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.