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Summary:

This past weekend, when not tapping away at the computer or consuming copious amounts of alcohol, I spent time reading Thomas Friedman’s oversimplified explanation of the post bubble, increasingly interconnected world, The World is Flat. (More on that some other time!) He has expressed a lot […]

This past weekend, when not tapping away at the computer or consuming copious amounts of alcohol, I spent time reading Thomas Friedman’s oversimplified explanation of the post bubble, increasingly interconnected world, The World is Flat. (More on that some other time!) He has expressed a lot of admiration for the Indian tech experiment. Why, he was one the keynotes at the TIE conference, which I decided not to attend. Think of his presence as an early indication that things might be getting overheated in outsourcing land. Much like hiring of journalists as VCs indicated the dot-com bubble’s top.

Not a week passes when someone or the other tells me about a new outsourcing outfit, also known as “BPO” that is setting up shop. The stocks of companies like Wipro, Cognizant and Infosys have been in a stratosphere. (Someone has to come up with a way to add stock quotes & Charts in blogs… Yahoo are you listening?) Recent quarterly data shows that these guys are getting closer to the peak and wheezing. Just ask yourself this question: if all was fine and dandy why would GE, a company known to squeeze out profits from even a light-bulb, would get out of the whole outsourcing game. The game has been that of price arbitrage for many of these outsourcing companies – its going to end… soon.

Creditsights’ Senior Technology Strategist Arnie Berman succinctly reminded me this morning of companies like Scient, Viant, and Razorfish, and how they were supposed to be the new services giants. Sometimes, it is good to be reminded of the past.

  1. Om,

    A few things have happened in India for companies who’ve been offshoring outsourcing for a long time. (Incidentally, ‘offshoring’ and ‘outsourcing’ are two unrelated terms! Ideally, India should feature only in the former) :

    1. Companies who have been outsourcing to Indian tech companies for some time have realised that they can raise profit margins if they do it themselves.

    2. Those companies over time have learnt that Indian management style is different from the Western ones and have adapted.

    3. They have been recruiting management teams in India directly.

    As I see it, the Indian tech companies will slowly be getting into a tighter and tighter spot over the next few years as the salaries go higher and their profit margins dwindle.

    The only way for growth for them would be to handle the lower end jobs (like BPO) where attrition rates are very high; or to enter at the very high end of consultancy which provide greater value per dollar.

    In five years, the current crop of junior & middle management will be able to fill those high end roles; as well as the huge migration of kids from all walks of life into BPO areas will fill the lower end vacancies.

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  2. Om,

    Interesting you mentioned “Scient, Viant, and Razorfish” Cuz these were the very same companies I had in my mind when I started to look for a job in 1998-99 :D I was so upbeat I even bought shares of one of the companies. In retrospect how naive I was.

    Pankaj

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  3. I’m reading World Is Flat as well…. only gone through the first quarter of the book and I agree, it is somewhat oversimplified. I hope the rest turns out OK (love Friedman’s “geo-green” crusade, however, in the NYT.)

    Anyway, re: investing in BPOs, some major companies that invest in other companies around the world have given BPOs a pass. They figure the market is too mature for their investments to have a significant impact on the BPO industry.

    That being said… think it is too early to chime the death knell for the industry.

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  4. [...] ast ? Filed under: General — sumedh @ 4:32 pm Om Malik is not the only one questioning the long-term viability of the current BPO/outsourcing/offshor [...]

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