Citi has sold its Indian captive to Tata and Lehman has sold its Indian captive to Nomura in two of the largest (and what may be two of the only major) sales of US-owned captives. See this article in InformationWeek.

In the Citi deal, the center will continue to provide services to Citi under a 9.5 year, 2.5 billion dollar contract. Nomura's intentions are less clear, although one can expect that they will seek to leverage the high end back-office expertise that Lehman was famous for.

Because of the financial crisis and the marked reduction in demand among financial services firms, InformationWeek was bearish about future transactions of this type. Large centers dependent upon the American market may, however, face tough times as the US begins to look inward for jobs and financial stability.

Writing in IT World Canada, Arpit Kaushik talked about the end of the "golden age of offshore outsourcing and the beginning of the age of truth and rationality." The article is part doom-and-gloom and part hope, in many ways similar to the analysis of a forest after a major forest fire. After such a cataclysm, the "dead wood" is cleared, strong trees are injured, but survive, and new shoots will reinvigorate the forest. What is the fertilizer for such new growth? In a word, value.

In recent years, outsourcing and offshoring was all about labor arbitrage - reducing high-cost headcount with offshore headcount at some multiplier. Theoretically, the idea made lots of sense, but survey after survey have shown disappointment in the overall cost-benefit ratio, missed targets and business problems exacerbated by long "supply lines" (if information is the supply, communications is the supply line).

After the "fire" that is the financial crisis ebbs, the outsourcing world will change. Even Forrester's own John McCarthy has said that the scale of the crisis has rendered all previous studies, including their own, "redundant. Companies that fed upon maintaining these inefficiencies will die - they are the "dead wood" of outsourcing. The "strong trees" will survive, and many new "shoots" will spring up. The most successful of those shoots will offer true value that exceeds their costs.

In a recent article, SF Gate reported that outsourcing is "partly to blame" in many data thefts. Citing security "data sleuths" at Verizon Communications, Inc., the article describes a "typical" case, where an employee of an outsourcer was found to have used a customer credit card.

What is troubling about this article is the headline, "Outsourcing blamed in many data thefts" which is not really supported by the substance of the article, which indicates that outsourcing is sometimes involved, but certainly neither always nor in a majority (or even significant) amount of time.

With outsourcing being one of the poster-children for the cause of job loss, inflammatory headlines like this will get noticed. However, SF Gate should know enough to ensure that the assertion is backed up by sufficient facts - and should provide some more specificity in such facts, before tagging the story with an obviously inflammatory headline.

This week, ZDNet published an article entitled "India's Outsourcing Bubble is Bursting" - describing the slowdown as it effects the IT Outsourcing labor market in Bangalore. While it doesn't appear that Bangalore is in the full throes of doom-and-gloom, the article points to key indicators of a slowdown - falls in housing prices, stabilizing salaries, and many more people looking for work.

The article points out, however, that the slowdown may have some positive effects on the outsourcing business - particularly a reduction in turnover. Furthermore, some are seeing an opening to better compete with the Accentures, IBMs and HPs of the world - not a far-fetched possibility as customers already accustomed to outsourcing get aggressive in looking for better deals.

The real key to competing with these companies is not in the back office, but the management infrastructure. Accenture, IBM and HP are expert at managing relationships, and companies have been thus far been willing to pay for that expertise. This is where the Indian and Philippine outsourcing companies have, frankly, fallen short.

Offshore vendors may want to look at this time as a time to invest in their US presences, rather than scaling back. True, it may be a zero- or negative- sum game, but the opportunity may be there to grab a far larger piece of the pie.

In a recent article, ComputerWorld pointed out that the current crisis on Wall Street may encourage more college students to consider careers in computer science. While this career choice was very popular during the 80's and 90's, the dot-com bust discouraged many from studying computer science, with this talent instead going to the financial industry.

As these technology students enter the workforce, they will present signifiant competition to both H1B workers and higher-level offshore positions. It is a trend that bears watching as the markets re-align themselves and refocus on their basic businesses.

For about the last ten years, many corporate decisions were guided by (or held up by) concerns raised by the finance department. Many of those "on the ground" were perplexed by these decisions - some of which included outsourcing otherwise-well-functioning departments for what appeared to be illusory budget dollars. The inside workers often felt as if the decisions were being made for reasons completely separate from the fundamentals of their business, growing frustrated with their inability to perform well to reach success.

During these times, it was near-gospel that corporations began to look at themselves less as producers of goods and services, and more like a "network of relationships." As they focused on their "core business," that core became smaller and smaller. I remember discussing this with an insurance executive who had outsourced customer service and claims processing, and was looking further to outsource finance. I asked "if claims processing and customer service aren't core to an insurance business, then what is?" Needless to say, I got no answer.

While the fall of the financial markets is, by no means, a good thing for the world's economy (virtually nothing this disruptive is good for economies in the short term), it may prove that this large bump in the road will put corporate finance "in its place" in many corporations. Ultimately, this could be good.

The move to this approach no doubt encouraged a lot of the sloppy outsourcing that we've all seen. After all, one could maintain the network of relationships while moving the instruments of production to lower-cost environs. It all looked rosy - for corporate finance people (who are, by their nature, less focused on the product and service), to shareholders (who turned a blind eye because of the profits), to executives (who profited handsomely) and to government (who rode a wave of popular support as values went up). Even some in my usually-suspicious profession, the law, joined in. What a difference a few weeks make!

It turns out that all of that creative financing - all of that wringing "value" out of relationships - may have proven to be a house of cards. Products, services and customers really do matter. Good companies are more than a "network of relationships." In fact, they must be, or there is nothing left to hang onto when the winds change. The current changes in banking - where real value (customer deposits and core banking) are being separated and sold off - are indicative of this change. It turns out that taking deposits and providing general bank services are the "core business" of banking. Who would have guessed?

Bringing it back to outsourcing, this could be both the best and worst of times for outsourcers. Best at least for those outsourcers who's primary business was to build value into their products and services - in a marketplace where illusory value becomes tarnished, real value will shine. Worst, however, for those who grew exponentially by feeding on their customers' desires to move away from the production of products and services to a "network of relationships" approach - many of these "networks" will prove fleeting.

At the end of the day, we all knew it had to end at some point - that we'd roll the 7 or 11 before long. We'll see if the end can be softened.... but it looks like we've reached it.