Outsourcing in the New Normal: Three Trends Reshaping the Global Industry
Anna Frazzetto’s article from Forbes.com on March 21, 2018.
Not too long ago, outsourcing technology projects to offshore partners, whether in Asia, Europe or beyond, was a conventional and largely uncontentious practice for many U.S.-based businesses. What a difference a few years, an election and a Brexit referendum can make. Today there is a new normal across the global marketplace that has trickled down to CIOs, their technology teams and their approach to outsourcing tech support.
The most disruptive change agent for the outsourcing industry was the 2016 election of Donald Trump. The new administration’s focus on putting American interests first, limiting immigration, pulling out of the Trans-Pacific Partnership (TPP) agreement and encouraging businesses to invest in American operations had a ripple effect across the tech outsourcing industry, which depends heavily on global talent and overseas operations. Today the industry is operating inside a tentative new normal that is putting tech outsourcing in flux.
What does the path forward look like for businesses that take advantage of outsourced IT services and talent to reach their tech goals? Decidedly more American and hungry for emergent skills, the industry is changing, and so are the key trends shaping where, why and how businesses outsource.
The Where Trend: Repatriation
The fear of being penalized by the U.S. government for using resources from other parts of the world has driven many companies to repatriate tech outsourcing. In 2016 and 2017, leading outsourcing service providers, such as Infosys and Cognizant, laid off thousands of workers in India and other regions where they had built thriving outsourcing centers. Then they began hiring talent on U.S. soil, setting up outsourcing centers in remote, small U.S cities to build a presence and utilize local talent.
At odds with the old outsourcing model, which was designed to provide access to skills that could not be found locally or hired affordably, the success of this new model depends on the quality of the talent resources in more remote regions across the U.S. Whereas offshore centers overseas were often located in Silicon Valley-esque regions such as Bangalore, India, or Ho Chi Minh City, Vietnam, where tech talent resources are abundant, onshore outsourcing centers have been established in places where costs (real estate, operations, salaries, etc.) can be contained and sufficient tech talent has traditionally been hard to find.
Why is this a trend to watch? Because it will reveal exactly how critical the U.S. tech skill shortage is. If the talent, cost savings and capabilities are there, then the repatriation of outsourcing centers to small U.S. cities will not impede business growth and innovation. If it doesn’t work and innovation stalls, this trend is much more likely to be a fleeting one, as businesses will once again get comfortable going beyond borders for tech resources and support.
The Why Trend: A Need For Bleeding-Edge Skills
From cybersecurity needs and artificial intelligence (AI) potential to machine learning, blockchain and cryptocurrency, there is an overwhelming insurgence of new technologies for businesses to leverage in order to stay competitive. In outsourcing, it can be seen in the types of cutting-edge skill sets businesses are most looking to access.
From what I have seen at outsourcing centers in Vietnam, more than a third of businesses are leveraging outsourced resources for their skills in cybersecurity, AI and/or machine learning. In the last year, I have also seen a sharp rise in the number of businesses tapping outsourced talent and teams to build platforms that support cryptocurrencies. Will this trend toward leveraging tech outsourcing to access resources with ground-breaking skills continue? Unless tech advancement hits a tremendous speed bump, the demand for outsourced tech talent, whether based in the U.S. or overseas, will accelerate as businesses seek outsourcing partners able to pioneer and architect tech solutions across today’s transforming digital landscape.
The How Trend: The Rise Of Referral Power
When it comes to finalizing outsourcing agreements, the great decider may no longer be your procurement team. Instead, businesses are putting more weight than ever on client referrals. I have seen this trend across the board in both the Asia-Pacific region and Europe. Client referrals now have far more sway in the outsourcing selection process than any other element in the procurement process.
Why are more businesses relying heavily on the input of similar companies and trusted advisors to select tech outsourcing partners? Because cold, hard financial calculations are not the only factor to weigh when assessing who will contribute to the creation and execution of tech tools, processes and systems. Everyday technology is reshaping how businesses work and compete. Industry insight, culture and collaboration capabilities are all considerations that must come into play when selecting a partner whose work will have deep influence on how a company operates and delivers. Referrals, much more than costs analyses, provide greater insight into those critical areas.
Will It Last?
How long until this new normal in outsourcing is simply normal for businesses? Based on what I am seeing across the globe, count on the cautious stance of repatriation and referrals to continue as long as the skills can be found to get the work done. I don’t know if the current situation will last 12, 24 or even more months, but I do know that when the need for talent is powerful enough that it will drive businesses and countries across borders. When the demand for sophisticated, emerging skills reaches the breaking point, all bets (and trends) are off.