Outsourcing: Interview with Harley Lippman, CEO of Genesis10 (Part 2)

Sramana Mitra: The trend of what has become to be known as “near shoring” is definitely something we have been hearing about for a while now – three or four years at least. I imagine the trend has matured this year, and I am looking forward to discussing that with you. We have seen that a lot of the near shoring trend in U.S. companies outsourcing to Latin America, Central America, and some others. One of our interviewees called it “Third World United States.” Then we have seen Europe outsourcing to Eastern Europe, Africa, etc. So, we have seen this near shoring trend in various interviews. You are specifically working on within the U.S., is that correct?

Harley Lippman: Yes. The work we do is as of now only in the U.S. The benefits for American companies are that clearly you have language and cultural commonality. That is a value. Second, you have proximity to the work being done. You don’t have to get on a plane and go somewhere else. You don’t have to worry about the cost of travel, jet lag, etc. Also, you don’t have the difficulty of managing work that is being done eight time zones away.

As you probably know, in the past ten years there has been a huge redistribution of wealth as a lot of Asia has been moving. There are hundreds of millions of people in China, India, and other countries who have emerged in the middle class. What has happened is that the whole idea of offshore work was almost entirely a cost play. In India, for example, you have wage inflation of 13% last year. In the U.S. you have wage deflation. Ten to 20 years ago, the cost of a programmer in New York City may have been $100 an hour, whereas in India it may have been $15 an hour. The difference was so dramatic that in an effort to trim costs, corporations went overseas. But as countries, particularly in Asia, Eastern Europe and Russia, have become more on parity with the U.S. and the world has become more flat, companies see the advantages of doing work onshore in the U.S. in areas that are low-cost. That would typically be in areas like the Midwest, small to mid-sized cities, etc. When you put all that together, we see increasing demand for work being done here in the U.S.

SM: You said there was 13% wage inflation in India last year. That wage inflation is in the mid-level, not the entry level. The entry level continues to produce large numbers of entry-level graduates who need to be trained, and most of these large IT companies run effectively with in-house universities, training them. There I don’t think the cost structure has gone up. It is with experienced people that the cost structured has skyrocketed.

HL: Those are mostly the ones we speak to. The people we provide have experience, and that is typically what companies look for. If they want somebody without experience, companies may train them themselves.

SM: OK, let’s talk about that – experienced people doing onshore outsourcing work in low-cost areas in the U.S. That is your primary outsourcing business.

HL: That is correct.

SM: What kind of numbers are we talking about?

HL: It varies on the basis of the work. If it is something that requires a few hundred people for nine months, then that goes away.

SM: How many of such workers are working in your operations, and where are those operations?

HL: It varies. We have our own facilities in Michigan, Kansas City, Georgia, Cleveland, etc.

This segment is part 2 in the series : Outsourcing: Interview with Harley Lippman, CEO of Genesis10
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