Would ‘In-Sourcing’ Be In and ‘Out-Sourcing’ be Out?

The recent global economic upheaval has set the global brains looking for a new business model that can work well in an adverse economic environment. In my view, comparison of current economic downturn to the great depression of the 1930s is like an orange – apple comparison since the economic landscape of the 1930s did not see an integrated global economy as is the current scenario.

There is a belief that an answer to the sought after business model could be ‘Out-sourcing’. Accordingly, out-sourcing would be bigger than ever before (setting aside the politics behind the out-sourcing story) though most probably in a somewhat different version. Whereas out-sourcing does provide a business model with a better cushioned environment since it provides flexibility of scaling up or down to meet business requirements and drives cost reduction; I would like to share my thoughts / views on the ‘In-sourcing’ model, which could be the solution business model.

In the context of cost reduction it would be appropriate to appreciate that cost savings driven by cost differentials (especially labour arbitrage) are time bound benefits since cost differential is like two containers of water connected by a pipe – end result is that water always flows to establish equilibrium. This is evident from the movement of out-sourcing opportunities away from India to newer lower cost providers (like Philippines, Malaysia, etc.) in order to sustain / better the cost reduction story. In my view unless other differentiators are being delivered as part of the out-sourcing deal, the out-sourcing story is a temporary growth driver for any economy.

Since economy and society are closely interlinked, any long term solution business model would require addressing socio-economic factors in addition to just addressing the economic factors.

The in-sourcing model would address both economic and socio-economic factors in a balanced approach. This model would allow deriving cost reduction balanced with addressing socio-economic responsibility of job creation and specialization. Cost reduction in the in-sourcing model would be derived from economies of scale. Although cost reduction driven by this model may not be as much as delivered by the out-sourcing model; the differential could be identifiable as cost / effort of delivering social responsibility. We would all appreciate that fulfilling any responsibility could involve effort / cost.

Allow me to paint the landscape of the solution business model – ‘In-sourcing':

A global organisation would select its in-sourcing site for select function(s) based on the most cost effective site(s) within their geographical area of operations. The organisation’s workforce (enabled by suitable technology) would work out of these sites to deliver the global business. With experience and training the workforce would specialize and differentiate in their delivery thereby enhancing efficiency and productivity. Leveraging economies of scale this business model would deliver cost reduction and also enable the global organisation fulfill its social responsibility of providing employment opportunities in its geography of operation.

Being globally integrated with self sufficiency within the organisation and proactively contributing to socio-economic landscape in geographical areas of operation could be the name of the game going forward.


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