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Offshore Outsourcing Commoditization

April 21, 2009

Today I was reading the article India Is Losing its Share of Offshoring Market, following are the main reasons quoted by the Gartner analyst for India to lose offshore outsourcing market share:

  • Competition from other emerging low-cost countries
  • Customer’s risk exposure to single country
  • Satyam Scandal
  • India’s poor Infrastructure

Among the four reasons mentioned in the article, I agree first two issues are the major concerns for the customers. Satyam’s financial scandal might have been an issue in the past. Now Tech Mahindra’s purchase of Satyam should significantly reduce if not completely eliminate the customer’s concerns in the future of Indian outsource industry. Even though analysts question the ability of Tech Mahindra to rescue Satyam, Indian government’s open and fair bidding process should give credibility to the entire Indian outsource industry.

Not sure why customer’s are concerned with India’s infrastructure for Information Technology Outsourcing, ITO and Business Process Outsourcing, BPO. We all know that compare to China, India’s physicial infrastructure is poor and it will take a long time for India to come close to China in the future. But for ITO and BPO do customers care for:
Physical Infrastructure like better roads, bridges, transportation, etc? or
IT Infrastructure like high speed internet, telecommunication, 24-7 power supply, etc?

Only time western customers see and compare India’s physical infrastructure with China’s is during their on-site visit to India. Those visits will be properly planned by the Indian outsource vendors; customers would not see the issues related to India’s physical infrastructure. They would neither go through daily traffic congestion issues faced by ITO and BPO employees working in their projects or they can comprehend the health issues of call center employees working in night shifts.

Is Outsourcing Commoditized?
We know any product or service goes from Scarcity (High Price) to Abundance (Low Price) and eventually it will be commoditized. Offshore outsourcing is going through the same trend.

During Y2K era when outsourcing market emerged, India was the only supplier of ITO and BPO services to customers in US, UK, and Europe and they were charging high price for their services. Now as per Gartner Research more than thirty countries are trying to get a piece of offshore outsourcing pie. So with the abundance of offshore vendors some of the outsource services are being commoditized and India will loose its market-share to other lower-waged countries.

offshoreOutsourceCommoditization Offshore Outsourcing Commoditization

Services like simple web site development, graphic design, software coding and testing, bookkeeping, writing, etc., are now outsourced by crowdsourcing through web sites like Elance, RentACoder, Guru, oDesk, etc. Individuals and small outsource vendors from all over the world started offering their services through these web sites to clients. Even KPO services are outsourced to knowledge workers through web sites.

KPO Global Delivery
The only way Indian or any other outsource vendor can survive is to offer higher value KPO services, to their customers. The KPO services cannot be mastered easily by new countries entering into offshore outsource market. One unique aspect of Indian outsource vendors are their service scalability and flexibility. They can either increase or decrease their employee head-count working in projects based on customer’s needs without changing their global delivery model. Except China, other countries cannot offer this type of scalable and flexible global delivery to customers. Even China has lot of catch-up to do in competing directly with Indian ITO and BPO vendors.

Top US based outsource vendors like IBM, HP-EDS, Accenture, Oracle-SUN, etc. have huge workforce in India and they are offering both high-end and low-end outsource services to customers. Due to growing customer needs recently, IBM announced a new division dedicated to business analytics and optimization services to target niche vertical markets. Indian outsource vendors must plan well and compete with US based outsource vendors and other small niche vendors from other countries to stay alive in the global outsource market.

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Related posts:

  1. Current trends in offshore outsourcing
  2. Can President Obama alter offshore outsourcing for US companies?
  3. High skilled IT and BPO jobs are going offshore
  4. Risks of Offshore Outsourcing
  5. Top Three Hurdles of Offshore Outsourcing


Written by Mani Malarvannan · Filed Under Outsource Blogs 

Comments

5 Responses to “Offshore Outsourcing Commoditization”

  1. Jaki Levy on April 22nd, 2009 3:40 am

    There are many advantages to using a virtual assistant. I am documenting my experience on my site, and posted a few more relevant links, including a podcast from AJ Jacobs about outsourcing. For my personalized view, take a look at this post. In fact, even this comment has been outsourced and posted by my virtual assistant.”

  2. afox on April 24th, 2009 6:08 am

    Commoditization occurs in all industries and outsourcing is no exception. Not sure how Indian outsource vendors can compete with big MNCs in higher-end outsourcing. IBM, Accenture, HP, etc has been domincating and I don’t think Indian outsource vendors are close to compete with them directly.

  3. jon on April 25th, 2009 7:54 pm

    In small outsource vendors market, niche KPO outsource vendors will have good future, rest of the outsource vendors will have tough time staying in business. They’ll either get acquired by big outsource vendors or they will go out of business soon.

  4. Commoditization on May 24th, 2009 6:28 am

    Commoditization happens in all industries and outsourcing is no different. Indian outsource vendors must innovate and move up the business value chain. If not vendors from other low cost destinations will grab the market share from Indian companies

  5. offshore Call Center India on September 30th, 2009 1:50 am

    Undoubtedly, India and the Philippines are among the largest outsourcing services for telemarketing. One reason U.S. companies choose these locations is because they originate from countries with large English speaking populations.

    Callcenterinindia.net, an International Call Center off shoring call center services for Inbound Outbound Call Center and Back Office Support Services.

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