking heads who insist that the old way will always be that way..

    I rather be in a growing, dynamic niche than competing in a mature, mainstream market.

    Technology history is full of example after example of today’s niche companies being the leaders of a new market category.

    OnShoring is still under most people’s radar; but that is changing.

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