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Reasons Why US Firms are Investing in Domestic IT Outsourcing

by: Sarah Joson

Tuesday, July 14, 2015 |

A post at CIO.com recently discussed the current outsourcing scenario in the US. Apparently, American firms have been beefing up their local delivery centers after nearly 10 years of putting their efforts in expanding offshore operations.

According to research firm Everest Group, the outsourcing market in the US is expanding by 20 percent annually, and is employing 350,000 full-time professionals.

Nearshore operations are also growing rapidly, but are not a threat to offshore locations such as India, the Philippines, and others.

Eric Simonson, Everest Group’s Managing Partner for research, said domestically sourced operations are set for new tasks, and offshore ones are for existing non-voice work.

He noted that the rise in domestic outsourcing is not because offshore operations not working - like with voice processes and help desk functions. It is generally because firms are seeking improvements and innovation onshore, contrary to the belief that they are just trying to fix what’s not working in offshore operations.

Simonson shared five main drivers of local IT outsourcing:

Buyers prefer operations to be more accessible and tangible.
As buyers continue to innovate their offerings, they are now more cautious on which processes they send offshore, and which ones are better delivered nearshore or locally.

Have someone with the proficiency of the local market.
Some companies prefer to have a team member who knows the domestic market like the back of their hand. For instance, a firm needs a negotiator who is fluent in the local dialect to charm the partners, suppliers, and even investors - then they would source someone who is a true local and has the passion for the business.

Address major challenges seamlessly.
High attrition rate and burnout in graveyard shifts are some of the reasons which fuel rumors that offshore operations are unstable. This is why domestic sourcing is more preferred by some IT buyers and companies. They want to minimize the problems and structural challenges caused by offshore delivery centers.

Some companies just don’t want to deal with the prerequisites.
With offshore outsourcing, firms need a little elbow grease to iron out all the paperwork like regulatory requirements and work visa availabilities. Some choose to source locally because they don’t have to deal with all the additional work offshore outsourcing has.

It sometimes boils down to preference.
Sometimes, clients prefer to keep operations where they can see them. This could be caused by several reasons, some could be because they want to keep jobs in the community, or they want to test outsourcing locally first before they start a venture offshore.

Of all the IT processes being outsourced locally, application development takes the top spot with 123 domestic operations in tier-one and tier-two cities. The industries these operations are serving include financial services, public sector, manufacturing, retail, and consumer packaged goods. This is followed by IT infrastructure in similar locations, 80 consulting and systems integration centers, and 68 testing centers.

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