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Introduction
The issue of backsourcing has become a hot topic, both politically and economically, since the global financial meltdown. Outsourcing work to lower cost countries became a popular resource for companies seeking to cut costs and free up resources. IT services in particular became a popular back-office function transferred overseas. As the trend for companies to outsource grew, many Multi National Enterprises began to question the wisdom and true cost-effectiveness of their decisions. Some companies have faced more problems than they anticipated, raising the real costs associated with outsourcing.
Backsourcing, defined generally as bringing services outsourced to a third party back in-house, is now a growing phenomenon. Companies have learned important lessons from outsourcing mistakes and some have made the move to reverse their earlier direction. Some of the most high-profile backsourcing decisions include JP Morgan Chase (ended contract with IBM), Dell (backsourced customer support from India), Farmers Group (terminated contract with Integrated Systems Solutions), and Chase Manhattan (terminated outsourcing contact with Fiserv). Some companies cite breach of contract and others pay millions in cancellation fees to terminate early.
But what factors have gone into the decision to backsource? This is one question presented in this case study about the backsourcing trend. While there is a growing body of literature regarding backsourcing decisions, what remains overlooked is what happens once the decision has been made - how do companies proceed to bring services back under their control? To answer these questions, we will look at two different companies: MediaCorp, a multinational CD/DVD manufacturer, and ITServiceCorp,1 an international IT services provider. Both companies made the decision to backsource services from India, but for very different reasons, and each faced different risks and challenges in the backsourcing process.
The backsourcing trend
Ever since outsourcing and offshoring became popular amongst multinationals and small and medium-sized enterprises, the number of cases where companies took outsourced services back in-house has increased steadily. This phenomenon is known as 'backsourcing.' Backourcing describes a process that can only follow after an outsourcing or offshoring decision is made and implemented. Outsourcing, as defined by Oshri et al. (2011), describes the 'act of contracting with a third-party service provider for the management and completion of a certain amount of work' with set time,...