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7 Lessons of the offshoring pioneers

Stephanie Overby | April 22, 2013
The need to remain competitive has kept offshoring an essential part of nearly every company's sourcing strategy.

It's been almost 20 years since the first CIOs began sending work offshore--at that time to a nascent IT services industry in India.

Companies in the financial services, manufacturing, high-tech, and telecom industries led the way, but none made a more public splash that GE. So when the poster child for offshoring pioneers announced it would bring some of those IT tasks back home, one might have wondered if it was a sign that IT offshoring was on its way out.


Less than five percent of companies say they are bringing work back onshore, according a recent survey of 400 enterprises by HfS Research and KPMG. In many cases, companies are sending more--and more complex--IT tasks offshore, says Jimit Arora, vice president of IT services research for Everest Group.

"I can't think of a single company that has less offshore work today than it did 10 years ago," says Esteban Herrera, partner with outsourcing consultancy Information Services Group (ISG), "with the possible exception of GM, which has undertaken a large and publicly visible program to bring IT jobs back to the U.S."

"Economic imperative and the need to remain competitive have made offshoring an essential part of nearly every company's sourcing strategy," says Paul Brown, partner with law firm Mayer.

The only questions are what to offshore and how to offshore it.

For answers, we can look to those offshore pioneers who have navigated a changing IT offshoring terrain and amassed more than a decade's worth of lessons about what works--and what doesn't--that often get overlooked.

"Unlike, say technology adoption, where newer adopters are able to bypass previous technology cycles and get to a newer model quickly, in the offshoring market we see the relative newcomers not benefiting adequately from the lessons learned," says Arora. "Outsourcing is a journey but it is not necessary for IT leaders to retrace the path followed by the pioneers." has identified 14 of the most important lessons from the earliest adopters of offshoring. In part 1, we look at the first seven.

1. Captive Centers May Not Be Worth It

Many early proponents of offshoring IT set up their own IT delivery centers offshore. Even those that didn't saw that as a goal in the early years of offshoring. Since then, many of those so-called captive centers have been sold or spun off. "There are very, very few new captives being built today," says Herrera, "and many of the ones that are do not sit in India, but rather in Latin America, Eastern Europe, and South Africa."

There are still some situations where captives make sense, says Brown, such as development centers for technology companies or facilities that handle sensitive data for regulated industries. But those experienced with offshoring are more likely to pursue a hybrid model, working with a service provider that sets up a dedicated center with operating procedures and controls established by the customer. "In one of the deals we handled, the service provider was used to migrate various functions offshore where some of the functions remained with the service provider and other functions, along with the service provider employees performing them, subsequently transferring to the customer's captive facility which the service provider helped establish and manage."


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