Will Citibank's 'Onshore Mandate' be a Trendsetting Move?

Be it political pressure to hire workers locally or increasing preference to keep work closer to home, outsourcing buyers are looking for more on-site support from their service providers.

This has become more apparent with Citibank recently announcing its plan for a 10-year IT outsourcing contract worth US$1 billion with a 90 percent on-site requirement. This implies that outsourcing vendors vying for the contract need to be prepared to handle most of the work through local hiring. Only the remaining 10 percent work can be offshored to India or any other country.

According to Zdnet, Indian players like HCL, Infosys, Cognizant and global players like IBM, Accenture etc have put in their bids. But it will be a huge challenge for offshore service providers to deliver such large proportions of work on-site.

Usually such a mandate is followed in case of UK government contracts but this is fairly new thing for an private enterprise to include such a condition. Also in the financial industry the proportion of offshore to onshore has been so far around 50:50. So Citibank's demand for such a high proportion of on-site support indicates a striking change. Now be it a one-of-a-kind strategy or a trend that is shaping up, the long-term implication will be that service providers will have to beef up their on-site presence. Scaling up their on-site hiring will indeed put more pressure on their margins, but players that are faster in doing that will also reap the benefits.

While this is the message for service providers, what does the whole thing mean for buyers? Yugal Joshi, Practice Director, Everest Group, puts across an interesting point for buyers to consider. "Buyers need to ask themselves if they now want more on-site presence, were their earlier outsourcing strategies of leveraging offshore locations flawed? If yes, what makes them believe that their "new" outsourcing strategy of heavy onshore presence is indeed correct?" he said. Many times this could be driven by reasons that are not apparent or at least are not spoken in public.

The article was first published in Globalservicesmedia.com