Offshore 3.

0: It will be all about Global InHouse Centre (GIC) led offshoring

I joined the offshoring industry in the
90s and I have seen it grow
phenomenally over last two decades.
Offshoring,
particularly
Indian
Offshoring Industry, has come a long
way having had consistent double-digit
growth for more than two decade.
Over that time the industry has
evolved
to
meet
changing
expectations:
Offshoring 1.0 (1980s and 1990s) was largely driven by cost arbitrage. The global
multinationals were drawn to offshoring as it supplied first-rate talent at low wages.
Offshoring 2.0 (2000-2015) has been driven by the likes of Infosys, Wipro and TCS
making offshoring scalable, leading to efficiency improvements. There have also
been investments into quality improvements making offshore delivery model more
effective.
It is very clear that incremental gains through cost arbitrage, efficiency improvement
are now limited.
What should a multinational that has been offshoring for a decade or more do next to
get incremental value? The answer lies in increasing effectiveness, managing risks
and realising the offshorings full potential to create value. This cannot be achieved
by outsourcing through offshore partners only.
Most of the large multinational corporations are now realising that many processes
cannot be outsourced to a third party effectively as it leads to significantly increased
risks. The increased risk is in terms of losing knowledge internally, inability to take
control of these processes as well as over-reliance on suppliers for running core
business processes. They are also realising that by offshoring these processes to
suppliers, they do not have the same desired control and are unable to create IP for
the company.
Where do we go from here? Does this mean that offshoring will reduce and large
multinational corporations will start to bring back some of the core processes back in
house?
The answer is offshoring is here to stay and grow but the current model will have to
change to deliver incremental value to the customer.

Advent of Offshoring 3.0

We are already seeing advent of offshoring 3.0 which will be driven by Global In
House Centre led offshoring strategy. i.e. offshore centres staffed and run by own
employees.
The core processes will be run in the GICs
The GIC will also have core R&D function and will be hubs where knowledge

and Intellectual Property will be retained

The GIC will also be a stepping stone to additional revenue in the emerging

markets and responsible for localisation of the products for the emerging
economies and the other markets in Asia and Africa.
Work in the non-core processes or domains will continue to be to offshored to

outsource offshore partners but more tightly managed through the involvement
of GICs in the local geography leading to smarter offshoring.

Offshoring strategy is starting to change and in next few years I foresee that most of
the multinational corporations will have an offshore GIC, which will form the core of
their offshore strategy. There will be increased value through offshoring through
better risk management, additional revenue generation through localisation and
increased innovation through GIC initiative.
NASSCOM has already realised this and has set up a GIC industry forum to support
global corporations to set up and grow their Global In-House Centres
(GICS)(http://www.nasscom.in/global-in-house-centres). There are already more
than 760 GICs operating out of India, across multiple locations accounting for USD
13.9 billion of export revenues, almost 21 per cent of the industry export revenues.
The numbers, size and more importantly the role of these GICs will grow significantly
as Offshore 3.0 happens.

To summarise:

Offshoring 1.0 = was about doing things at lower cost. Usually by suppliers
Offshoring 2.0 = is doing things right. Often by partners and suppliers
Offshoring 3.0 = will be about doing right things. Often by ourselves and
partners/suppliers managed locally
More insights on offshoring & outsourcing are available on the Religent blog