Ongoing debates, discussions and reports on offshoring – the definitions of which include ‘relocation of business processes to a cheaper location – usually overseas’, and ‘substituting foreign for domestic labour’ – continue to attract the attention of politicians, union groups and us HR folk. Indeed, it was firmly on the union leaders’ agenda for their recent discussion with Tony Blair in the run up to the G8 summit.
But why the current interest? This trend has been around for at least a couple of decades. Yet, with the ever-increasing speed of technology, falling communication costs and the ease with which we can now commute across national borders, our level of interest has started to reach new heights.
Without doubt, there is a fear that offshoring will mean significant job losses. That is why it was interesting to read recently in a World Trade Organisation report that it believes the loss of jobs to low-income countries and the resulting negative economic impact have been greatly exaggerated. A 2004 McKinsey report supported this, calculating that for every dollar spent by the US on service work from India, the US economy gained $1.14 in return.
Initially, offshoring was probably about cost reduction and a requirement for round-the-clock availability. But things have changed, and while smaller costs are still available, there is now a bigger prize. Access to qualified labour, high service standards and extreme flexibility to cope with peaks and troughs in demand are just some of the benefits to be gained from offshoring. But is it right for your business?
There is no ‘one-size-fits-all’ answer to this. Offshoring needs to be part of a bigger picture, and should be part of your operating delivery model.
Perhaps it is worth asking some simple questions if you feel that you need to improve efficiencies, cut costs and increase flexibility, while improving service in any part of your operation. Have you fully utilised your scale of delivery, created common processes, deployed best practice, removed duplication and exploited technology to help gain competitive advantage? If the answer is no, you could create a shared service within a region where you operate (on-shore) or, if applicable, create a shared service that can deliver across borders where you operate (near-shore).
And if you do not have a current location in a low-income geography with the skills that you need, you may wish to create your shared service in another location (offshore). Many organisations that I have studied stood to gain just as significant an advantage by creating internal shared services – on or near shore – as they would have done by offshoring.
But perhaps the more important question is: ‘Do you have the time, know-how or investment available to do any of the above?’. If the answer to that is no, perhaps it is time to consider outsourcing.
By Alan Bailey, group programme director, Siemens Business Services