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IT Offshoring To Disappear By 2030

I was born and raised in the suburbs of New York City. While I never actually lived in the Big Apple, I have certainly spent my fair share of time enjoying the sights, nightlife and other attractions. A short while back, I returned to New York to help "integrate" the onshore contingent of a large Indian Outsourcing team with a client with no previous offshoring experience. I'd planned to spend the first day alone with the new arrivals, showing them the ropes, reviewing the client's expectations, and helping them adjust to their "new" environment. At one point, I asked the team what sights & attractions they looked forward to seeing during their free time. To paraphrase one response: "I've seen pretty much everything over the last six years, so I'll probably just hit the beach, maybe catch a Yankees game". The ensuing conversation revealed that if anyone at that table could benefit from a few lessons about New York City - it was I!

This story brings us to the point of this article - the disappearance of offshoring. While IT service providers in places like India, China and other "offshore" locations will almost certainly continue to thrive through 2030 and beyond, the difference between offshoring and outsourcing will virtually disappear. The differences between sourcing technology services from a local provider, and an "offshore" company can be roughly grouped into the following areas: strategic, operational and qualitative. The strategic area includes cost, regulatory implications, and qualities intrinsic to the country being outsourced to. Operational items address the actual location of resources, time zone differences and infrastructure. The qualitative area, as highlighted in the story above, includes cultural differences, communication barriers and business understanding. Nearly every aspect differentiating offshoring from outsourcing from the customer's perspective will shrink or disappear altogether in the next 20 years.

The primary strategic driver for offshoring is cost. However, prices and costs in primary offshoring locations like India and China are rising quite rapidly in comparison to the developed world. Additionally, offshore service providers are continuing to specialize so that their offerings can compete against local providers on capability - not cost. Once a provider has a value proposition that surpasses the benefits of the location itself (i.e. lower cost of labor), is it really offshoring? I may choose a German engineering firm over an American firm based on capability (and almost certainly not based on cost), but this is not considered offshoring. In 20 years, I may make a similar decision with a Sri Lankan or Indian company. So why would that be considered offshoring? The legal and tax regulations may not significantly change over the next two decades, but they will impact end user decisions less and less as outsourcers take on more of a programme management responsibility - as discussed in the next paragraph.

Perhaps the biggest operational shift will be towards the global consolidation and growth of larger providers. For example, large Indian IT firms will continue pursuing opportunities to acquire local service providers. Conversely, traditional outsourcers will continue to invest heavily in their offshore operations. IBM, for example has nearly 100,000 consultants in India alone!* Additionally, infrastructure continues to improve, and outsourcers are getting better and better at making the location of their delivery inconsequential to the end user. Take personal banking services as a more mature example. I use an American (Citibank) and a Dutch (ING) bank. Additionally, the people with whom I interact at Citi and ING are probably located across half a dozen other countries. However, I don't give the slightest thought to the locations where these services are provided. As outsourcers improve their processes and further globalize their delivery models, a similar attitudinal shift will occur.

While senior leaders at both end users and offshore providers have considered the strategic and operational aspects of offshoring, it is the programme and project managers that are impacted by the qualitative differences. 10 years ago, the vast majority of people sent to the US or UK by an offshore provider was leaving their home country for the first time. Differences in work culture and lack of business knowledge would invariably increase the amount of time and cost involved. As evidenced by the story above, times have already drastically changed. Offshore outsourcers have invested dearly into the development of their professional staff to work and think like their customers. Additionally, significant amounts of time spent at customer locations has narrowed the cultural and knowledge gap considerably. These improvements are even more evident at end users with long standing relationships with offshore providers. As the inefficiencies of working with offshore professionals dwindle, so do the lion's share of reasons to differentiate between a local and offshore provider.

By 2030, we should no longer hear about businesses deciding whether or not to "offshore" a service or project. There should be little benefit of selecting a pure play offshore provider (if they even exist outside of niche players) over a global outsourcer. The location from which a service is provided will also become less and less meaningful as both offshore and local outsourcers broaden their global delivery capabilities. Business will continue to ponder "why", "what", "how" and "with whom" outsource IT services. The question of "where", however, will fade into antiquity. 

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