Top 5 factors driving domestic IT outsourcing growth

Despite insourcing efforts, the expansion of nearshore centers is not necessarily taking work away from offshore locations. Eric Simonson of the Everest Group discusses the five main drivers responsible for the rise in domestic outsourcing, why Indian providers dominate the domestic landscape and more.

domestic outsourcing ts
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IT service providers placed significant focus on staffing up their offshore delivery centers during the previous decade. However, over the past five years, outsourcing providers have revved their U.S. domestic delivery center activity, according to recent research by outsourcing consultancy and research firm Everest Group.

The American outsourcing market currently employs around 350,000 full-time professionals and is growing between three and 20 percent a year depending on function, according to Everest Group’s research.

Yet the expansion of nearshore centers is not necessarily taking work away from offshore locations in India and elsewhere. Big insourcing efforts, like the one announced by GM, remain the exception. Companies are largely sticking with their offshore locations for existing non-voice work and considering domestic options for new tasks, according to Eric Simonson, Everest Group’s managing partner for research.

We spoke to Simonson about the five main drivers for domestic outsourcing growth, the types of IT services growing stateside, why Indian providers dominate the domestic landscape, and the how providers plan to meet the growing demand for U.S. IT services skills.

Interest in domestic IT outsourcing is on the rise, but you say that that does not indicate any dissatisfaction with the offshore outsourcing model.

Simonson: This isn’t about offshore not working and companies deciding to bring the work back. That’s happening a bit with some call center and help desk functions. But, by and large, these delivery center setups are more about bringing the wisdom of global delivery into the domestic market. The fundamental goal is industrializing the onshore model vs. fixing what’s broken offshore.

Can you talk about the five main drivers behind their increased interest in locating stateside?

Simonson: The first is diversification of buyer needs. As buyers have to support new types of services, certain types of tasks may be better delivered nearshore rather than offshore.

Secondly, there may be a desire to leverage the soft skills of onshore talent. This occurs when you need someone with a certain type of domestic business knowledge or dialect or cultural affinity.

Thirdly, domestic sourcing can be a way to overcome the structural challenges associated with offshore delivery, such as high attrition and burn out in graveyard shifts.

Fourth, companies may be seeking to manage certain externalities like regulatory requirements of fears about visa availabilities. To some extent, these reasons are often not necessarily based on true requirements, but are a convenient reason to give for choosing to outsource domestically rather than the potential risks of offshore.

Finally, there may be client-specific needs that demand domestic solutions—a local bank that wants to keep jobs in the community or a company with no experience offshore looking to start the learning curve.

Within IT services, what types of work currently dominate the domestic landscape?

Simonson: Application development is most prominent, with 123 domestic delivery centers in tier-one and -two cities serving financial services, public sector, manufacturing, retail and consumer packaged goods clients. Just behind that is IT infrastructure in similar geographies focused on those verticals as well. There are 80 consulting and systems integration centers and 68 testing centers as well.

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