Tuesday, May 24, 2005

Outsourcing - racing towards end

The primary reason for offshore outsourcing is cheap labor and comparatively higher quality. The negative side is lack of direct client interactions and premium customer support. As the Western world is struggling fighting with deflation and cost cutting frenzy to show better results from quarter to quarter, the outsourcing boom continues.
But here is a problem that can kill outsourcing from India and China. The cost and availability of energy sources will determine the price of outsourcing in the future. If a company plans to offshore certain portion of its operations, it will be asked to pay much higher prices in the future as inflation is catching up in India and China. The salaries in these countries will have to go higher as these economies are well dependent on crude oil prices and availability. India and China may experience hyperinflation because of higher energy prices. China and India will have to eventually compete with the West in obtaining energy in the form of crude oil and natural gas. It can become real expensive.
With much higher prices and lack of reliable operation sue to shortage of energy sources, the outsourcing boom may eventually end abruptly. The next phase will be that of migrating outsourcing into total automation in America and Europe. According to this concept, Robots and automated software generation and maintenance systems will replace the cheap labor of China and India.
According to some think tanks by 2015, outsourcing may not exist, as we know of it today. Alternative energy will be abundant but not outsourcing. The immediate energy scarcity and resulting hyperinflation in India and China will trigger the craze of automation among Western companies. Those who cannot automate and depend on India and China to provide cheap goods and services will fail miserably. The automation will neutralize the need to offshore.
Later as alternative energy is available, the offshore outsourcing will not come back because automation will prove much more customer friendly, reliable and even more cost effective.