When Thomas Friedman, author of "The World is Flat," journeyed to Bangalore, India, in the early 2000s, he witnessed first-hand the explosive growth in outsourcing (Outsourcing 1.0). However, after growing 40%+ each year for almost a decade, the growth in outsourcing slowed to single digits after the 2007-2009 recession. A recent article from The Economist highlights that outsourcing is back to double-digit growth and has reached $150 billion (5.6% of Indian GDP) in 2021. Is it a short-term anomaly or the beginning of a new era in outsourcing - Outsourcing 2.0?

I believe that the recent growth in outsourcing is fueled by two fundamental drivers that are likely to continue: 

  1. Demand for digital talent: Explosive growth in digitization during the pandemic has resulted in an acute shortage of digital talent in the USA and western Europe. For example, it is almost impossible for a mainstream company to recruit 20+ data engineers in San Francisco, Austin, or Berlin. However, the same companies have a far better chance of securing equally qualified data engineers in India, Nigeria, or Argentina. It doesn't hurt that the cost of these brilliant data engineers will be about 1/4 of their western counterparts.

  2. Acceptance of working remotely: During the first phase of outsourcing, there was some hesitation in collaborating with large teams remotely. However, the pandemic has trained all of us to be effective remote workers. Why does it matter if the person on the other end of a Zoom call is in a completely different timezone or country, especially if they can speak your language and are willing to adjust their work schedule for significant overlap with your timezone?

What are your thoughts on Outsourcing 2.0 and its growth drivers?