Can Offshoring Companies Actually Move Down the Value Chain?

IBPAP’s Gigi Virata happened to ask me recently whether, in my view, BPOs (or shared service centers) actually manage to move down the value chain rather than up. I figure that many of my colleagues in the industry will agree with me that this situation most certainly happens. But I will take that notion one step further: not only does it happen, it happens more frequently than you think. It is a fact that companies shine and even dominate only to fall behind eventually. Think Nokia or Blackberry, for instance. The outsourcing business is no different.

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We have seen a number of documented cases of backsourcing, particularly in India. Outsourcing outfits that did not manage to adjust as the business of their clients transformed found themselves rendered increasingly marginalized by progressive automation. While the decision of client companies to cease outsourcing operations is often triggered by the issues that outsourcing agreements encounter, the underpinning rationale is always that it has stopped being efficient to outsource the work. It is often the higher value work that is sensitive to the economic connectedness with the client company; when this is backsourced, what remains with the BPO will be the lower value work – clearly a step down in the value chain.

Moving up the value chain requires a growing business
But the devaluation of BPO work does not just arise from not heeding the Voice of the Customer as the case studies from pioneering India reveal. A company may be extraordinarily effective in standardizing and commoditizing the work accepted from its clients  that the work can thereafter be performed mostly by university graduates. Unless the growth of the business brings in new complex work, the SMEs in business process, business technology, and project management who performed the simplification of the previously migrated processes may find themselves victims of their own success.

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