Reverse Outsourcing: The New Trend in Outsourcing

Gone are the days when outsourcing meant a steady stream of jobs being shipped to India. Now the trend is for Indian companies to create jobs in the West. This phenomenon which is gathering pace in recent times is known as reverse outsourcing or the trend of Indian IT and BPO companies opening offices in the US and Europe to employ locals there.

This reverse outsourcing is estimated to have created nearly 300,000 jobs in the US. This is good news for Indian IT and BPO companies because they are battling the negative perceptions about outsourcing which is seen as a phenomenon that takes away jobs instead of creating them. Especially when one considers the fact that in a presidential election year, the anti-outsourcing rhetoric reaches a fever pitch, so this trend is welcome for the positive news it generates about Indian companies.

Moreover, other aspects like rising wages in India in the IT and BPO sector and the wild fluctuations in the foreign exchange market make Indian companies to contend with expenses that are mounting by the day.

The point here is that though the earnings of the Indian IT and BPO companies are in Dollars, they need to pay their wages in Rupees and hence, they have to absorb the costs of rising wages. So, it makes sense for the Indian companies to open offices and subsidiaries in low wage states like Ohio in the US and in the Czech Republic in Europe where they can benefit from lower costs and at the same time create jobs for locals. This double whammy benefit has indeed raised the image of Indian companies and has given the CEO’s of Western companies something to cheer about especially when they have to appear before committees and commissions made up of politicians to defend outsourcing.

The other aspect here has to do with Western companies preferring to do business with companies near shore or the emerging trend of near shoring. What this means is that many Western companies want to have their back office operations outsourced to locations that are nearer to their headquarters and hence, Indian companies are increasingly opening offices in places like Mexico and Ireland to cater to European clients and US. Though Indian companies have always had a significant proportion of their employees’ onsite, the trend of hiring locals instead of sending Indian employees onsite is picking up.

Finally, the fact that Indian companies have to contend with competition from Philippines and Vietnam has made them realize that they need to offer something more than the usual to grab market share and hence, the latest innovation is reverse outsourcing.

In conclusion, while it is too early to state whether this trend is sustainable in the longer term and whether it can ramp up considerably, the gains from this trend is that it has given an entirely new dimension to the practice of outsourcing and has the potential to be a game changer.