America - the new IT Outsourcing destination?

I saw a fascinating story in the Financial Times recentlyÂ (read the article)Â where the CEO of Indian BPO firm Genpact described how it was now just as cheap to hire call center agents in the USA as it is in India. He is about to hire another 1,500 Americans and it looks like he will continue searching for more.I was thinking if this might apply equally to the IT sourcing sector? It is a remarkable change in BPO, where a highly educated college graduate in India might have worked in a contact center for less than half the cost of an American high school graduate.Â Obviously the recession has had a major impact on employment in the USA, reducing wages, reducing options for those who suffered redundancy and increasing the likelihood of people taking on flexible part-time work in addition to whatever else they juggle.And all those issues are just as applicable to the IT business. Americans working in IT have lost their jobs through cost savings, restructuring, budget cuts to non-essential projects and offshoring. If they have not managed to find similar work in the IT industry then it’s easy to presume that they would be prepared to take on a new job in a similar role, at a lower rate, if they have not already started working at the call center.That’s a little facetious though. But, I know there are places in the USA where the cost of living is far lower than in California or New York. Boise in Idaho is a good example. Wages are lower than in the major US cities, but the cost of living is far lower than in those locations, along with the city offering a good quality of life for those who migrate there. And there is a great Irish pub in the city center, but they can be found the world over.I’m not suggesting that everyone with IT experience would want to move to Idaho. One of the reasons for lower cost regions of the US to be lower cost is because there is usually a lack of well-paid jobs. But what would happen if a major IT supplier announced a program to hire 500 software developers in Idaho or Arkansas? It could possibly be one of the major offshore firms building up their onshore development capability by thinking more innovatively about where they find local resource?So could IT sourcing go the same way as BPO, with locals competing on price? Probably not for major programs of work, it would be hard to undercut the major offshore firms, but there could be new opportunities here for small to medium-sized outsourcing programs.Smaller deals are harder to outsource/offshore anyway. The remote project management does introduce costly overheads that often don’t work in smaller projects. And the new charge on business visas introduced by the US congress will only be absorbed by the larger suppliers – if at all – as they will probably just pass on the additional cost to the client.There are other benefits for smaller organizations. They can feel as if they are playing a more active role in helping the economy to recover from recession if the work they are commissioning is being performed locally. This does play into the grounds of patriotism, but that’s something that is also possible to exploit as a marketing tool – as many firms using call centers have found to their benefit.And don’t forget, as the quality of the offering from places such as India has risen, so has the price. Not everyone needs a supplier offering CMM Level 5 constant quality improvement, so maybe there is scope to see some future headlines where IT projects being delivered from the US cost less than from India?*View all IT Outsourcing blogs by Mark Kobayashi-HillaryÂ

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