Another Variation on Outsourcing, and Security/Reliability

I've mentioned the concept of insourcing - when outsourcers outsource back to the country of the client company. But the web of what outsourcing means has become more complicated, according to this story in the New York Times:

In May, Tata Consultancy Service, Infosys’s Indian rival, announced a new back office in Guadalajara, Mexico; Tata already has 5,000 workers in Brazil, Chile and Uruguay. Cognizant Technology Solutions, with most of its operations in India, has now opened back offices in Phoenix and Shanghai.

Wipro, another Indian technology services company, has outsourcing offices in Canada, China, Portugal, Romania and Saudi Arabia, among other locations.

And last month, Wipro said it was opening a software development center in Atlanta that would hire 500 programmers in three years.

It had to happen. You can't keep piling work up in one corner of the world because of inexpensive labor and expect those costs to remain low. Demand has kicked up, and supply will follow. So the outsourcers try to find cheaper labor, or workers with specific skills not available at home.

However, this should create some additional concerns for the corporations that are outsourcing the functions. Every layer of removal, particularly to a different time zone, complicates management of the process. Every additional stage opens another security front to prevent loss or attack. Additional complication means greater chance that the function will falter or fail.

Of course the outsource vendors will say that there is no difference and that they are in complete control. But that would be like trusting a food ingredient provider that outsourced its own manufacturing to China, in light of the problems that have appeared in that sector. It may be that things are fine, but the company will need to spend the time, money, and attention to be sure that is true - and all that has to get factored into the costs of "saving" the money.

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.