Once again I read several things at once on the same topic, which caused me to think again and maybe to question circumstances. It could be the case that after reading the first piece, I started looking for more on the same topic, or is it that in this ‘online’ world, a first question creates a series of responses? Maybe I am just adding to it, but let’s see if I can add something new to an argument that started on cost, has become political, and even now gets used occasionally as a sales differentiator – as in ‘our call centres are all in your country and not someplace else in the world’.
The starting point was John Jordan in his excellent blog called ‘early indications’, which re-examined the case for offshoring work from the USA. He argued that the original case had been purely financial, but with time and scale it seemed that the original calculations were incomplete. John started with the base financial calculation, which assumes a savings of $400,000 per job, per year, and points out that for 3,000 workers, that means over $1 billion a year in cost savings – a point at which the case would seem to be irresistible to any hard pressed enterprise with active shareholders.
However, he then identifies eight further factors, with a reason for each as to why they can impact the actual cost savings. He concludes by saying the financial case for offshoring remains good even with these factors, but a lot depends on whether these factors are included, and that at least some of the factors have become highly dynamic and could change the whole justification for offshoring. I will list the eight factors, but I urge you to read the full blog and John’s reasoning at http://earlyindications.blogspot.com/. The eight factors are: Inflation, Loyalty, Coordination, Technology, Perception, Currency, Corruption and Risk.
The second piece was again from a good and consistent source on this topic namely Bob Kennedy, author of the book ‘The Services Shift’, who has maintained a kind of running commentary on the whole topic, but chose to make his end of April piece around the political consequences of offshoring, something not in John’s eight factors. Bob again identifies that with time and the global downturn, the topic of offshoring jobs has become a hot political subject, but concludes that, in spite of the pressure from workers and unions, nothing has happened yet. Bob states this is because of the simple reason that politicians find it nearly impossible to regulate global trade without harming their own economies, and in particular, find it very had to define the ‘services’ element of trade.
The third new piece on the topic is about manufacturing rather than services, but it introduces the key question in the light of the changing set of circumstances already identified. The piece that I am quoting from is a detailed paper examining the issues of ‘far shore’, and again I urge you to visit http://www.logisticsmgmt.com/article/CA6649196.html and read the full paper as it takes all of the arguments and puts them together. So what is it that caught my eye? Quote: Are we implying that far-shoring is no longer a viable strategy? Not at all. The point is that worldwide economic problems and changes have drastically altered the cost dynamics associated with manufacturing and distribution network strategies. So much so, in fact, that companies may no longer assume that far-shore operations are less expensive in the long term.
So new factors are in play that didn’t affect the first wave of offshoring and might now take some of the appeal out of continued offshoring, but at the same time, they all seem to agree that overall the trend will continue. But does it have to be all or nothing in this question of where to place work? There is a hidden thread in all three pieces, and that is the technology shift, meaning that increasingly you can coordinate pretty complex elements into a cohesive outcome, and that’s the argument for ‘right shoring’. When you buy from IKEA and get several packages that together make up the product, this is a kind of ‘right shoring’, as each package comes from a different company with the expertise on that particular part (okay, no jokes about IKEA and flat pack at this stage, as it clearly works well given their growth around the world).
In the services industries, we have few of the limitations, and we should take a long look at how to move to phase 2 of the requirement to find the right place to do the work. We can use all of the factors identified, plus some new ones around localised markets with their own differentiations, to be accommodated with the mainstream work. With the rise of ‘services’ and ‘clouds’, the delivery shift towards ‘everything as a service’, XaaS, to say nothing of new pressures on economies and costs, now does seem to be the right time to revisit the topic.