Domestic Outsourcing in US on rise: Forrester Report

According to new research report by Forrester, a leading research and analyst firm, domestic outsourcing in US is showing a positive trend upward. It is estimated that by 2013, domestic outsourcing will grow by at least 100%. As per the report there are five key reasons that is accelerating the growth of domestic outsourcing in US economy. They are:

  1. Clients who adopted technology and software to grow business are demanding for more refined type of developers who are able to understand and synchronize their constantly changing requirements and upgrade the software to meet those needs.
  2. Clients require faster speed to reach the market to cater to the changing needs of the customers.
  3. High attrition rates, increasing labor cost and low quality services in top offshore locations like India and China.
  4. Tougher regulations on H1 and L1 visas to US, and
  5. Increasing unemployment rate in US.

According to the report, the US companies that have adopted domestic outsourcing reported greater mobility to market and even though the cost was higher, investment in people and time required was much less. The report also claims that when compared to the total cost against unit cost of the companies, domestic outsourcing is less expensive than offshore outsourcing. The main benefits the companies are reaping by the way of domestic outsourcing are:

  • Productivity gains
  • Lower onsite labor cost
  • Lower client travel cost

Another major catalyst that is driving domestic outsourcing in US is the state tax benefits that are being offered by the US regulators to generate more employment. This is coupled with strong sentiments against off shoring jobs among the US nationalities. Privileged companies like General Motors and General Electricals have already incorporated this new model into their business by enjoying the tax benefits.

However, there are also widespread allegations that even though domestic outsourcing has proven to be much cheaper, service providers in US have failed miserably to deliver the quality and training like their Indian counterparts especially when it comes to application development. This is because these local outsourcing centers are usually small and is often managed by very few people unlike the offshore centers which employ more than 1000 people and have the necessary expertise.

According to the analysts from Forrester, Indian outsourcing giants who have set up their onshore sites in US market are all set to bet high on the outsourcing in the domestic front. It is said that Indian outsourcing giants will hire local nationals and train to help them to tap the new opportunities laid down by the changing trend in the global outsourcing industry.

In the near future, domestic service providers will gain more and they will have the capability to pull down the revenues of offshore centers. It will be interesting to witness how the new developments will further shape up the industry in the coming future.

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