In one of my favorite recent articles, Victor Gomez of the Dallas Morning News discussed the troubles faced by the big three Dallas-based outsourcing vendors, EDS, ACS and Perot. All are feeling the heat from Indian-based vendors, and are blaming the cost differential for their problems.

I would like to suggest that they are missing the point here. Many customers dealing with any of the Big Three express frustrations linked to inflexibility, top-heavy bureaucracy, and difficult, tedious negotiations. Certainly, that has been my experience with them.

Contrast this to doing a deal with an Indian outsourcer - even a large one - and one of the main differences come clearly to light. It is much easier to get into a relationship with an Indian outsourcer than it is an American one. Much easier.

Furthermore, the management strategies of the big three fail to differentiate themselves during the ongoing contract and relationship management cycles. The deals are not generally easier than Indian deals for customers to manage, nor are they substantially more effective in purpose than Indian deals. It isn’t that the quality or customer service offered by the big three is inherently worse than that of the Indian vendors - its that it isn’t substantially better.

Finally, these U.S. companies do not offer their services at the lowest price. They are rarely the lowest-cost bidder, and while prices are coming closer together, they still charge a premium for the services that they render.

The combination of these three factors - difficult deal-making process, failure to differentiate themselves by offering better quality and customer service, and a premium price make the big three’s offerings somewhat less compelling in the open market. As Indian firms become more savvy in the U.S. market - something that comes with experience - this problem can only get worse.

We have experienced this cycle once before - in the auto industry. Japan entered the market with cars that were small and cheap - and not up to the quality standards of American vehicles. Detroit, instead of pushing quality and the customer experience, competed on price - a strategy that was doomed for failure from the start. The Japanese automakers understood that, once they got their toehold, they could push the envelope on quality and service, and still retain a price advantage (albeit smaller). Now, tables are turned and Japanese cars are perceived as quality and value leaders - and are competing on price only in the luxury segments.

Ultimately, to turn this trend around, the big three companies, like all American outsourcing companies, will need to become more fanatic about quality and customer service than of the quarterly revenue cycle. More fanatic - much more fanatic - than their Indian counterparts. Moving the debate from cost to quality, customer service and value will play to such company’s inherent advantages - proximity, common culture and a better understanding of the underlying business. Failing to recognize this simple fact creates a Detroit-sized risk for American IT outsourcing firms.