Inshoring

Inshoring may be thought of as the 'opposite' of Offshoring. It is the business process outsourcing work domestically. Inshoring process typically applies to the US and the UK.

It is argued that successful inshoring takes advantage of cost disparities within the domestic market. For example, for software companies not located in metropolitan areas with high costs of living, there is a real opportunity to compete on price with other domestic software companies. It simply costs less to do business in the Midwest than it does in New York or Los Angeles. A Midwest company can charge more than it does locally and yet still undercut the competition on the coasts. If work can be shipped overseas, it can just as easily be shipped across the Mississippi.

Benefit of inshoring

In a survey conducted by specialist IT agency, IT directors are recalling projects outsourced to locations such as India because of quality and control issues.

There has been, according to the survey, a mild slackening in demand for UK contractors, but indications suggest that IT departments are now in a race to secure and retain key skills. High-end development work and new build systems are coming back to the UK, offshoring projects are absorbing a huge amount of management time.

The survey confirms that IT skills are still in high demand and, despite the economic uncertainty, IT directors are very confident about the future, with 69% of those surveyed planning to increase or maintain contractor levels in the next 12 months.

Wage inflation

There has been serious wage inflation, particularly in India, which is making IT directors think twice before offshoring: “We are seeing projects return to the UK because programme managers, system architects and business analysts need to work with the managers in the UK.”

Some low grade work is still being processed in locations like India, but even system testing has been brought back to the UK for many projects. It is still cost effective for low grade batch programming to be conducted in India, but the savings on high-end work are turning out to be a false economy.

Most corporates want to see an impact from their IT projects in a short timescale, and this is just not happening with many offshored projects.

Spiralling costs

IT directors appear resigned to the increasing costs of IT personnel, with 22% predicting a rise in contractors’ rates and only a tiny proportion, 5%, expecting a decrease in rates. Demand for contractors is stable and consistent, with quality being the major requirement of corporate clients.

Clients seeking to negotiate contractor’s rates down face a challenge as many of the key skills are in short supply. There certainly appears to be no return to the bloodletting of the post dot com and Y2K years previously experienced.

Is Inshoring a Threat?

For the past few years, one of the media's favorite buzz words has been "outsourcing," which they tend to misuse when they are referring to organizations which terminate domestic employees and move their work to foreign countries where it typically can be done at a lower cost. Outsourcing is not the same as offshoring, which is the word that the media should actually use to refer to what those organizations are doing as one organization can chose to outsource part of its work to another organization and that's hardly the type of activity that politicians or the media can or should get worked up about.

But offshoring does pose problems for many people, especially those who are focused on the micro economic effects. When you lose your job to someone in Pakistan who is happy to do the work you used to do for 1/10th of the cost, how can you not be upset? And even if that doesn't happen to you, how can you not be scared when you see that happening to a friend or family member?

Interestly, the media has recently been shining their spotlight on the practice of inshoring, which occurs when foreign organizations terminate some of the employees in their home country and replace those employees with native workers. An example is the Indian engineering firm Infosys Technologies, which recently opened an office in Fremont, California. Infosys has created a Global Talent Program through which it is paying entry level engineers $55,000 per year. Over the past year, more than 1,000 American college students and recent graduates applied for the Program's 126 job openings. Why the stiff competition? The pay isn't different from what organizations are offering. The work is pretty similar. The biggest different is that new Infosys provides extensive training to its new employees for six months in Mysore, India. "The training itself is looked upon highly by other companies," says Brandon Pletcher, who recently graduated with a computer engineering degree from the University of Arizona in Tucson. "It gives us the edge to do our jobs better."

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