Trying it once more – Offshoring

Wrote it in one of the lectures yesterday. Let me not say what lecture it was, lest the instructor should read it by mistake :p Not any of the IITK stuff, just an attempt to write an article on “offshoring” Business Model and its future possibilities. Would appear a rather superficial one. Actually have written it on the gut feeling unsupported by data or anything…

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These are the days of debate on the future of Indian Software/IT industry, which has developed mainly on the business model based on cheaper offshore development.

Will the cost advantage be a reality in the future too? Margins are already under pressure, occasionally coming better news not withstanding. Where will the Indian firms stand given the fact that MNCs have increasingly been able to hack their business model? Proliferation of Indian arms of MNCs are clearly a threat. Having understood the cost advantage and the business model, they are happy coming here themselves rather than relying on the Indian firms. Even otherwise they are negotiating hard with the Indian firms thereby squeezing their margins, as far as possible.

Well, not that Indian firms are not responding to the changes. Business processes are seeing innovative changes, suitable restructuring is on the way and new revenue opportunities are being scouted and exploited. Rest of it is only for the time to tell us. Finally, it is the survival of the fittest.

But there is one option which can be exercised along with these measures or independently. I will call it the replication of offshoring with new destinations within the country (has got nothing to do with shores, all right :-)). Consider this, what had made India an attractive offshoring destination? It is basically the lower cost of living in comparison to the client countries, mainly US, which leads to the low cost availability of professionals (mainly programmers). As of now, this advantage has been exploited only in select few cities. Largely unexploited are the smaller cities and then the towns. These have still lower cost of living. NIITs and Aptechs are expanding their bases and can easily find students eager to find a promising career for themselves. Companies opening up branches there will most readily get these students to work with them. And some amount of training, which companies give anyway could produce wonderful results with the career conscious youth.

Also going to the smaller places will help creating a barrier to entry especially for MNCs. There are two major reasons for this. Firstly, Indian firms have this undebatable advantage of having pioneered the offshore model, building it almost from scratch and hence replicating it would be much easier for them. Further, there will be certain cultural and life-style problems to be overcome in these new places, hitherto largely un-exposed to the kind of culture, companies like these create. Again this will be much easier to handle for Indian firms. As of now, companies coming to Hyderabad or Bangalore get a culture which is pretty much cooked up to be served to any new players. This will not be the case with smaller places and hence it will be difficult for MNCs to cope up with local circumstances.

And one of the important points of this option is that it has positive social consequences too. So far, the jobs created by this sector, how so ever large in number and paying handsome compensation, have been restricted to few cities. Lack of mobility of people in the larger part of the country prevents the advantage to percolate much deeper. Replication of offshoring in smaller places would mean creation of jobs there too.

Is it not a win-win situation? At least worth giving a serious thought. Like any other advantages, it is not supposed to last till eternity, but in such a large countries, with various cultures, classes and life styles, there is a possibility of replicating it again and again quite a few times and create new barriers of entries with each new region explored.

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That’s it for today. Got to revise things for today’s lectures🙂

One thought on “Trying it once more – Offshoring

  1. hey.. i was reading ure blog dated October 30, 2003 trying it once more, offshoring
    i was wondering if you could help me out.. i have this presentation to make coming friday 6th feb 09, on is indian offshoring advantageous till eternity- for the motion.
    if you could please give me some points in support of the arguement. thanks a lot

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