The American economy is in a state of flux. Its main markets i.e. the European Union, Canada, the UK, Japan, China and the Rest of America/s are caught in the brink. The biggest and most important of them all, the European Union seem to be on Roller-coaster swinging between steep decline and just about managing to avoid the Recession i.e. somehow, if at all. The US firms can no longer afford to ignore even smaller markets in Africa, if they want to be able to sustain themselves. With commodities price bubble seem to be showing no signs of ebbing; the US companies are being constantly challenged to find ways to manage cost of operations, especially in order to fend the Chinese competition.
In their pursuit to lower the costs of operations, they are constantly challenging their operating models to discover ‘new efficiencies' which are capable to sustain in the current environment where logistics costs have been rising and it is no longer feasible to ship all raw materials to China for processing and assembling the manufactures. This has resulted in some in-sourcing of manufacturing jobs back to the US. However, at the same time the companies are coming under tremendous pressure to cut costs of operations further as they face and increasingly price/value sensitive customer, both at home and abroad.
The pressure to reduce costs is already forcing companies to reduce cost of ‘production support' for software product and services. This is likely to get accentuated further as the ‘cost of interests' rises further. The phenomenon is likely to be felt even more strongly in the coming years as China and the rest of the World begins to export their Wage inflation to the West. With weak domestic markets, the brand conscious Europe is likely not to absorb enhanced prices while other markets will most likely keep their requirement of value offerings at a high (more so because consumers in these countries spend much of their income for Food).
The smarter software product and services companies, especially the mid-sized ones are already exploring offshore locations for their low cost Production support and Application maintenance operations from where they can service their clients in industries such as Financial Services, Logistics, Supply Chain Management, Enterprise Resources Planning systems and various applications. They are exploring the right model for entry into such countries and evaluating the structure for governance including that for management control and infrastructure requirements. They are also looking at well honed skills in Business Analysis, Root Cause analysis, Lean/six sigma operations support and re-engineering skills, Transitions and Database management skills, Analytics skills among others so that they are able to efficiently support their clients in host countries. They are also looking to hiring Management resources in host countries as well as in the local country where such operations can be located, in order to ensure a suitable on-site and off-shore capabilities and synchronous, well balanced service delivery to their clients without management level troubles that such structures can pose due to differences in opinions and perspectives. While the software companies are unlikely to look at outsourcing due to issues related to intellectual property involved, however shifting such Production support and application maintenance operations to competitive off-shore locations in a big way by Small and Medium sized software companies can't be ruled out.