Businesses overlook the downsides to offshoring

Offshoring is not always the
cure-all solution that many companies believe it to be, according to new
research released this week by The Work Foundation.

its new report – ‘Outsourcing and offshoring:
Implications for organisational capacity’ – the think-tank suggests that
although outsourcing and offshoring
are now accepted and widespread management practices, not enough is known about
the consequences they have on productivity, performance and capability.

companies are definitely taken by surprise," said Stephen Bevan, director of research.
"People automatically look at the cost benefits of offshoring, but forget to consider that the
management skills needed to run a profitable offshoring element might be quite different to the
skills that managers need on more familiar territory.

is also a tendency for businesses to underestimate what they’re giving up in
the UK,"
he added.

found that although offshoring does produce cost benefits, they are not
as great as might be anticipated. For example, equivalent wages in India
may be 80 per cent lower than those in the UK,
but the overall cost benefit of offshoring
is only in the region of 30 to 60 per cent.

not saying that UK
businesses shouldn’t consider offshoring",
said Bevan. "Indeed,
we think offshoring as a
business practice is probably here to stay, and we’re already seeing it
crossing over into new sectors such as pharmaceuticals. But it’s not an easy

Work Foundation has the following advice for companies that are considering offshoring:

Look closely at which country to go to and which offshoring company to work with, and the costs associated with
this search

Account for the transitional costs, both of setting up a new operation and closing
down an old operation – ie

Consider carefully how you are going to keep both parts of the business in
touch, and how much this co-ordination will cost

Bear in mind that drawing up contracts will be more costly and time-consuming than
it is in the UK,
and possibly more unpredictable

Consider that you may lose control of certain parts of your business

Look carefully at the potential loss of reputation for your brand that may
occur through outsourcing, for example, a call centre

Remember that by closing down part of your business in the UK
– such as an admin department or a call centre – you are losing part of your
infrastructure, and therefore capital assets

  Remember that offshoring can be an inflexible option. If it
doesn’t work for your company, it will be problematic and costly to move to
another offshore location or bring the work back to the UK.

By Quentin Reade

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