| Reverse Offshoring trend is catching up fast |
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| Friday, 05 October 2007 | |
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When Wipro (NYSE:WIT) took over U.S. data center specialist Infocrossing in August 2007 and later set up a unit in Mexico in September 2007, it brought forth into limelight a new trend called ‘reverse offshoring’. ‘Reverse Offshoring’ typically means that vendors getting work done in India to cut costs for American and European clients, are opening centers across client countries and are hiring local people to do the work. ‘Offshoring to India’ has been the buzzword for so long now that that the ‘buzz’ is no longer there. Other issues have taken precedence over cost savings as the scale of work being outsourced to India underwent a sea-change. From being the call center hub, India’s metamorphosis to a knowledge services hub is almost complete. This also set the trend for rising wages, increase in data security needs, intellectual property (IP) issues and need to access to new markets. Driving ‘Reverse Offshoring’ While the above mentioned issues consolidated the need to develop more destinations for offshoring, globalization and competition also meant that presence was essential in markets that were actually feeding the outsourcing industry such as the UK and the US. With the costs in these markets close to prohibitive for Indian companies, locations such as Ireland, Africa, east European countries, Mexico, Latin America, Malaysia, etc. were developed. Some of the bigger Indian companies have even ventured to the US and UK by either acquiring companies or setting up smaller sales offices to allay fears of potential customers, who prefer onshore outsourcing given the sensitive nature of data the vendors, may need to handle. As per a recent Gartner report, Mexico has scored over many other outsourcing destinations, on account of data and IP security, government support, better infrastructure facilities, educational system, political stability and other softer issues such as language and cultural affinity to the US. The Indian vendors who have already established a presence in Mexico include Tata Consultancy Services (TCS) and Infosys. Challenges to ‘Reverse Offshoring’ While costs are generally the major hindrances in setting up onshore facilities, the other obstruction would be availability of skilled manpower in huge numbers. Nearshore locations such as Mexico for the US and Poland, the Czech Republic for Europe have therefore gained more popularity. The challenge in such cases would be – an Indian vendor catering to the requirements of a client based in the US, from its center in Mexico. It also requires the vendor to develop an understanding of the entire system including regulations, norms, cultural and other criteria that could influence the business in that country. Reversing is the way to go However, without a doubt, vendors resorting to reverse offshoring are the preferred lot. Their presence across the globe allows them an edge over competitors. The other factors that work in favour of vendors with global presence are:
Some of the softer issues for such companies:
ValueNotes Outsourcing Watch: Insights for Investors is a unique news and analysis service from the ValueNotes Outsourcing Practice, focused entirely on outsourcing; This weekly publication analyses events in outsourcing, outsourcing companies, trends in the sector, impact of global competition from offshoring to established US companies, and emerging investment opportunities. No responsibility is accepted for errors of fact or opinion. Neither the analyst nor ValueNotes has a position in the stocks covered above, or has received any payment in any form for this report. ValueNotes does not own or trade in the stocks of companies under coverage. ValueNotes does not provide investment banking services or investor relations' services to preserve the independence of its research. Neither ValueNotes nor the analyst incurs any liability arising out of use of the above information/ report. Reproduction in whole or in part without written permission is prohibited. ValueNotes Outsourcing Watch articles are distributed through FinancialWire, an independent, proprietary news service of Investrend Information, www.investrend.com
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