Reverse outsourcing: Following in the footsteps of the Japanese automakers
May 10, 2010
In the same manner that Japanese automakers began setting up manufacturing facilities in the USA back in the 1980s, Indian outsourcers are doing the same in a trend being referred to as “reverse outsourcing.” Why would anyone want to set up an outsourcing operation or portion of one in the USA? According to a recent article in the Christian Science Monitor along with other reports about the trend, there are several potential benefits to reverse outsourcing:
Economical. While it was noted that you can never compete in the USA on an Indian cost model, travel and time delays can add significant costs to a large software project just like long supply lines can add additional costs for an overseas auto manufacturer. Hence, an outsourcer could end up spending all of their cost savings from doing the work in India on travel and on doing the rework for when something goes wrong or gets lost in translation. Locating in the USA where infrastructure is excellent can also help to significantly reduce overhead costs.
Global Reach. An outsourcer who sets up an operation in the USA and in other developed or developing markets also means that they are serious at becoming a true global player. In fact, this is exactly what the Japanese automakers have already successfully done.
New Markets. The best way to significantly penetrate new markets is to have a significant onshore employee presence in those new markets. Moreover, there are some types of clients, especially government agencies, who do not allow or do not feel comfortable about having their data, especially any sensitive or confidential data, cross borders.
Diversity. In addition, local talent and local employees will inevitably be better culturally assimilated to a local environment and also have stronger local market knowledge. This diversity of talent and knowledge will inevitably trickle back to India and to other parts of the world where an outsourcer has operations.
Political Benefits. Today, Japanese automakers directly or indirectly employ 100,000s of Americans – many of whom are located in lower income southern states. Hence, you hear little political uproar anymore about American jobs being lost to Japan. In fact, the Japanese automakers have even built up a solid political base by having their operations concentrated in particular states. With much of the revenue of Indian outsourcers coming from the USA, creating jobs in the USA would definitely go a long way toward creating some political cover for which they can operate from under.
Brand and Image. Moreover and while companies like Infosys are increasingly becoming familiar to Americans largely due to the negative publicity that outsourcing often receives, having a significant onshore presence will help to improve the brand and image of Indian outsourcers – both in the USA and in India. This in turn will help them to attract both top talent and new clients.
Of course, Indian outsourcers are different from Japanese carmakers who largely set up shop in many southern USA states in order to also reduce their operating costs given just how notoriously expensive Japan can be. Moreover, the Indian outsourcing model largely depends upon India (or some other country) as being a low cost base of operations. Nevertheless,