The Third Wave of IT Outsourcing

“Have you tapped the talent pool from India? They have some good talent and they come at low prices. If you haven’t yet, get them in to your company.”

This is what we were used to hearing a long time ago (late 60s, 70s, 80s and early 90s). This was the ‘first wave’ of outsourcing where we shopped for talent (often addressed as resources). Good minds in IT (coding actually – due to their engineering background coupled with analytical skills) and low cost of hiring. Finally a large pool of unemployed talent. Offer them a job at half the price of an American talent and they will be loyal to you always – and they will live happily ever after. People moved from India, China, Malaysia, Eastern European countries, Russia and many such countries to the US of A and later UK. They were the early professional labor that was attracted by American companies – particularly in the field of IT. This was certainly the first wave of outsourcing – glorified slave trade – onshore professional services. IT is outsourced to talent that was not really from the ‘land’. In those countries, economies were being built on IT – exporting talent. But then it’s only human to be more greedy.

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“Have you outsourced your IT application maintenance to one of those growing economies somewhere around the globe? May be India or China or some Southeast Asian countries?”

This is what we heard in the late 90s and do hear of it even today. This was certainly the ‘second wave’. Of course, the Y2K bug (what did they debug?) was the best excuse. India actually led the pack. Corporate IT saw a different aspect of talent. The greed of increasing margins coupled with the local paucity of skilled labor, IT coding started moving ‘offshore’ – well literally. Imagine doing work at almost 1/10 the cost. This meant that one could release core IT staff on site to do innovative work rather than mundane maintenance work, which could easily be outsourced as all it needed were processes and people skills. Well put by Geoffrey A Moore in his book ‘Dealing with Darwin’. Interestingly, the outsourced or rather offshore work was so lucrative that every American IT company worth their salt, who were delivering ‘IT consulting’ (in the true sense of the word) and to some extent business consulting developed models in offshore outsourcing. They moved from ERP manufacturers to ERP maintainers. But, why not? It made financial sense. Hence, the second wave was really about offshore development and maintenance of codes.

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“I sell an SOA based application platform for policy administration in Life and Annuities Insurance companies in US. And based on third party tests, it is the best platform available today…”

I was surprised to find this Indian company representative talking of their own IP and design that is meant for the American market. Going by ‘The World is Flat’, I believe him as surely do many of his company’s customers. Its natural. India and many other countries (small number of companies – certainly not the most well known ones) are starting this new wave. The ‘third wave’ of outsourcing is just around the corner. Companies that did basic maintenance have now gotten extensive domain knowledge and are designing and developing applications that are meant for the global markets. This wave can accelerate in the next 3-5 years. And it will then be very difficult for the large outsourcing companies to move in here as their DNA was either built on or has been mutated to large volumes to code development. It will be interesting to watch the new geniuses as they move ahead with a vision for industries and companies in mature markets. Ride the ‘third wave’ of outsourcing!

I would appreciate your views on this third wave. Please do post your views, critics and comments. All welcome!!! Cheers!!!