Offshore outsourcing (often called offshoring) often gets a bad press. Many people assume that offshoring must be all about finding the lowest cost service and therefore the world is engaged in an endless race to the bottom, searching for lower and lower costs.
It’s not like that at all. An interesting article in the business magazine Forbes challenges the conventional wisdom on outsourcing. For instance, even though the US and Europe account for about half the economic activity of the entire world, only about 10% of the global population lives in these two regions.
This means that there are an enormous number of highly skilled people outside the wealthiest nations on earth. Working with this talent is essential because of the difficulties involved in finding these people locally.
And many companies are more globally oriented today. If you wanted a new logo designed in the past then it would be done by a local designer, now it’s done anywhere in the world based on finding a designer you like. Any intellectual task can now be performed anywhere in the world so the issue today for companies of all sizes is that if you are not working globally then how are you finding enough skilled resource to keep you ahead of the game?
And finding the right talent to support your team back in headquarters is only half the story. If you want to expand to new markets, what could be better than working with a team of people in those new markets to give you a footprint and a first step into the new region?
Offshoring has often been misrepresented, but it is now an essential part of corporate strategy that aims at making the skills of the entire world available to clients, wherever they are located.
In the past three years or so, since the initial credit crunch and then global economic slowdown, outsourcing as a business strategy has taken a knock.
It’s not that there is anything wrong with it as a strategy. It’s just that outsourcing usually involves change, some change in processes and the way things are done. That needs planning and transition, so even if the future state saves money, many firms have declined to go through the process of getting there while survival has been the priority.
If you look back to the time around 2008/2009, most firms were probably focused on budget revisions, retrenching people they cannot justify keeping, and targeting business activities to those that create the most immediate return – completely focusing on getting through the recession.
But talk to most firms today and there is a more interesting and positive picture emerging. There remains the fear of a double-dip recession in countries such as the UK, and Germany is starting to struggle under the weight of supporting the Eurozone, but the major economies of Europe have been growing again – albeit slower than we used to enjoy. There is certainly a growth in business optimism and a greater desire to spend on improving company operations.
Firms are exploring how best to ride the growth when it comes, and that does involve a large amount of planning how to work with partners. The focus is now on positioning a trusted group of partners together and aiming for growth over this decade.
The biggest change in behaviour will be the desire to leverage existing assets over the next couple of years. When firms have already sunk cash into developing expertise and systems in-house, they won’t just discard that knowledge overnight.
It’s been a tough time over the past couple of years, but the new decade looks like an exciting place to be and outsourcing within Europe is going to be an important business strategy that helps us all return to growth.
After all, what is outsourcing? It is just the purchase of a service from another company. It could be catering, it could be plumbing, or it could be IT. So, outsourcing has taken place for as long as companies have bought services from experts.
In the past decade, many in the media have declared ‘outsourcing’ itself as an industry, but I think we have moved on from this broken jargon. The time has come to stop thinking of outsourcing as something good or bad, and to just accept that all companies use outsourcing to some degree.
There are two key points to remember.
Most companies are not vertically integrated. They don’t do everything in-house. They don’t do their own payroll, or accounts. The Apple computer company may design new products in California, but a contractor assembles them in China.
Companies now sit in the middle of an ebbing and flowing supply chain that is maintained by contractors, temporary workers, internal staff, consultants… all working to steer the company in a single direction. But though the end result is the same, the way people are paid for their work is entirely different to earlier models of work where everyone is an employee of the same company and is paid according to their grade, or the time they put in.
So outsourcing is no longer the scourge of the media, the stealer of jobs. It is merely one more business strategy that allows a company to access resource in a flexible way – usually more specialised than the people on the payroll.
The concept of outsourcing is alive and a part of 21st century business, but perhaps the word outsourcing is about to die quietly.