Wednesday, August 08, 2007

US Outsources to India, Which Outsources to US

This is just too peculiar for words. According to a story in Fortune, an Indian outsourcing company has set up a call center in Ohio
The phenomenon has a name: "insourcing," the term experts are starting to use when foreign multinationals open offices on U.S. soil and hire Americans, at a higher price, to do the very jobs they once lured overseas. In this case the center in Reno is targeted toward companies willing to pay a premium - its workers there cost up to 40 percent more than their counterparts in India - to give their U.S. customers a more culturally fluent, less frustrating 1-800 experience. (No more hearing someone read from a script ten time zones away.)
So, let me get this straight. A US company's management trumpets to shareholders how it has a Bright Idea: outsource because, well, hey, everyone is doing it so it must save money, right? And then you can keep your core competencies and outsource the unimportant ones, like maintaining good relationships with your customers.

The US firm contracts with an Indian firm that immediately gets beaten up over the difficulty Americans have in understanding non-native speakers reading off scripts and maybe providing technical support for things they don't really know, like the US company's products. Now the outsourcing firm has a Bright Idea - pay more to Americans to do the same work (it's apparently called insourcing). They trumpet this to the Americans as a benefit (even though they'll obviously charge more for the service) and American management goes to shareholders with the latest Bight Idea. The final irony would be if it were the same group of Americans who got laid off to outsource the jobs in the first place. (Did Joseph Heller write modern management textbooks?)

So, we've got the base costs of American employees (because their time is controlled, so you're talking fully loaded with benefits as well) that then get the mark-up of the Indian firm's infrastructure costs and then profit percentage, then add the management costs in the US of making sure everything happens ... and you're telling me that this is actually cheaper than hiring people in the States? Given that the true savings overall of outsourcing a function, if done intelligently, is about 20%, and that the big expense here is the staffing, and I'm wondering if the US comapny isn't now paying more to outsource than it would to have staff. Oh, wait, I forgot a cost - the bonus to management for coming up with this hare-brained scheme in the first place.

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