U.S. Beats India for IT Outsourcing Innovation and Understanding

Enterprise IT leaders are interested in sourcing more work in the U.S., but the reality is that they have fewer options stateside than offshore.

By Stephanie Overby
Mon, September 24, 2012

CIO — After more than a decade of offshore outsourcing, corporate leaders may be looking for more than just labor cost savings from their outsourcing engagements. And the new types of value they're seeking--innovation, communication skills, domain knowledge--are much more readily available in the U.S. than overseas, according to a recent survey by outsourcing analyst firm HfS Research.

There's no question domestic outsourcing is more expensive than sending IT services abroad. The 215 enterprise buyers surveyed in the September 2012 report expect to save about 16 percent when sourcing work stateside versus around 22 percent when sending work to India. But the cost effectiveness was just one of the most important criteria when deciding where to outsource IT services; workforce skills and experience, availability of qualified workers, and English-speaking capabilities were also major factors, according to the survey.

The corporate leaders also said they would consider outsourcing domestically if the costs savings were at least 15 percent while they would consider offshoring to India only for savings of at least 30 percent.

[Related: India's Massive Blackout Tests Outsourcing Providers]

"That's a key finding. Those are big differentials," says HfS Research founder Phil Fersht. "If you go to a service provider, they should be able to give you two options--local or international sourcing."

The contrast between in capabilities between India and U.S.-based outsourcing was stark in several areas. While 78 percent of respondents said domestic outsourcing arrangements offered good cultural understanding and communication skills, just 30 percent said Indian deals did.

Likewise 72 percent gave the U.S. good marks for business understanding and taking initiative, while 37 and 38 percent gave the same responses for India. And 71 percent said U.S.-based outsourcing deals were innovative, while 41 percent said Indian deals were.

Respondents reported a more favorable playing field in terms of work ethic--77 percent gave the U.S. high marks for being hard wording while 71 percent said the same for India. And it was nearly a dead heat in process adherence, an attribute often associated with Indian IT firms; 72 percent said Indian outsourcing engagements were process-driven while 71 percent said their U.S. counterparts were.

IT Service Providers Reluctant to Go Domestic

The problem is that many providers can't or won't offer viable domestic outsourcing options--at least not at the scale that they currently do in India or other overseas locations.

[Related: Offshore Outsourcing Can Boost Agility]

"The service providers haven't invested an awful lot in building up those local resources because they've been going offshore," says Fersht. "Buyers may not want to move more work offshore, but they don't have a lot of choice from the industry today."

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