Global Outsourcing Revisited

Sept. 1, 2009
The term “Outsourcing” became part of business lexicon during the 1980s. Prestigious consultants such as Boston Consulting Group insisted that not outsourcing offshore was tantamount to missing out on a major strategic benefit.

Outsourcing does not necessarily guarantee cost savings, and can often produce disappointing results. Typically, it is a short-term expedient and most of the benefits accrue outside of the company. Several global outsourcing problems deserve to be highlighted:

•   Cost Expectations: Many assume cost savings equal to wage comparisons, without regard for the hidden costs and operating differences. The costs of travel and training, infrastructure planning and deployment can be substantial.
•   Transfer costs: The time and effort to transfer knowledge is a cost rarely accounted for. Problems include language (or accent) problems, different local labor laws and sometimes even political instability.
•   Security: The risks of information technology security breaks are inherent when working with vendors literally thousands of miles away.
•   Knowledge and Intellectual Property: Potential loss of intellectual property and business process secrets. China, in particular, lacks laws to protect companies’ intellectual assets, and even demands IP disclosures for large-scale manufacture.
•   Product Safety: Other countries do not have regulations as stringent as those in the United States or Europe.
•   Corporate Culture Change: Major miscommunications often arise because of different attitudes toward hierarchy, decision-making styles, approaches to completing tasks and attitudes toward resolution of disagreements.

In the current recessionary U.S. business environment, global outsourcing has a negative connotation. It means firing American workers and shipping jobs to less-developed countries where wages are lower and labor laws are more lax. The attitude among U.S. employees is understandably defensive and critical. With U.S. unemployment rising above 10 percent, and estimates of real unemployment (including part-time workers) climbing to more than 15 percent, the idea of cutting American jobs and shipping them abroad is offensive to many. The mooted “savings” incurred by outsourcers simply isn’t enough to warrant the human cost.

Proponents say that the outsourcing trend is an example of a natural job-market shift and is to be expected in a capitalist society; the lost U.S. jobs will eventually be recovered by a combination of natural market forces and the improved economy. In other words, skilled American workers will be forced to switch careers and/or take lower-paying jobs. It’s a “Catch-22” conundrum.

Outsourcing substitute

The time to seek substitutes for global outsourcing is now. Several choices exist today. There are domestic outsourcing alternatives that are both financially sound and good for U.S. workers.

In a recent eNews, Tangela Coon-Miller provided some thoughtful insights on the future of globalization: “I’m just wondering if globalization would work without cheap exploited labor in the equation. Would it work if companies in other countries had to comply with the same environmental laws and safety regulations? Would it work if they all had to comply with the same workplace rules and regulation, paying a fair wage and fair work-week hours? I rather think it would NOT.”

A more enlightened, strategic view of global sourcing is starting to emerge as managers get a better fix on its downsides as well as potential. The new buzzword is “transformational outsourcing.” Many are discovering that outsourcing is really about corporate growth—making better use of skilled U.S. staff, and even job creation in the United States, not just cheap wages abroad. The cost savings from global outsourcing are small compared to the enormous gains in efficiency, productivity, quality and revenues that can be achieved by fully leveraging local as well as offshore talent.

Jim Pinto is an industry analyst and commentator, writer, technology futurist and angel investor. You can e-mail him at: [email protected]. Or review his prognostications and predictions on his Web site:

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