These are turbulent times for anyone associated with offshoring. For many years, a wave of offshoring was driven by the financial services industry. Banks and insurance firms needed armies of back-office staff to process accounts or claims and take calls from customers. Yet these are the organisations hardest hit by the credit crunch, and now that the crunch has escalated into full-blown recession, almost everyone is suffering. So what is happening to offshoring now?

Offshoring is doing just fine. As the scale of this crisis started to become clear, most company executives initiated cost-cutting measures. The road to survival in a recession depends on both reducing ongoing costs and being able to fix future costs with some predictability. Outsourcing, and particularly offshore outsourcing, allows this and so even though it has been taking longer to get budget approval, major projects are still being approved.

Offshoring is not, however, a panacea, and experience has not helped everyone. Many have tried and failed to make it work, especially where long distances and unfamiliar territories or cultures are involved. All too often a business case with an unrealistic expectation of savings drives the relationship, rather than a realistic acceptance of what is possible. When the main driver for the work is just a reduction in operating cost, and the transition to working offshore is also fraught with the potential for error, the chance of reducing service quality is very high.

Offshoring also needs stronger governance than typical outsourcing deals, though there are many ways of structuring a relationship. Tools such as key performance indicators or service-level agreements (SLAs) are common standards. And if the offshore delivery is outsourced to a third party, these standard agreed measurements are essential.

It is still fairly normal to have a project management office overseeing the interface between the onshore and offshore teams, but the interface is less fraught than it used to be. If the teams are sharing the same system for their work, there are few practical difficulties ­ the offshore team could just as well be in an office down the road. The internet itself has become a reliable and robust network for knitting together virtual teams, where before it might have seemed impossible to do this without a complex internal network.

So what is really changing? I’d suggest that there are three major areas of offshoring that are changing now.

The first is the trend towards nearshoring. There was a big rush to go offshore early this decade, particularly to India. But the time and expense of travelling to remote locations has been noticed. There is a definite swing towards using offshore partners that are at least much closer and can be visited easily.

Knowledge process outsourcing (KPO) is another area where I am noticing a difference to what was predicted. KPO is the higher-value, more complex services, such as research or analytics. This was going to become more significant than the humdrum business process outsourcing (BPO) sector ­ but it never happened. The reason? Because clients are scared of outsourcing these very high-end processes to firms they do not know. They will outsource these processes to partners they trust, so the real potential is for those humdrum companies to expand the range and depth of their services ­ not for lots of new startups to expect KPO contracts.

The consumer backlash against offshoring has continued and this has changed the strategy for many. Initially, it was seen as a bonus to offshore a company function such as the customer service helpline to agents in India. The call centre agents are better qualified than locals, highly intelligent, and cheaper. It all seemed perfect, but consumers hate calling their bank or insurance company and hearing someone thousands of miles away dealing with their details.

These consumer concerns have shifted the thinking of most companies so that offshoring of high-touch consumer services to an offshore location is becoming far less desirable, even if other services such as IT remain acceptable because consumers have no idea where their bank locates its IT infrastructure.

Africa is the story really waiting to break. I have recently been to Nigeria and I’m planning to visit Kenya soon. These are places where a huge number of smart young people want to work in high-tech services and the infrastructure is now starting to catch up. Once customers get over their initial fear of working with partners in Africa, it’s going to be the next big thing in offshoring.

With new regions looking at the success of India, and the recession causing an intense focus on operational cost, it is likely to drive more offshoring in the near future. The future for most suppliers in this market is bright, provided they can deliver a quality service at the right price.