"The report of my death was an exaggeration"
So wrote Mark Twain after learning that a reporter was sent to investigate whether he had died. I was reminded of this quote after reading the latest in a recent spate of articles predicting the decline of India as the leading global sourcing destination.
Citing unnamed "experts" the article, like others of its ilk, blamed wage inflation, hidden costs, and rising demand for skills as the reasons why companies are pulling out of outsourcing relationships or shifting offshore operations from India to "newer" locations.
There are a number of problems with this line of reasoning. First, it assumes that global services market is static and cost-obsessed and that the labor arbitrage model will always rein supreme.
Certainly, cost reduction is and will remain a principal goal driving companies to move IT and business process activities to offshore locations. But, it is not the only reason. Establishing market presence or supporting local business activities in emerging economies are among the others, as is the need mitigate geopolitical risks. Companies also look to different locations for local knowledge and linguistic and cultural reasons, e.g., to serve East Asia markets from China or EU countries from Central Europe.
Second, the thinking is that the limit for cost reduction opportunities in India has been reached and that the only alternative is to find someplace cheaper. In fact, experienced sourcing practitioners today are greater savings in India than when costs were lower.
These companies have developed and adopted best practices. They’ve moved beyond commodity transactional sourcing to strategic sourcing, shifting more and higher-value functions and activities offshore, not less; achieving quality, productivity, and efficiency improvements and changing operations models and strategies in the process.
Third, a result of competition from lower-cost locations is often a dampening of wage inflation in others. Today’s labor cost gap is tomorrow’s level playing field. Moreover, as demand for technology skills to serve domestic needs in countries such as China increases, wage inflation will follow, as it already has in manufacturing.
Finally, the ongoing debate about what location will be "the next India" is based on an outmoded "offshore outsourcing" model, not a global sourcing one that is increasingly about vendor relationships and efficiency improvements. The fact is that today's mature practitioners are just as likely if not more likely to rely on current partners to fulfill their geography resource requirements than establish new relationships.
Multi-sourcing isn't about promiscuous sourcing, moving from country to country, company to company. Successful sourcing practitioners are looking to consolidate vendor partnerships, not add more.
Does this mean that they aren't looking to benefit from having a larger geographic footprint? No. It just means that the sourcing industry, like the global economy, is undergoing fundamental changes. In that regard, it's safe to say that reports of the decline of India as a sourcing destination are exaggerated.