Offshoring has taken a hit, but may come back even stronger
When the economy gets better, they may start buying U.S. consultancies and transfer that work abroad, too
Follow @infoworldIT professionals may take some short-term comfort in the fact that outsourcing, an industry segment that should be growing as companies look for ways to reduce costs, is actually seeing slow gains along with the rest of the economy. But there are signs that when outsourcing comes back, it may take even more jobs away.
I spoke with two outsourcing experts to confirm this: Ashok Vemuri, global head of Banking and Capital Markets for Infosys Technologies, and Tom Pettibone, managing partner for Transition Partners, an outsourcing consultancy.
[ Beware the false promise of easy savings from outsourcing. Find out how a bad partnership could cripple your company for years. ]
Wait-and-see while the economy remains uncertain
However, both executives say the current slowdown in outsourcing may indeed be very temporary. Pettibone says companies are simply taking a wait-and-see approach. Unsure of where they are going to be in six to eight months, they are not yet ready to make a long-term outsourcing commitment. But it may come.
"Outsourcing takes a commitment on the part of the IT shops. If a shop is going to do certain projects in India, you have to go to India and establish relationships and systems. They are not ready to do that yet," says Pettibone. Instead, they are saying let's see what happens to sales and revenue projections first. If business does pick up, a company will then commit to an outsourcing deal where they believe, according to traditional business logic, they will save money through labor arbitrage (business jargon that means essentially "chase the lowest-cost labor").
Still, until companies feel confident enough to commit to a contract, outsourcers are in for bleak times. And in the meantime, things could be getting even bleaker.
Will offshorers buy up U.S. jobs to transfer home?
Despite the slowdown in offshoring contracts, Vemuri says Infosys is shopping around to buy an American consultancy -- and possibly a European consultancy -- to supplement or complement its front-end consulting capabilities. "We are sitting on $2 billion in cash," Vemuri tells me.
However, unlike other foreign companies that plant a flag in the United States and go on to open up job opportunities here -- I'm thinking of the auto industry in particular -- Pettibone warns that if Infosys buys a U.S. company, it may be buying just the clients and taking the work back to India. It's a clear example of more of that "labor arbitrage" I was talking about.
