Speculation: Outsourcing on the way out?

A new piece in GlobalSpec’s Quality Control newsletter asks the unthinkable: “Is Outsourcing on the Way Out?”

The report cites a couple of trends — one, major outsourcing service centers such as India are running out of qualified people to handle outsourced engineering demands (see referenced article here). The other impact is coming from higher energy prices that are forcing companies to keep operations closer to home.

Another effect, not mentioned in the report, is the current relatively weak US dollar, which has made overseas services much pricier than local talents and services.

“Has the steam gone out of outsourcing?” the report asks.

A couple of thoughts here.  One, while the outsourcing market is shifting around, this is inevitable and natural as opportunities and entrepreneurial ventures open up in different regions. India siezed upon this trend a decade ago, offering low-cost code remediation shops, in which thousands of individuals manually scrutinized line after line of code in search of two-digit year fields. This was a quick and cheap way for companies to get up to speed witn Y2K. The momentum carried forward — and now India has a highly developed and educated workforce that, yes, seek higher salaries. On to China, Indonesia, Malaysia, and the beat goes on.

Another factor also not mentioned in the above piece which will really begin to weigh on the outsourcing market in a big way is data center and IT automation. Many of the route, manual processes that required a lot of people hours (such as was the case with Y2K code remediation) are increasingly being automated within today’s infrastructures.

However, outsourcing as a concept is strong and only getting stronger — not in the big-multimillion-dollar-projects-shipped-overseas sense of the word, but on a more atomic level.  Technology approaches such as service oriented architecture and Web 2.0 mean services and pieces of applications can be accessed or assembled from sources anywhere on the globe. In today’s flat, networked world, it doesn’t matter if a service is on a server in Baltimore or Bangladore.

Also, big outsourcers seem to be doing fine, so we need not start worrying about them.  In its latest quarterly report, IBM Global Business Services reported its revenues were up 18 percent; and had total services signings of $14.7 billion during the second quarter, up 12 percent over the previous year.