Some of the largest MNC’s from US, Europe were once the lifeline of many Indian IT services companies. They range from large engineering firms, to aircraft manufacturers, retail, media just to name a few. Over the last couple of years this trend has seen a reverse where these MNC’s are setting up their own shops. What is interesting to note is the percentage of IT functions that were outsourced earlier that have now reversed. In some cases, it went from 90% to now 50% and gradually trending towards very minimal being outsourced.
The realization of the fact that much of subject matter expertise was lost besides giving up a lot of our intellectual property is stemming the tide. Some of the companies could not understand their own business processes and one of the things is to rebuild that talent base and bring back that subject matter expertise in house which is key to remaining competitive and ensure time to market kind of strategies are met.
Several multinational companies (MNCs) are setting up global in-house centers (GICs) to do jobs that were previously outsourced, and that’s a reason why Indian IT services companies are witnessing a sharp slowdown in their growth. The first thing an MNC does when it sets up a global in-house center is to take work away from these partners or have them collaborate, not bring work from their overseas centers. Moving some senior folks from other countries is another model. Multinationals in the Media, banking, financial services, insurance, pharma, engineering sectors are leading in the setting up of GICs. This explains the slowing of these segments for IT services firms.
Many of these companies that have reduced the extent of outsourced tech from 80% to 50%, expect the downward trend would continue in the months to come.
(Read my other articles for the reasons / trends behind In-sourcing)
Insourcing of work by these MNCs have seen a 20% cost benefit, and 30% to 50% productivity improvement. 1,000 outsourcing people become 600 people. Outsourcing companies hire freshers and junior resources with limited experience to keep a check on payroll and keep margins high. The in-sourcing trend is to hire high-quality people who have unhindered access to intra-company resources. They are driven by mission statements that are mostly driven by value creation. The employees share loyalty to their employers and help produce higher quality of work. The increased output that helps drive costs down and increase productivity and decreased turnover which in turn keeps costs down. Employees feel greater sense of togetherness conversing with their counterparts and relating to their vision and mission. They don’t have the conflict of client Vs. Vendor dynamics. The bureaucracy associated with outsourcing companies is not there so decision making tends to be faster and empowerment helps adhere to higher standards on every metric.
There are few draw backs ranging from learning what it takes in these countries to set up shops, increased travel and expense, navigating local laws, movement of resource both ways etc. However, many of these MNCs have been able to tackle those.
This is a paradigm shift that has silently occurred over past few years and the momentum only seems to increase. While outsourcing companies are now focusing on digital and newer technologies like RPA, AI, Block Chain where they may see some success to sell to these MNCs, we must wait and see how those pans out.
Leading CEO of large outsourcing companies have already sounded off alarm bells and are preparing their workforce to see the trend and adapt quickly. Some have predicted that some of these companies are past their retirement age or will become inconsequent. This will be interesting to watch.
The Outsourcing Mantra 