Where next? An offshore, nearshore and domestic debate (part one)

The general perception over the last decade is that multiple corporations have outsourced jobs offshore to save overhead and improve margins, if it was as simple as that wouldn’t most businesses be looking at record profits and shareholders breaking down the door to invest in such a successful strategy. As with most things the reality is quite different – the tides of economic change make this an ever altering balance. The rush to share in overhead reductions did see unprecedented efforts to move many roles offshore to foreign markets especially in Asia. On paper many companies saw an immediate savings that simply had to be pursued, however on paper my favourite baseball team would be in the playoffs every season – things don’t always work out as planned. Nothing on paper allows for an injured player – nor do most budgeting forecasts allow for the most expensive issue of all – unhappy customers.

Outsourcing and off-shoring are complex ideas that need to be studied via a working case study or economic model before you can best assess the outcome of making such decisions. Many businesses are finding out in the worst way possible that the scale or type of off-shoring was not the ideal for their clients due to service issues, the worst way? They are finding out after making the change. Price and resultant savings drove many decisions initially, in a competitive market few things will get approved more rapidly than those marked ‘savings impact 25%’ (or more). The models may have called for staffing levels that were unrealistic, not identify gaps in technology, under-budgeted for training in cost and time commitment, difficulty in remote management and customer impact. The negative impacts to customers in service levels and satisfaction are difficult to assess in advance, the entire transition can take place before the first unhappy client is writing an email to complain about the ‘new service platform’.

2000-2006 saw an amazing rush to move offshore by American business, 2007-2009 has seen business return in many cases or a hybrid situation being reached. The last few years have also seen the return to outsourcing on a regional basis or nearshore outsourcing. Regional outsourcing was the first model that grew in the 1970’s-1990’s – the price of conducting business in New York or California could be double the overhead of operating business units from Kansas or New Mexico. Companies looked to consolidate customer service centers, IT and accounting to larger centers where the cost of living was lower. The economy grew and companies were saving on running costs, the clients were not impacted and everyone was apparently satisfied. The events of those decades actually formed a blueprint for offshoring work that we’ve seen more recently. Executives asked “if I can 35% by moving positions to New Mexico how much more can I save by moving them to Manila?”. In pure fiscal terms the answer was more money could be saved and the second phase of outsourcing was underway.

In recent years another option has re-entered the market that is gaining in popularity – nearshore outsourcing to Canada and Mexico is bridging the gaps in many areas. For Canada the issues with English as a first language are resolved while US based business are not funding health insurance, payroll taxes and recruiting (not to mention infrastructure costs of space and equipment rental). Benefits are also seen (along with Mexico) in working within the same timezones and a reduction in travel costs, eased ability to meet and teleconference and the cultural crossover that can benefit customers. Better cost analysis and strategic planning is seeing more business move to a nearshore platform.

In part two I’ll look at some statistics that debunk some of the myths about what is happening with outsourcing and attempt to predict what we may see in the years ahead.