A hot topic of “offshoring” in the 2nd US presidential debate 2012 between Mitt Romney and current president Barrack Obama has made us aware of the fact that today’s economic climate is rapidly changing, causing an overall shift in the way companies outsource abroad. Barrack Obama announced a plan to remove outsourcing benefits in an effort to stimulate the US economy; consequently SMEs are reshoring their production and IT workers. Cliftonmoore gave a good insight into the outsourcing offshore (O&O) markets; India and China being the two leaders in the outsourcing market today. Due to the growing demand of companies needing to outsource offshore has significantly increased the labour cost of India and china’s workforce. This has turned firms looking to outsource to alternative countries with cheaper labour costs possible options like Eastern Europe or South America. But by no means is labour cost the only factor that is taken into consideration, India still remains the top of the O&O market today due to India’s unique benefits that other’s in the offshore business just haven’t been able to keep up. India boosts it is ideal in the offshore market due to its abundance of engineers, large English-speaking population and historical ties to Western countries, as well as it’s relatively low labour costs and has been doing it so before anyone else, China hot on their heels.
BDO USA LLP survey 2012
Although outsourcing is very much evident with 62% of outsourcing being offshored to India, outsourcing in the U.S technology industry has declined for the third straight year in a row. There has been a notable shift from 2009 when nearly twice as companies were outsourcing services and manufacturing offshore this has dramatically reduced.
““Bringing services and manufacturing back to the U.S. is also a smart move for tech companies looking to improve the quality of service and reduce exposure to international risks and major supply chain disruptions.” Paul Heiselmann BDO USA LLP
But it’s not a case that outsourcing has taken a 180 degree turn from offshore to onshore. The majority of outsourcing is still done offshore but a recent shift in firms reshoring has emerged due to different factors be it to for competitive gain or standardisation. Factors that have led to reshoring outsourcing:
- Time and cost of training out-house employees offshore
- Technical capabilities lost due to outsourcing offshore
- When quality and performance outweighs cost of labour
- Miscommunications leading to incorrect deliveries
Taking for example GE who has been offshoring it’s IT outsourcing to India for the last 15 years. More than half of its IT work was taken out by non-GE employee, but in 2009 GE made the strategic move to regain some of its technical capabilities lost as a result of outsourcing offshore. (CIO.com) Has quality and performance qualities that results from inshore outsourcing outweighed the added value that traditional offshore outsourcing offers to firms. Leading up to the recession and the troubled economy it created offshore outsourcing was the common strategy put in place which ultimately cut costs and maximise ROI. Is the tide slowly turning and how will this affect the western economy; possible deflation in wages, increased blue collar jobs, a lower cost of living? All things we have to think about in the future.
So Opinionated ... 
Its just what the current trend is at the moment. The information age has seen the most employment in the services sector as opposed to the manufacturing sector and I’m sure that over the next 50 years a new trend will develop. At the moment the cost of labour in the western world simply necessitates the need for outsourcing.
Do not fall for the argument that high labour costs are significantly inflationary. Labour costs are even in office environments still at an acceptible level to not require outsourcing.
Talking about the low cost of labour in South East Asia ignores the fact that these countries provide a significant investment in manufcturing and service sectors as part of a symbiotic and proactive strategy.
Looking at the UK for an example of distorted policy decisions the Govenment announced the outsourcing of 500 IT roles to handle the new Universal Credit system:
“Workers in Bangalore and Mumbai are being hired by the outsourcing firms Accenture and IBM to help design and maintain a delivery system for universal credit, internal documents show. The Department for Work and Pensions (DWP) signed contracts with the two firms reported to be worth £525m each in December.
The disclosure appears to contradict assurances from the employment minister, Chris Grayling, who told parliament in November that he would not allow his department’s major IT projects to go abroad.
Union leaders and MPs reacted angrily to the disclosure. Mark Serwotka, leader of the PCS union, said: “With unemployment high and still rising, ministers should be taking every opportunity to create skilled jobs, yet it appears plans are already well advanced to offshore the development of what is supposedly their flagship benefits system.
“This not only raises questions about the government’s commitment to getting our economy moving again, but also about the pledge the employment minister made to parliament.””
http://www.guardian.co.uk/politics/2012/mar/23/it-staff-india-benefits-system
FYI, this is the same Ian Duncan Smith who is featured inthe editorial cartoon for providing reforms that cost more to have them doing non jobs than even being on benefits:
http://www.guardian.co.uk/discussion/comment-permalink/19727268
Returning to another example of outsourcing, this time with a focus on privacy issues:
“The government has secretly agreed that the “particularly sensitive” personal data of all 43 million drivers in the UK can be contracted offshore to India in a move that will allow the private firm running London’s congestion zone to cut costs and make more money.
Data from the Driver and Vehicle Licensing Agency, including addresses and registration plate numbers, along with credit card details, will now be accessible to staff outside the UK following a review by ministers.
The prohibition was rescinded after IBM, which runs the congestion charge zone for Transport for London (TfL), lobbied for a change. The company has been repeatedly fined since it took over the contract from Capita in 2009, making the £60m deal less profitable than it had hoped.
However the move to relax the rules around the sensitive data, which has not been publicly announced, raises concerns in the build-up to the London 2012 Olympics about the increased risk of fraud.
It is understood that a risk assessment carried out within IBM has also identified a potential threat to London’s reputation should the changes lessen the ability of staff to deal with problems in the congestion zone IT systems. It also warned of the risk to the security of sensitive data.
The move also appears to contradict ministers’ recent insistence that they would resist any work on government contracts going abroad.”
It is evident that for little saving for the customer (the taxpayers) there will be a lot of risk and trauma given the extent of data loss and appropriation which happens in India (partly as a result of IT staff there being paid so little!!!)
http://www.guardian.co.uk/technology/2012/mar/18/drivers-data-to-go-offshore