Thursday, September 13, 2007

The words nearshoring

Indian IT companies are opening centers all over the world. Is it reverse outsourcing or is it just a matter of exporting the model wherever it is possible? To me, it appears more like nearshoring where the company gets closer to the client timezone, culture and potentially at a lower cost too. Either way, the point is that Indian IT companies are opening centers around the world. Which is a good thing. Is it because Indias cost advantage is going away? I think the article has got this part wrong (or the title wrong, because in the end, they have included some of the other aspects).

Nearshoring as a concept is a smart thing to do. It is kind of funny that offshoring happened first rather than nearshoring for Indian companies(at the scale that it is), but in any case it is good to see Indian companies do this - the global biggies are at it already. (See the comment on this post). Nearshoring is not in vogue because India suddenly became more expensive, there is more to it.

Some transactions are time bound, so a 24 hour turnaround (which is kind of the norm for any multi-time zone delivery model) may not be sufficient enough. Plus, there is culture (we have English call centers. Is it easy to create Spanish/French call centers - perhaps it is better done in Mexico or places in Europe.) barriers that need to be overcome. Also visa barriers, ability to fly people in and out are all considerations that become easier with nearshoring.

Also, Indian IT companies have perfected the art (and science) of getting college educated people to do IT tasks (of various degrees of skills). So, that as a model can be used in various parts of the world, not just India - and the biggies already did it - global delivery as a strategy.

On a related note, Satyam is investing in Malaysia; I would not be very convinced about Malaysia as a location and if it provides a significant advantage over India. In their own words, " Although the hiring costs in Malaysia are still higher than "India and China by 50 to 60 percent, other considerations such as the strong support from the Malaysian government make the country "attractive", even though the "initial salary costs will look higher". "Despite the higher costs, the cost of putting up a center, the cost of running it, and the first world efficiency…make it an attractive destination," Aggarwal noted.

In any case, reverse outsourcing, so to day is happening. Indian IT is hiring a lot of people abroad and even acquiring a few companies abroad. The IT industry in India is doing well and if that helps in acquiring companies and hiring people abroad, why not?

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