AI Is Destroying India's Outsourcing Industry?

Hello world. I'm an unemployed ex big tech software engineer with 25 years of experience in the tech industry. So

these days I find myself checking into LinkedIn from time to time. Now I know it's terrible for my mental health, but I can't help myself sometimes. It's like

the thing that you do when you're driving on a road and you see a car accident. You can't help yourself but to

accident. You can't help yourself but to stop a little bit and take a look. So

anyways, I was surfing on LinkedIn and an old colleague of mine, let's call him Cowshik, Kowik DM'd me. Cowshik and I, we worked in the same business unit at

my old big tech employer for about 4 years. He was a senior level software

years. He was a senior level software architect based out of our India global capability center. Over that time, we

capability center. Over that time, we had worked together on a couple of projects. So in 2023

projects. So in 2023 there was this huge round of layoffs and what happened was our entire organization got decimated like over

half the people were laid off and through the process even though I survived I had a soft emotion. I went

from being a chief architect to being a senior software architect. But

thankfully, our big tech company had this super annoying application process where I could apply to regain my old job

title. This application process is

title. This application process is mostly a dog and pony show where I have to go through motions to essentially justify my own worth to my company.

things like showing my work contributions, my technical eminence, and getting a whole bunch of recommendation letters from internal technical leaders. Now, Cowshik really

technical leaders. Now, Cowshik really helped me with this application process by writing me a glowing recommendation letter. The way he wrote that letter, it

letter. The way he wrote that letter, it was as if I'm some sort of messianic thought leader showering the offshore development teams with my intellectual

brilliance. It was just amazing and that

brilliance. It was just amazing and that kind of stuff really carried weight because by 2023 a lot of the work being done in our

organization was then being done in the Indiabased offshore teams. So due to Cowshik's help and the help of others, I

was able to regain my title as a chief architect in early 2024. But by then, Cowshik had already left the company for

a presumably better job elsewhere. So

anyways, Kowshik DM'd me and it turns out that he's now back on the job market and is having a hell of a time searching for a position. So I had a pretty

involved chat with him about his job search. And in the process, I got some

search. And in the process, I got some interesting observations on the state of the offshore industry in India right now. And what I learned really shocked

now. And what I learned really shocked me. So to give a little bit of context,

me. So to give a little bit of context, India is kind of representative of the entire offshoring industry. The country

has huge scale and a wide range of offshoring operations. It also has this

offshoring operations. It also has this unique set of social conditions, right?

It's got a huge relatively well-educated English-speaking population. And that

English-speaking population. And that population is paid pretty low wages. So

these conditions allowed the offshoring ecosystem to take root in India pretty early on. And now this industry is a

early on. And now this industry is a significant part of that country's entire economy. And from my conversation

entire economy. And from my conversation with Kowik, it sounds like AI is eating this offshore ecosystem alive like right

now. How is it doing this? Well, you can

now. How is it doing this? Well, you can think of the Indian offshoring ecosystem as having a broadly bifurcated

structure. You have classic outsourcing

structure. You have classic outsourcing companies like the witch companies for example, right? And then on the other

example, right? And then on the other hand, you have global capability centers or GCC's. These are dedicated facilities

or GCC's. These are dedicated facilities set up by global western American tech corporations. And both pillars are being

corporations. And both pillars are being disrupted by AI in different ways. For

classical outsourcing, the old model is you would have an American or global corporation. This company would pay an

corporation. This company would pay an outsourcing company to do work and services that would have otherwise been done in-house by that company. The main

benefit of outsourcing is obviously reduced cost, right? because labor costs are so much cheaper in India when

compared to America. Now this primary benefit has always been somewhat offset by a set of inefficiencies caused by

working in this offshore model. These

inefficiencies either drive up the cost or reduce the quality of the output.

inefficiencies like working across time zones, language proficiency issues, cultural differences, throwing things

across the fence, and so on. But the

benefit of lower labor costs, more often than not, it outweighed all of those inefficiencies. So classical outsourcing

inefficiencies. So classical outsourcing span across a wide range of tech services like IT, engineering, BO and so

on. As such, classical outsourcing

on. As such, classical outsourcing represents more than 75% of India's total offshore revenue. And from what I

heard, this outsourcing model is in total meltdown mode now due to AI. The

issue here is that the vast majority of work done by outsourcing companies is lower value cognitive labor. Think of

work like data entry, handling simple billing inquiries, creating simple crud web pages, things like that. This kind

of lower-end work is in the perfect sweet spot to be replaced by AI tools like Claude. So why would an American

like Claude. So why would an American company pay an Indian outsourcing company to do something when that same American company can get their in-house

employees with the help of AI to do the same thing for much cheaper? And guess

what? By doing this, the American company can usually avoid that set of headaches and inefficiencies that comes with the offshoring process and they may

end up with a better product or output because of it. As such, according to my colleague, many Indian outsourcing companies are now facing a shrinking

pool of contracts to work with. Because

of the shrinking amount of work, these companies are now forced to lay off their existing staff via mass layoffs and also to essentially halt the hiring

of junior engineers entirely. Now, let's

move on to global capability centers. A

GCC is like a dedicated offshore extension of an American or global tech company. Think Google or Oracle and so

company. Think Google or Oracle and so on. So a GCC is fully integrated into

on. So a GCC is fully integrated into the parent American company, right? So

it would have a matching corporate culture and organization and a GCC is really meant to do higher value work, right? Things like core product

right? Things like core product engineering or product development for India. GCC's represent just under one

India. GCC's represent just under one quarter of total offshoring revenue today. Now, GCC's are also being

today. Now, GCC's are also being disrupted by AI, but they're being disrupted in a different way.

Fundamentally, higher valued work requires higher skilled employees, right? Think software engineers with a

right? Think software engineers with a decade plus of good experience. The

availability of AI tools in these GCC's, it greatly amplifies the productivity of these higher skilled workers. So GCC's

are not shrinking rather they're actually growing right now. But the

problem is that out of the entire offshore workforce only a small fraction of that workforce can do this higher

value engineering and IT services work.

A company like Google, if they were to set up a GCC, they're not looking for some guy who can bang out Java code based on instructions. They're looking

for people who can solve hard problems. And the truth is that's just not the majority of today's offshore workforce.

So the competition to get into a GCC is very intense. So in this way, GCC's are

very intense. So in this way, GCC's are kind of cannibalizing the rest of India's offshore ecosystem, right? It is

doing that by taking away the most skilled and the most capable workers from that existing ecosystem. It

essentially almost inhibits the rest of the industry from rising above and beyond lower value cognitive work. And

by concentrating so much human talent in the hands of just a small number of global tech companies that concentration

in itself becomes a danger and a risk. A

global big tech company can decide to deploy their GCC's towards unprofitable directions, right? It can decide to

directions, right? It can decide to underutilize their GCC's or maybe not use them for anything at all. Big tech

companies can and have in the past spent billions, tens of billions of dollars to do nothing at all. Now, if at some point

in the future, due to whatever arbitrary reason, an American tech company can close their GCC's, then it would

essentially wipe out the core of the offshoring technical talent base in one shot. So, that was a heavy conversation.

shot. So, that was a heavy conversation.

And after our chat, I was lost in my own thoughts for a bit. The bottom line here is that AI is doing massive damage to offshoring and it may just kill off the

entire offshoring industry. And here's

the thing, I've worked with lots of offshore folks over the years and I really feel bad about this. The

overwhelming majority of offshore workers that I work with, they're hardworking, decent guys. most of them are just trying to do right by their

families. So, I gave this problem a bit

families. So, I gave this problem a bit of thought and came up with a few strategies to help out the offshore tech

workers. Now, guys, please keep in mind

workers. Now, guys, please keep in mind these are coping strategies. So, all of them, as far as I can tell, have

massive, massive drawbacks. So, here

goes. One strategy is to get yourself into a GCC. Now, not everyone can get into a GCC, right? This requires

learning new stuff, new tech skills, polishing your English language skills, learning AI tools, learning to be a higher order problem solver, and so on.

But for those of you who do get in, you may have years of job stability at a relatively higher pay. I think this strategy would work better for workers

based out of places like India and Latin America, right? Places where global tech

America, right? Places where global tech companies are expanding their GCC's right now. Now, one obvious drawback is

right now. Now, one obvious drawback is that only a small fraction of the current offshore workforce can get into GCC's. So, the competition for these

GCC's. So, the competition for these positions are very intense. Another less

obvious drawback is that you're going to essentially lose your autonomy, right?

As the entire operation will fall under the control and direction of people from another continent. Now, another strategy

another continent. Now, another strategy is to switch from outsourcing to insourcing. What do I mean by

insourcing. What do I mean by insourcing? Well, you have the current

insourcing? Well, you have the current global really American tech ecosystem, right? And most offshore workers, they

right? And most offshore workers, they service this ecosystem. But other

countries and blocks of countries are trying to create alternative tech ecosystems of their own. The most mature alternative tech ecosystem is the one

that China is building right now. They

have their own big tech companies along with their big tech platforms, right?

But they also have most of the endto-end underlying industrial chain that support these technical platforms industries like electronics and semiconductors and

so on. The European Union also seems to

so on. The European Union also seems to be moving in that direction, the direction of acquiring digital sovereignty over their tech platforms

and their data centers. So for offshore workers based out of places like China or Eastern Europe, one viable strategy

is to pivot your technical services to service your own country or your own local region. That's the concept of

local region. That's the concept of insourcing. Now obviously there are huge

insourcing. Now obviously there are huge drawbacks, right? These alternative tech

drawbacks, right? These alternative tech companies are not going to be as wellunded as American big tech giants.

competition for these jobs are still going to be insane because AI is impacting everywhere right now. Plus, in

some regions, there's a real urgency to decouple from the American technology stack as soon as possible. So, following

this strategy might get you a job, but the job might have like a 996 work culture along with a huge pay cut. But

hey, it's at least one way to stay in the tech industry. Finally, immigrating

to a highincome country is a viable strategy for offshore tech workers. The

obvious benefit is the higher income and the possibility for a better life. But

there are some major downsides to consider. As someone living in the

consider. As someone living in the United States, I'm going to be honest, we got lots of big problems of our own to solve right now. So having large

numbers of immigrants entering the American job market is likely to anger a huge number of Americans right now. So I

can't imagine that it would be very easy to immigrate here at this moment. And

moreover, even if you do get into America, I don't think you'll be welcomed with open arms by the majority of the population right now. They're not

going to be rolling out the red carpet at the moment. Now, it could be different in other developed countries.

I don't know. But this is just the vibe that I'm getting in America right now.

At the end of the day, people just have to do what's best for themselves and their families. And that's really all I

their families. And that's really all I have to say about this topic. Hope it

helps. Anyways, if you have a morbid curiosity to join me in this life journey, please feel free to subscribe to my YouTube channel and subscribe to my Substack newsletter. If you would

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Anyways, thanks so much for watching.

Talk soon. Bye.