Rise and Fall of an Information Technology Outsourcing Program: a qualitative Analysis of a Troubled Corporate Initiative

Offshoring and Re-shoring 
Although this research is not specifically concerned with offshoring, that practice has 
been and continues to be a central topic to the overall practice of information technology 
outsourcing. The emergence of offshoring of IT services in the late 1990s followed the general 
trend of manufacturing offshoring in the 1970s and 1980s. The initial reason for IT services 
offshoring at most companies was cost arbitrage, particularly in India, where wages had been up 
to eighty percent less than domestic IT workers earned. Continued demand has driven up labor 
costs, which are now only thirty to forty percent favorable to domestic wages (Economist special 
report, 2013). 
Firms often viewed the Indian companies as “body shops” who initially performed back-
office IT tasks at low costs. Whether domestic firms believed Indian firms could produce higher-
quality results was less important than the significant cost arbitrage achieved under this “your 
mess for less” offshoring model. Many firms, General Electric being among the first, established 
their own Indian subsidiaries during the 1990s and early 2000s, known as “captive centers.” 
These dedicated resource teams performed work exclusively for the owning company. This trend 
has declined and reversed in recent years as many multinationals have divested their captive 
centers. Increasing wage parity with the U.S. and high turnover, which can range from ten to 

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over twenty percent annually for the Indian IT labor market, is also impacting the broader 
offshoring model: 
As in manufacturing, the labour-cost arbitrage in services is rapidly eroding, leaving 
firms with all the drawbacks of distance and ever fewer cost savings to make up for them. 
There has been widespread disappointment with outsourcing information technology and 
the routine back-office tasks that used to be done in-house. Some activities that used to be 
considered peripheral to a company’s profits, such as data management, are now seen as 
essential, so they are less likely to be entrusted to a third-party supplier thousands of 
miles away. (Economist special report, 2013, p. 5) 
Some analysts believe banks and financial services firms have offshored nearly eighty percent of 
the work that could realistically be performed in India and other locations. Domestic attitudes are 
also changing toward offshoring. Companies fear losing legacy technical expertise as capabilities 
once performed in-house are offshored, and they risk falling behind in areas of new technologies. 
Perceptions that vendors, more concerned with their own profits, erode the value that existed 
during the initial years of offshoring contracts add to speculation of a tapering or decrease in IT 
offshoring (Economist special report, 2013).