Offshoring loses its USP

The Satyam debacle calls into question many of the assumptions behind offshoring.

For CIOs and IT directors, a source of cheap, high quality work has, if nothing else, been called into question. For UK-based IT professionals keen to hang onto their jobs, there are more arguments to use for keeping work in house.

For those organisations that have offshored work, the headaches are just beginning. The questions are not just for Satyam customers. Every customer of an offshore company will be anxiously watching their quality of service and seeing if the SLAs in their contract are up to the task.

The Indian media is certainly contemplating the impact of Satyam on its other IT services companies, and the theme is picked up by IDC analyst Doug Hayward in a sharp briefing note, Satyam in Europe: The end of an aura.

Among the points Doug raises are the following:

India Inc.'s structural handicaps are now more glaring. The Indian IT services industry used to be seen as a world-class player that had overcome the handicap of a third-world technical infrastructure, and customers were prepared to overlook or ignore the disadvantages of dealing with India Inc. But the Satyam scandal looks like it will create the impression of a huge and worrying deficiency/immaturity in the regulatory and governance side of India Inc. That is a harder burden for Indian vendors to shrug off than poor telecoms and road links.

He also believes the Indian vendors' USP is fast disappearing.

The Western vendors 'have their own Indians': larger operators such as IBM and Accenture claim to match Indian vendors in price and quality of their Indian-based delivery services. The Western vendors are adopting Indian techniques (e.g., process standardization, land and expand techniques) in their onshore operations too. This negates or at least erodes the differentiation of the Indian vendors, a differentiation that has (so far) been a major part of their success formula.

Another trend picked up by Doug is what he calls Globalisation 2.0 – globalisation that is going back onshore.

“We are coming to the end of Globalization 1.0 and Offshore 1.0, the first, crude phases of service-delivery globalization. Globalization 2.0 and Offshore 2.0 will be a more sophisticated, granular mix of offshore, nearshore, and onshore delivery. This will cause the Indian-based vendors to lose some of their competitive advantage, as they tweak their structures to look more like their Western peers.”

Plenty of food for thought there, particularly as times get tougher. With Nortel filing for Chapter 11 bankruptcy protection today and Gartner cancelling two of its to prestigious events, I couldn’t help wondering if there wasn’t a hint of complacency among the CIOs surveyed by Gartner. Only 10% predicted they would face “savage” budget cuts (i.e. more than 10% reductions).

I know IT is business these days and that much of the waste was cut in the last recession, but even so, I hope their optimism is well founded. I fear it might not be.


Copyright © 2009 IDG Communications, Inc.

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