In the never-ending effort to achieve better economies of scale, a new trend is developing that may change outsourcing as we know it. This new model of outsourcing predicts that Indian service providers will become a thing of the past, to be either “sidelined or absorbed” by companies like Google and Amazon.com who will emerge as the new leaders of outsourcing.

The old model of outsourcing traditionally requires service providing companies to house an enormous amount of powerful computers, programmers and applications locally in order to supply outsourcing companies. This new model seeks to utilize “cloud technology, which lets users tap into computing power available via the internet, rather than on a desktop or computer server housed locally,” Arjun Sethi and Olivier Aries of A.T. Kearney write in Businessweek.

This new approach to outsourcing will allow businesses to outsource entire tasks such as the tracking of inventory, paying only for the information accessed or used. This is happening now because, according to Sethi and Aries, outsourcing vendors have maxed-out efficiencies from automation and from moving the work to lower cost-of-labor destinations. So, to achieve a new level of savings, greater economies of scale are necessary.

The “cloud technology” will shift the weight of outsourcing from physical ownership of assets to process expertise. This will usher in a wave of global tech service consolidation. Companies such as Google, Amazon, HP, IBM and other American, Asian and European companies are poised to be the new leaders in this industry.

“Amazon and Google are the future leaders in outsourcing,” Sethi and Aries write. “They are already providing services to such enterprises as Eli Lilly (LLY) and Pfizer (PFE). They own data centers on an enormous scale and know how to operate them efficiently. They will gain capabilities they don’t yet have—such as industry-specific know-how and low-cost workforces—by acquiring Indian or other global outsourcers.”

The practice of outsourcing is ready to witness its most significant transformation since the concept was first implemented in the 1980s. For those providing the outsourcing, “cloud computing creates an unprecedented opportunity to reshape how services get delivered.” The implication is that clients will have more choice and a new model that will build upon the savings already generated through outsourcing.

Print PDF