Gary Allison's Leadership Blog

Have you heard of reverse outsourcing? Indian IT firms that built incredible profit margins on the outsourcing boom in the West are themselves headed offshore, from Malaysia to Mexico, to escape the double sting of surging salaries and a rising rupee. Tata Consultancy, Infosys, Wipro, Satyam and smaller companies are stepping up acquisitions and opening more facilities closer to US and European clients to cut costs — the reason why work was farmed out to India in the first place.

Salaries of software professionals rose 18.7 percent in 2007, according to a survey, while the rupee has gained almost 10 percent this year to near 10-year highs against the dollar. That’s eroding the cost advantage once enjoyed by the 50 billion dollar information technology industry, which bills two-thirds of sales in dollars but whose expenses are almost all incurred in rupees.

Hyderabad-based Satyam has hired 300 mostly-Malaysian IT engineers to man the facility, whose workforce will rise to 2,000 in four years to cater to clients such as GlaxoSmithKline, one of its top 10 customers. Malaysia was chosen because of its “competitive cost environment”. The company is distributing work to locations where “it makes the most business sense.”

Mumbai-based Tata Consultancy, India’s top software maker, opened a centre in the Mexican city of Guadalajara with 500 employees and said it will employ “thousands more” in the next five years.

The problem here is that reverse outsourcing erodes many of the core, intrinsic values of outsourcing to India in the first place: a common language, British fundamentals of law, and to some extent the economic driver.