Domestic outsourcing or outsourcing locally such as from US to the US is on the rise, according to a recent research report by Forrester analyst Stephanie Moore, who listed five reasons why the trend is accelerating.
"First, clients, who today depend on software to differentiate and grow their businesses, require contextually sophisticated developers who can communicate synchronously, interpret their fuzzy and constantly changing requirements, and build software solutions to meet those requirements. Second, clients require agility and also lightning-fast time-to-market," Ms Moore said in the report.
The report lists oversubscription to India, the top offshore location, resulting in inflated prices, high attrition and declining quality as the third reason. Tighter enforcement of visa regulation and unemployment in the US were the fourth and fifth reasons for the rise in domestic outsourcing, according to the report.
The report quoted a Forrester client using domestic outsourcing as saying productivity and time-to-market was greater with its domestic outsourcer, and although the labour rate was double, the number of people and amount of time needed was lesser.
"Companies that look at their total cost as opposed to their unit costs may realize that domestic outsourcing can be less expensive than offshore outsourcing - especially for application development work," Ms Moore wrote. Productivity gains, lower on-site labour costs, lower client travel and oversight costs, lower staff costs and lower retained staff costs were among the benefits the report listed for outsourcing domestically.
"On-site staff members from offshore vendors are more expensive (averaging from $68 to $100 per hour) than staff in a domestic outsourcing center (averaging from $40 to $60 per hour)," Ms Moore wrote.
In an exclusive e-mail to ET, Ms Moore said there were no legitimate growth numbers yet on the growth of domestic outsourcing because they had not estimated the market size yet but that Forrester would be doing on this soon. "However, it is safe to say that the so-called domestic outsourcing market will grow at least 100% in 2013 over 2012," she said in the e-mail.
Visa rejection was a common client complaint, she added, "One client told me that their visa rejection rates have gone from 20% to 80% during 2012. Another client told me that she has to hire local contractors for onsite staff sometimes because her Tier One Indian vendor cannot get enough visas approved quickly enough."
Another analyst, who requested anonymity, tole ET that while it was true that rural outsourcing rates in US were less expensive and around $ 40, these vendors lacked the same quality and training that Indian offshoring vendors could provide, and they were usually small centres employing few hundreds of people.
""I don't expect offshoring to come down,"" the analyst said. However, many companies in the US had outsourced much more than they originally intended or anticipated and this was creating demand for newer kinds of jobs for IT within US, he added. He cited the recent General Motors decision to outsource less as an example. General Electric and other US firms were also taking advantage of tax and other benefits given by certain states for creating employment. Most often, the benefits are also a matter of negotiation, he said.
Indian vendors were also taking advantage of the trend to hire more in the US, he said. "Domestic outsourcing should complement, not replace offshore outsourcing. But, it will certainly impact the number of people that clients require to be onsite with them from offshore," Ms Moore agreed, in her e-mail to ET.
"In the near term, the small domestic outsourcing provider will gain since they are the most focused on this market and will not be cannibalizing any offshore revenues. This reminds me of the pureplay Indian vendors in the 1990s -- they were best at delivering and capitalizing on the offshore outsourcing market because vendors like IBM and Accenture did not believe in the model yet," she said.
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