Tuesday, February 12, 2013

Rural sourcing, Nearshoring and Offshoring - Good, Bad and the Ugly?

With most markets changing rapidly in most geographies, it is extremely rare that businesses are able to build and maintain all of the organizational capabilities on their own. In the case of manufacturing, the past few decades has seen large scale outsourcing of operations of manufacturing and assembly.

However, as noted by article by Goel and Moussavi, the wage inflation in the preferred destinations for outsourcing Manufacturing has increased considerably. The projections made from the data are fairly indicative that the cost advantage is fast diminishing. A similar argument can be made on for the IT outsourcing. The reverse trend of domestic sourcing seems viable in both the manufacturing and service industry. Rural Sourcing Inc is one such outsourcing company in the IT space. The description from the website reads as follows.
"Rural Sourcing, Inc. (RSI) is the leader in domestic sourcing, a cost-effective, onshore alternative to the traditional model for IT outsourcing. We specialize in software development and support and maintenance for critical business applications. Our development centers are located in 2nd and 3rd tier cities across the United States.  "
The value proposition of outsourcing, especially to geographies with what were considered lower wages is fast diminishing. Goel et al make a case for this in a manufacturing setting. Perhaps, this trend is true for services as well?


Time to Rethink Offshoring? (Goel, Moussavi, and Srivatsan, McKinsey Quaterly)

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