Offshore Outsourcing: Will Recession Cause a Bangalore Backlash?

Several prominent offshore outsourcing customers have made a big show of announcing the cancellation of some of their business process and information technology services deals and what could be described as a “backshoring” of those jobs to the U.S.

Delta announced that it will no longer be routing calls overseas to Wipro. Sallie Mae said it will shift jobs from India and the Philippines to cities in the U.S. JPMorgan Chase officials announced that it will stop using Indian call centers to answer customer service questions from Floridians on food stamps. AT&T claims that it has brought back 4,000-plus previously offshored jobs this year.

The reasons for the sourcing reversals have varied.

In early April, Reston, Va.-based Sallie Mae, America’s biggest student loan provider, said it would move 2,000 call center, information technology, and operations support positions to the U.S. over the next 18 months. The reason behind the move: a desire to contribute economically to the communities in which the company operates that are currently struggling with unemployment, such as Lynn Haven, Fla.; Fishers, Ind.; Wilkes-Barre, Pa.; Killeen, Texas; and Newark, Del.

Some of the pullback on outsourcing work abroad is certainly a reaction to economic and public relations pressures domestically, say experts. “The politics have changed,” says Dean Davison, lead consultant for Collabera’s sourcing strategy practice. “The deep economic challenges are making companies more sensitive—or potentially paranoid—about offshore activities.”

“I think there is certainly a lot of pain in the U.S. right now on many levels, and that can’t be under-estimated,” agrees Dr. Paul Roehrig, principal analyst in sourcing and vendor management for Forrester Research, who expects that other companies may make similar moves, choosing to source work internally or with the domestic operations of service providers.

The U.S. recession has made it more enticing financially for American companies to hire hometown workers for business process or IT services. “The decline in salaries across the country has made employers more willing to move functions to U.S. locations,” says Davison.

Delta Air Lines said its change of heart was a response to customer complaints about quality of service. The Atlanta-based airline said it will no longer be using Wipro for phone support, although reports have indicated that the Bangalore-based vendor will continue to provide correspondence services.

Low service levels can actual lead to higher call volumes—and increased costs—for offshore outsourcing customers. “If this has been a recurring phenomenon in a customer-vendor relationship then the cost advantage gets eroded,” says P.V. Kannan, Co-founder & CEO of 24/7 Customer, a Campbell, Calif.-based provider of offshore customer service solutions.

Forrester’s Roehrig isn’t surprised. “The level of dissatisfaction with outsourcing deals in general is still too high—usually 20 to 30 percent depending on the study,” Roehrig explains. “A small number of clients will continue to give up on the outsourcing value proposition due to gaps in sourcing deal governance and poor deal architecture. “

Other companies may grow tired of the trade-offs involved in outsourcing—and managing—work on the other side of the world. “They realize that offshore also includes meetings at odd hours, cultural gaps, and extended travel.”

Domestic sourcing lacks such challenges. As a result, “I do believe that we are seeing a long-term shift,” says Davison.

Others disagree. “Nothing I’ve seen or heard suggests this is a trend,” Roehrig says. “The economic realities of global service delivery indicate that U.S. firms will continue to get out of the lower value-add transaction IT work.”

The key to keeping U.S. customers happy, says Kannan of 24/7 Customer, will be exceeding expectations—offering innovative solutions to business challenges rather than just meeting operational requirements.

This story edited by Shawna McAlearney. Follow me on Twitter @ms_shawna

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