Outsourcing: Interview with Harley Lippman, CEO of Genesis10 (Part 6)

Sramana Mitra: What I am trying to do is capture the trends. I think the trend is that there is work coming back to the U.S. That is a real trend, and one that I forecast five years ago. If you are interested, you should read the article in Forbes called “The Coming Death of Indian Outsourcing.” Of course that was a deliberately provocative article, and it rattled the entire Indian industry. All the CEOs were calling me, but the truth is that there was wage inflation going on and there were several other factors like time zone, for example, becoming issues. It was real. The voice call center industry, for example, has shifted away from India. Part of it has come back to the U.S. and part of it has gone to the Philippines.

Harley Lippman: When did you say the article was published?

SM: February 2008.

HL: I think when companies are doing analysis and trying to quantify the hidden and indirect costs, that is what at work here in terms of the trends and that is what your focus is. What typically happens is that on a purely hourly basis, perhaps one can show it is cheaper in India. However when you quantify the hidden and indirect costs and the impact on productivity, I think that is where you may find that it makes more sense doing that in the U.S.

I will give you a few examples. Let’s take regulatory risk. More and more in the U.S., the budgets of banks and insurance companies have gone up. They may be spending 20% or more just on the issue of regulation and managing risk. For insurance companies and banks, it is all about managing risk. The big concern for regulators is that confidential information may not be as fully protected offshore as it is in the U.S. What a lot of companies are concerned about is that they have to be very responsive to regulators. It is not that necessarily regulators will prohibit it, but they will create so many layers of protection that the burden may become so high for work offshore that it becomes expensive. Pressure on regulators can come from lawmakers. Senators and congressional representatives are concerned about job creation. Still the number one issue in the U.S. is job creation and job retention – even with the issues of the deficit. So, there is a feeling that there may be increasing political pressure. This may end up in some new legislation that may require major companies to give a certain amount of work onshore.

SM: There will probably be incentives, and there should be incentives. Those can be provided by the states or the cities. There could be lots of tax incentives that could normalize the cost structure even further. I do not want to over-represent the trend though. What I wrote in 2008, “The Coming Death of Indian outsourcing,” is not anywhere near happening. Outsourcing in India is a booming industry. Outsourcing overall is a booming industry. There is a tremendous amount of IT outsourcing going on in China, Eastern Europe, etc. All those are booming outsourcing destinations. I think India has not missed a beat. There is also a tremendous demand for IT knowledgeable resources. The amount of people needed in the world today who have IT skills has also gone up tremendously.

HL: Today in business almost anything you do is somewhat IT related.

SM: The healthy thing that is happening is that companies can risk mitigate. They can do some portion of the work in India, some in America, some in Eastern Europe, etc. In the Indian industry, attrition still remains a humongous problem. I actually think it is one of the biggest problems.

HL: You are absolutely right and also a good mind reader. You were just 30 seconds ahead of me. I was going to say that, too. That is another one going back to my comment about hidden and indirect costs. I have heard that in the outsourcing companies in India, turnover is anywhere between 27% and 34%. I was told that from someone who is a very senior person, who is Indian and in one of the largest Indian offshore companies. I am not sure if that number is correct, but if it is anywhere near that, that is a staggering number. You have intellectual capital. If you have a project and you lose someone, it has a far greater impact than you think, unless you really do a cost analysis.

This segment is part 6 in the series : Outsourcing: Interview with Harley Lippman, CEO of Genesis10
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